San Jose Estate Planning Attorney Blog

Hugh Hefner is purchasing the 30% of Playboy Enterprizes he doesn't own for an 18% premium. The media is focusing on his age and the poor future propects for the company. They seem to be ignoring the tax aspects of this deal for Mr. Hefner's family.

A publicly traded company is easy to value for estate and gift tax purposes. The publicly traded price is the valuation price for the stock. There is no discount. Not only that, but publicly traded companies generally trade at higher multiples of earnings than their closely held counterparts.

When a company is closely held, the value as a percentage of earnings is generally lower than corresponding publicly held companies and the shares are discountable as well.

Assuming Mr. Hefner is not going to live for another 20 years, this tranaction makes perfect sense from an estate and gift tax perspective. The cash he puts out to purchase the shares will reduce the value of his estate since the overall value of the company, now privately held, will go down.

The reduction in value for estate tax purposes will save the estate taxes on Mr. Hefner's death.
Later, when the economy is better, the family can sell the company back to the public for a premium to generate and realize the value that has been there all along.

This type of strategy works in reverse as well.

If your client has stock in a privately held company that may go public (i.e. Facebook, etc.), they should see a qualified estate tax planning attorney to create strategies for them while the valuation of the stock is still relatively low. As the day of going public nears, the value of the shares is increasing for tax purposes and the less tax savings your client will realize.

Movie actress Ann Francis passed away the other day. So did the oldest Von Trapp Family daughter. This made me think about what might happen to their reputations, or the reputations of people they care about, if private journals or stories about their lives were to be made public.

Most estate plans deal only with stuff. Either financial or tangible. Very few actually spend any time dealing with intangible assets like intellectual property or, in this case, your right to publicity. This is not something your typical estate planning attorney discusses with a client.

For client's who have some public recognition, there may be financial value in your client's memoirs. Unfortunately, your client may not want them published. Often, the children are more concerned with maximizing dollars than in preserving past memories. This can lead to family fights, juicy salacious details, and increase the value of the property even more. Sometimes people get hurt and reputations are destroyed.

If you have a client who has the public's eye. Make sure they see a qualified estate planning attorney to discuss these issues. Their reputation may hang in the balance.