Moreover, the estates of ultra-high-net-worth taxpayers draw the most scrutiny. While the IRS audited 30% of the 12,582 estate tax returns filed in fiscal year 2011, estates valued at $5 million to $10 million were audited at a 60% rate, while estates over $10 million were audited 100% of the time.

For entertainers and high-profile celebrities, the value of their name and likeness complicates the estate-planning process and may add to an estate’s tax liability. Their images, royalties from music publishing and revenue from a variety of licensed products may continue to generate significant income long after they have passed away. According to Forbes, Elvis Presley’s estate generated $55 million of income in 2014, almost four decades after his death. The estate of Jamaican reggae legend Bob Marley, who died in 1981, accounted for $20 million of income this year, and there’s more where that came from: His family announced it will use the Marley name to launch a line of branded marijuana products for export to U.S. markets where pot is legal.

Failure to properly value a celebrity’s image and likeness and to plan for who will be the beneficiary of any related earnings after death, opens the door to the tax collector and the courtroom, experts say.

“Rich people have to worry about tax audits that survive their deaths, because liens will get filed, and lawsuits,” says Gary S. Wolfe, a Beverly Hills-based tax attorney.

Celebrities may avoid many of the image and likeness tax pitfalls by creating an irrevocable trust, transferring their intellectual property rights through a corporation established to receive the income from those rights, and then declaring a gift, according to Wolfe. If the gift is valued at less than $5.43 million, it is not subject to current federal estate or gift tax, and any appreciation in the value will be free of federal estate and gift taxes and shielded from creditors as part of an irrevocable trust. When structured properly, the image and likeness royalties can pay for the sale of other estate assets and deliver a significant income and estate and gift tax savings.

The primary concern is protecting assets from both taxes and litigation, says Wolfe, who noted that almost 100,000 lawsuits are filed every month in California alone.

“If you’re rich, you can get sued, and plaintiffs’ lawyers look for deep-pocketed defendants. They don’t care what the claims are, they just care who the source of recovery is,” he says. “If you’re dead, that lawsuit goes against your estate assets and no distributions can be made until that lawsuit or tax lien is resolved.”

Young, Single And Newly Rich
Estate-planning issues for entertainers and professional athletes who go from having nothing to vast wealth almost overnight pose a different set of challenges, says Jake Bond, senior vice president at True Capital Management in San Francisco.

Those individuals often come into their wealth in their early to mid-20s and may aggregate the majority of their assets over a relatively short time. Very few, because of their age and sudden acquisition of wealth, have thought about how their wealth may impact future generations or how they would like to see it passed down. Many also struggle with whom they can trust to manage their estates. If a client does not have someone in his or her life appropriate for the role, True Capital recommends that the client select an independent party as trustee.