Iconic musician Prince left a huge legacy on the music industry when he died suddenly last month. While fans around the world are still reeling from the loss, the courts in his home state of Minnesota are already grappling with the disposition of his estate. Prince’s sister has said the singer did not leave a will, which puts his reported fortune of $300 million in flux. There are also reports that Prince left a vault of unreleased music behind in his studio at Paisley Park. During a recent segment on the Knowledge at Wharton show on Wharton Business Radio on SiriusXM, Judith T. Younger, a University of Minnesota law professor who specializes in wills and trusts, and Mitchell Gans, a law professor at Hofstra University, tried to untangle the legal knot.
An edited transcript of the conversation appears below.
Knowledge at Wharton: What could we potentially hear out of the courtroom in this case?
Judith T. Younger: … This gives everybody who is interested an opportunity to appear and make themselves felt. It looks to me as if there is no will, which is terribly surprising for a person who was supposed to have been so careful about his properties and controlling them. His heirs are his brothers and sisters. He has no present spouses, no descendants, no children, grandchildren. His parents are dead.
Knowledge at Wharton: Mitchell, what do you expect?
Mitchell Gans: … This is just the beginning of the administration of the estate. It’s kind of surprising that he didn’t have a will. As a result of that, the estate will pass “through intestacy,” which essentially means to his close relatives. In this case, it sounds like it would be his sibling and half-siblings. But I think there’s a long way to go. This is just the beginning.
Knowledge at Wharton: This case obviously will play out in the media, but it comes back to the point that not having a will is a very dicey situation for this estate. But whether you’re a blue-collar worker or a multimillionaire, if you don’t have a will, you’re really asking for trouble.
Younger: I think you’re absolutely right. Everybody should have a will, even if there’s no property presently. [You] never know when you’ll win the lottery.
Knowledge at Wharton: From the tax perspective, how will this play out for the heirs?
Gans: Before I jump into the tax issue, let me just say I think that it’s very good advice for people to certainly think about having a will. There are a variety of reasons for people to have a will. I usually tell my students, one important reason is perhaps you have minor children and you want to provide for a guardian who will actually raise them. In this estate, we don’t know all the details yet. In this estate, at the end of the day, it may not be that problematic. It will go to his sibling and half-siblings. Of course, we don’t know what he would have preferred. Maybe he would have had a different plan in mind. We’ll never know that. But it may not be that problematic as a practical matter. There’s obviously an interesting tax issue in terms of valuing his assets. When a person dies, we have a federal and a state estate tax. Federal tax is 40% above a certain exempt amount.
Younger: And Minnesota is about 16%.
“Everybody should have a will, even if there’s no property presently. Never know when you’ll win that lottery.”–Judith Younger
Gans: So, that can be up to about 56%. But it doesn’t actually come out to 56% because there’s a tax deduction on the federal return for the state tax. Probably somewhere around 48% or close to 50% would be the tax. I think it’s important to emphasize that the federal estate tax only applies to people who die [in 2015] with an estate of over $5,430,000. I don’t know about the exemption in Minnesota. But people who die with less than that don’t have to worry about the federal estate tax at all. Indeed, even if you have more than that, if you leave it all to your spouse, there’s absolutely no federal estate tax. Sometimes people can get nervous about the tax, thinking, “Oh my God, I have $1 million — or even a few hundred thousand dollars or less than that — and I’m going to be paying the federal estate tax when I die,” which is not true.
Younger: What about his right of publicity, which I understand to be the right to control commercial exploitation of name, image and persona? We don’t recognize that overtly, at least in Minnesota, as an inheritable or devisable property right. Does that still get included in his estate value for federal tax purposes?
Gans: Given what I know about Minnesota law, I actually think it’s not likely that the estate will pay a state tax on the value of his publicity right. And I can explain why.
In the Michael Jackson estate, his executor filled out his estate tax return and put down about $2,000 [as a value for Jackson’s image rights.] They didn’t want to leave it blank, right? They didn’t want to put down zero and be too aggressive. They didn’t want to give anybody the impression they overlooked it, so they put down $2,000, and the IRS is claiming that the value is somewhere in the $400 million-plus range. It’s going to be a rather intense and interesting dispute about the value. I think that the interesting thing about this from a lawyer’s perspective is that whether or not this publicity right is taxable depends upon where you lived when you died. That seems to be the rule. Professor Younger is saying there may not be a post-death right to publicity in Minnesota, and we can talk about what that means.
Younger: We have no statute or case law on the distinct right of publicity as an inherited property right.
Gans: Many states have adopted it. There actually was a huge litigation involving the Marilyn Monroe estate. I think it was a result of that litigation that California adopted a statute. In New York, where we also do not recognize this right, a bill was introduced within the last year or so that was also precipitated, in part, by the Marilyn Monroe litigation. The bill has not passed, and I don’t think there’s much likelihood it will pass at the moment.
Knowledge at Wharton: The interesting thing about this whole situation is the fact that you have his estate, but you have so much that you don’t know the value of. Like all of this [unreleased] music that we’ve heard about that’s held up in his private studio inside Paisley Park. It’s very hard to put a value on something that you don’t know the content of.
Younger: That’s true, and that’s part of the need for a special administrator to hear testimony on valuation and so forth. It’s hard to assess the value of it before it’s released. Maybe it’s rotten stuff.
Gans: Yes, absolutely. And this could be a huge dispute for tax purposes where you have to determine the value of the estate. Now, this is to be distinguished from the publicity right. That’s a completely different matter. Inasmuch as Minnesota apparently doesn’t recognize this right on the state law, it may very well turn out that the publicity right will not be taxable, unlike the Michael Jackson situation where apparently it is taxable. It may turn out that in this case, his publicity right may really have a zero value for taxes. In order to include or be required to include something in the estate for tax purposes, the person who died had to have the right to decide where it should go. So, if he had a right under Minnesota law to determine through his will where it should go, then it’s taxable. If he had no right under Minnesota law to determine where it goes, then it’s not taxable. And it sounds like it may not be taxable.
“Fashions in music change just the way fashions in clothes change. There’ll be a whole generation that doesn’t care for Prince’s style coming up, perhaps.”–Judith Younger
Younger: It may not be, but Minnesota hasn’t said definitely no. It just hasn’t decided it. And it’s conceivable that this court that started its hearings might make the first decision and say, “Yes, indeed it is an inheritable, devisable,” which means it can be left by will right here in Minnesota. It’s a lot easier to tax a declared right than not.
Gans: If the state court were to do that, it’s an interesting question about the impact that would have on the tax calculation.
Knowledge at Wharton: Is this is going to potentially set a precedent for a lot of the estates that don’t have this right to publicity?
Younger: In Minnesota, sure. But not in New Jersey, for example.
Knowledge at Wharton: When you’re talking about artists like Prince, Michael Jackson, Elvis Presley or Frank Sinatra, the value of whatever that person’s image and work lasts for decades.
Gans: That’s true, and that’s interesting in terms of valuing it. Some of these statutes that have been passed that create this right of publicity post-death have a limit. I think California limited it to 70 years, so it doesn’t go on in perpetuity. But you’re absolutely right. The fact that it could go on for a very long time tends to indicate that it has a substantial value. How long will this go on as a practical matter? Will they really be able to create income from this for many years into the future? All of that uncertainty tends to reduce the value of the asset.
Knowledge at Wharton: I would think it would be the other way around? That the value would go up?
Gans: Look at a comparable kind of investment, say a stock that’s traded in the market or a new company that’s got a very interesting product that could be extremely successful. There’s a lot of uncertainty about it because you don’t know if the product is going catch on. Let’s say, for example, an iPhone. In the early years when Apple was just beginning, its value was much less than it is today because of the uncertainty. As we see that there really is interest in this product and sales seem to be going up and up, that uncertainty gets resolved and the value goes up, accordingly.
Knowledge at Wharton: With Prince, we have all of this unreleased music that he supposedly produced in his studios. I would think we have a great opportunity, depending on how the heirs play it, that we could see just an unbelievable release of all of this music, or at least a marketing of this music to various companies, relatively quickly.
Younger: That’s the horror of his failure to have some kind of plan for management after his death. You need experts to handle it properly. You can’t release the whole batch of music at once. It’s got to be marketed and sold. And of course, fashions in music change just the way fashions in clothes change. There’ll be a whole generation that doesn’t care for Prince’s style coming up, perhaps. The more we talk about it, the more incredible it is to me that he left that unattended to. And it’s possible, is it not, that a will will show up somewhere soon? Remember Michael Jackson had a carefully planned will and a trust.
Gans: One thing you could do if you did a will is you might leave your publicity right to charity so it’s not taxable. That eliminates the problem entirely. I think the Robin Williams estate did something like that.
Knowledge at Wharton: I’m guessing that this is not exactly the norm that the IRS has to deal with on a daily basis, putting a value on something that is difficult to value is going forward?
Gans: Absolutely. It’s just incredibly speculative. The first case that established this idea that publicity rights could be taxable was a case where it really wasn’t that speculative. It was an author who had died, and she had a contract for another book. The contract just hadn’t been signed when she died. The contract was unexecuted at the moment of death, so the IRS couldn’t put that contract in her estate for tax purposes. In effect, the IRS came at it through the back door and said, “We’ll call it publicity rights.”
“I think there’s a long way to go. This is just the beginning.”–Mitchell Gans
Knowledge at Wharton: How long of a process will this be in determining who has the rights and who will be the administrator of the estate?
Younger: I can’t tell you. The special administrator, which is a bank, has been appointed for an initial period of six months, but that can be extended. And of course, if a will showed up and was probated, the special administrator would be replaced by the executor named in the will. It’s very hard to predict that. It could go on for a very long time. There’s already a suit in which some total stranger to the family alleges that by virtue of some deals in California some years ago, he’s entitled to millions of dollars from the estate by virtue of implied contract. There’s going to be a lot of that.
Knowledge at Wharton: When you’re talking about this much money and this much value, does the possibility of this being a fight really grow?
Younger: I don’t know if Prince’s family is going to be a divided family like the Jacksons or if this is a united family. They seem pretty quiet right now. But Prince certainly had plenty of managers and lawyers and others who might have had dealings with him and claim rights as a result of that. Very hard to know how long it will take. A long time, I suspect.
Gans: Ironically, sometimes when you have a will, you tend to see more conflict inside the family than you would here. For example, if he had had a will and said, “I’m going to leave all of my estate to this sibling or that sibling” and discriminate against some other sibling so that it wasn’t equal, you could easily imagine all kinds of conflict about whether the will was valid. Here, if he died without a will and all the siblings get an equal share, there’ll be none of that kind of conflict.
Younger: That’s right. And we don’t treat half siblings differently from whole siblings, so they would all share equally.
Gans: I guess there’s potential if someone came along and claimed to be a child. That could be interesting, and you could get into some interesting questions about whether they are and whether that could be proven.
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