As radio stations play Prince songs all day long and Purple Rain makes a return to the theatre, I was struck by the vast amount of content Prince not only produced but owned. Sadly, immediately, I thought of the potential estate tax value of Prince’s estate. This unique situation is playing out right now with the Michael Jackson estate but here Prince owned more of his own work.
Currently, conservative estimates have his estate at $300 million. But these estimates may be way off as Prince actually owned his recording and publishing copyrights. According to the LA Times, music industry insiders say they “can’t imagine a catalog that would have a higher value.”
There is much speculation on who will receive his estate. Because, probate has not been opened, we do not know if Prince had a will yet or not. There has been speculation that he had no will since he was unmarried and had no children. But this seems rather silly (and kind of offensive) to me given his concern for protecting the value of his catalog during life. I would expect to see a pour-over will to a trust.
What will be interesting is what type of estate planning he engaged in during life. Normally, estate tax returns are private and only the estate, the beneficiaries and the IRS know what is on them. However, in the case with a hard to value asset (e.g., a massive music library), there is often a difference of opinion between the estate and the IRS as to the value of the asset. Since the resolution of the difference is in court, we will get a glimpse into the planning done by Prince. One point to make here is that if the beneficiary of the estate is Jehovah’s Witnesses as has been reported (speculated), then this might not end up in court because there would be no tax due because of the estate charitable deduction.
Assuming that not all or none of his estate goes to the church, a music catalog is ripe for estate planning. Because it is hard to value, it would make sense to not only take valuation discounts on the asset, but to leverage (double) those discounts by housing the assets in an entity (e.g., a corporate wrapper) that will also receive valuation discounts. I already know that the portions of the catalog are owned by an entity titled Controversy Music. In a quick google and secretary of state search, the entity is not registered in Minnesota but a Controversy, Inc. and Controversy Enterprises, Inc. are registered in Delaware. If he put his catalogue in this entity, there is a possibility that his $300 million will be worth only $75 million on the estate tax return.
Alternatively, the IRS most likely will argue that the catalog is worth far in excess of $300 million. In the Michael Jackson litigation, the estate values the rights as $2,105. The IRS values is at more than $434 million. In today’s music world, the only asset of value are the publishing rights. Therefore, the value of Prince’s rights might be more than traditionally thought. This fight will be especially interesting.
I hope that in death Prince creates as much controversy as he did in life. As much forethought as he gave to ownership of his music during life, I would make the contrarian assumption that he gave a lot of forethought to the control over his music after death. This would require sophisticated tax and estate planning. I am looking forward to seeing what he did.
(Image: Jules Ameel / Getty Images)