Slightly off topic but quite interesting and gives perspective to the situation:
Protecting an artist's legacy: a story about control
Chadbourne & Parke LLP
Daniel J. Scott
USA
August 10 2012
Janet Jackson’s “Control,” widely considered to be the album that launched her career into international stardom, begins with Janet speaking the words: “This is a story about control.” Over 25 years after the release of her breakthrough album, a new story about “control” is circulating around Janet Jackson — the story of her brother’s estate. Recently, the King of Pop’s estate and a Jackson family feud have been making headlines. At the center of all the controversy is the issue of control, and the two men charged with running Michael Jackson’s estate — entertainment attorney John Branca and music executive John McClain (coincidentally, McClain was instrumental in the production of Janet Jackson’s “Control”
. While there are many issues to deal with in planning an artist’s estate and protecting his legacy, perhaps the most important is control.
Control during the artist’s lifetime.
An artist’s estate can be very complex, often consisting of a variety of assets. Included in those assets will be the companies that own and operate the artist’s brand (or legacy), controlling the artist’s likeness and image and the continued exploitation of the artist’s works. Any property that the artist owns directly, the artist controls absolutely during his lifetime.
Typically, the artist is going to own very little in his own name. Instead, the artist will own his assets through a series of trusts and entities. This is done for a number of reasons, including: (i) management of business interests and personal investments; (ii) delegation of day-to-day responsibilities and administrative tasks; (iii) asset and liability protection; and (iv) estate, tax and wealth planning purposes. When the artist owns property or operates a business through an entity, direct control of that property or business is controlled by the entity. The artist retains indirect control through his ownership of that entity, while control of day-to-day business operations occurs at the company level. For example, shareholders of a corporation typically appoint directors, who appoint officers, who then hire employees. In addition, shareholder approval is often needed for certain major decisions, such as liquidating the company or changing its bylaws.
Trusts come in a variety of shapes and sizes, but for purposes of this article, there are two general types of trusts: revocable trusts and irrevocable trusts. In the case of a revocable trust, the artist maintains ultimate control of the trust property through his ability to change the terms of the trust at any time or revoke the trust in its entirety and take back the trust assets. An irrevocable trust (usually set up for estate and tax planning reasons), on the other hand, cannot be changed or revoked by the artist once it is set up (although the artist may maintain certain other powers, such as the power to change who the trustees are), leaving the trustees in ultimate control of the trust assets.
When the artist delegates day-to-day control over his personal assets and business interests through either the use of trusts or corporate entities, the artist becomes vulnerable to the possibility of bad decisions, mismanagement of assets, intentional wrongdoing and mistakes being made by those left in charge. However, steps can be taken to mitigate these risks, protect the artist as much as possible, and ensure his personal and business interest are well cared for. For example, having decisions made at the corporate and trust level by multiple individuals who need to agree on all decisions can be a good way of providing for a system of checks and balances and safeguarding against mistakes
or intentional wrongdoing or abuse of power by any one person. This also allows for multiple and varied perspectives during the decision making process. In addition, the artist may want to require multiple signatures on checks above a certain amount. The artist may also require certain decisions (such as liquidation of a company or the sale of certain major assets) to require the artist’s consent or the consent of an independent third party. Involving an independent professional advisor who is not involved in business of the artist’s career, and keeping him or her informed of all developments, investment performance, etc. is also a good way of protecting the artist. Finally, and perhaps most importantly, regular meetings must be held with the artist in order to keep the artist informed of developments, investment performance, etc., so the artist can make any desired changes.
Control after the artist’s death
When the artist dies, his estate and legacy are controlled by the artist’s executors and trustees (if any). The artist’s executors are charged with administering the artist’s estate, paying all debts, taxes and other expenses associated with the artist’s estate and distributing the artist’s assets to the beneficiaries or trustees named under the artist’s will. Once all of that is done, and the estate is “closed” (which could take years), the executor’s job is done.
If assets are distributed outright to family members or other beneficiaries, then those beneficiaries will control the assets they receive directly. If those assets are shares or interests in a company, then the beneficiary will have all of the rights (e.g., voting) of a direct owner of such company. For example, if five family members receive and equal share in Artist Inc., a company that owns the rights to various trademarks established by the artist during his lifetime, then each family member will have an equal 20 percent voting share in that company. If the company’s bylaws provide that directors are elected by a majority vote of the shareholders, then three family members will have to agree in order to appoint a new director.
If assets are left in a trust, then the trustees of that trust have direct control over the assets.
As with any trust created during the artist’s lifetime, the terms of the trust can either give the trustees very broad or limited powers. Some major issues that the terms of a trust should address are: (i) who should be in charge of trust investments and managing business interests (including those that will continue to control the artist’s brand or legacy); (ii) who should be in charge of making distributions to beneficiaries (this may be different than the individuals charged with managing investments and business interests); (iii) to whom can distributions be made; (iv) for what purposes can (or must) distributions be made; and (v) who, if anyone, can change the trustees or appoint successor trustees?
After the artist’s death, the artist’s legacy is vulnerable to the same types of problems and improprieties mentioned above where the artist delegates control over personal assets and business interests during his lifetime, so the same protective measures should be taken. However, since the artist himself can no longer make changes to any trust or corporate structure after his death, who is left in control is of particular importance. Thus, the most important provision in a trust from a control perspective is how trustees are appointed and who, if anyone, has the power to change trustees after the artist’s death. For example, the artist may allow certain beneficiaries (either individually or by agreement) to remove and replace trustees. Another good idea is to have allow an independent third party (often called a “protector”
to remove and replace trustees.
Finally, in order for the artist to provide a very clear explanation of the artist’s wishes and desires with respect to how the artist’s legacy should be administered after his death, the artist can leave a “letter of wishes”. While typically not a legally binding document, a letter of wishes can provide the artist’s trustees (who should already understand the artist’s wishes, and be chosen in part for that reason) with additional and more detailed guidance. In “Control,” Janet Jackson sings, “When it has to do with my life, I wanna be the one in control.” With proper planning during the artist’s lifetime, the artist can be in control and the artist’s legacy can be protected and preserved after the artist’s death.
Source: Los Angeles and San Francisco Daily Journal
http://www.lexology.com/library/detail.a....e4-532462a1a214
