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How entertainers can benefit from estate planning

Celebrities and entertainers are often their own primary source of income. They are the brand. Superstars like Prince and Jerry Garcia had to step out on stage for there to be a concert and their creative genius paved the way for new music. When an entertainer passes, what's left behind is a legacy, body of work, and accumulated assets that can be left to family and loved ones.

Putting a financial plan in place to distribute this wealth can reduce the prying eye of the paparazzi, prevent disagreements among family members and loved ones and shield benefactors from federal estate taxes. To accomplish these things, people in the entertainment industry would be wise to do some early estate planning and possibly set up a trust.

There are two basic types of trusts, revocable and irrevocable, and each present certain drawbacks and benefits.

Revocable trusts

One of the best aspects about a revocable trust is that you can put all of your assets into it but make changes and take assets out anytime you choose. You can also include instructions about how assets will be distributed when you pass. It leaves benefactors with a clear, concise understanding about your wishes and helps see them through.

The biggest drawback is that revocable trusts are subject to estate taxes at the time of your passing. The federal exemption for estate and gift amounts is $5.45 million per person and $10.9 million for married couples. In terms of yearly income taxes, the assets in the trust would be handled on your tax return as if they were personal assets.

Irrevocable trusts

Like revocable trusts, you can place your assets into this type with instructions for distribution. However, one of the significant benefits to irrevocable trusts is that you no longer, technically, own the assets personally. Therefore, they are exempt from federal estate taxes when you pass.

Estate taxes can run as high as 40 percent on estate assets that surpass the currently-established exemption levels. That's an enormous bite out of the wealth you'd like pass on. The main drawback to irrevocable trusts is that you cannot take assets out once they are included in the trust. In terms of yearly income taxes, the irrevocable trust generally has its own tax ID number. A 1041 is filed or you are issued a K-1, which can flow through to your 1040.

Helping you with your decision

Many people believe that you must choose between revocable and irrevocable trusts when doing your estate planning. This is simply not true. The more complex your assets, the greater the opportunity to strategically diversify your portfolio. You can put different assets in either type of trust and keep other assets out. It really comes down to how best to structure your long-term estate planning goals.

If you are in the entertainment industry and do not have an estate plan, seek the advice of an experienced attorney at Russ Cook & Associates.

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