Gentlemen Prefer Tax-Free

Fifty years after her mysterious death, Marilyn Monroe’s image remains as profitable as ever. In 1999, the dress she wore to sing “Happy Birthday, Mr. President” to John F. Kennedy sold at auction for $1.26 million. Forbes magazine lists her as #3 on their “Top-Earning Dead Celebrities” list (topped only by Michael Jackson and Elvis Presley). And In 2009, a Japanese man paid $4.6 million for the crypt directly above hers at Westwood Village Memorial Park Cemetery in Los Angeles. (Some people really do have too much money.)

Now Marilyn is in the news again, this time for the financial consequences of her tax planning. If Hollywood made the story into a movie, nobody would believe it.

When Marilyn died in 1962, she left $40,000 to her secretary, 25% of her estate to her psychiatrist, and the remaining 75% of her estate, including the “residuary,” to her friend and acting coach, Lee Strasberg. The estate sat in probate for 41 years before finally settling, with the bulk of the assets eventually passing to an entity called Monroe, LLC, a Delaware limited liability company managed by Strasberg’s widow. (It might be worth mentioning here that Alexander the Great took just ten years to conquer the entire civilized world.)

Marilyn died at her home in California. However, she executed her Last Will and Testament in New York, where she owned an apartment at 444 E. 57th Street, and named a New York attorney, Aaron Frosch, as her executor. Frosch consistently treated Marilyn as a New York resident in order to avoid California estate taxes. And it worked, her estate paid just $777.63 in inheritance taxes there.

Fast forward to 2005. That year, the new LLC set up to manage the estate’s assets sued the heirs of several photographers who had taken pictures of Marilyn while she was still alive, heirs who were licensing those images for commercial use. Marilyn’s estate argued that this violated her “right of publicity,” which included their rights to control the commercial use of Marilyn’s name, her image, her likeness, and other aspects of her identity. The heirs, in turn, countersued, arguing that Monroe, LLC didn’t own the star’s right to publicity.

A district court in California declared that at the time of her death, the state didn’t recognize any such right of publicity, and ruled in favor of the photographers’ heirs. Just one month after that decision, California passed a law creating a posthumous right to publicity that would be transferable to Marilyn’s estate. Armed with the new law, the estate’s attorneys went back to court to overturn their previous decision. Not so fast, the Court said. Yes, the California law would let Marilyn’s estate inherit her right to publicity, if she had been a California resident at her death. But she didn’t die a California resident, she died a New York resident and New York doesn’t recognize a right to publicity.

Last month, the U.S. Circuit Court for the Ninth District issued what should hopefully be the last word, just over 50 years after her death. “We conclude that because Monroe’s executors consistently represented during the probate proceedings and elsewhere that she was domiciled in New York at her death to avoid payment of California estate taxes, among other things, appellants are judicially estopped from asserting California’s posthumous right of publicity.” In other words, go pound sand.

Here’s the lesson. Sometimes, avoiding tax shouldn’t be our most important goal. Sometimes, focusing on taxes means letting the tail wag the dog. And sometimes, our job is to help you put taxes in the right perspective. In Marilyn Monroe’s case, her executor made a smart decision to treat her as a New York resident, and succeeded in avoiding California tax. He certainly couldn’t have foreseen the development of any right to publicity, and he can’t be said to have done anything wrong. But focusing solely on taxes did cost Marilyn’s estate big in the end. So email us when you’ve got big decisions to make. We’ll help you avoid making similar mistakes!

Donna Bordeaux, CPA with Calculated Moves

Creativity and CPAs don’t generally go together.  Most people think of CPAs as nerdy accountants who can’t talk with people.  Well, it’s time to break that stereotype.  Lively, friendly and knowledgeable can be a part of your relationship with your CPA as demonstrated by Donna and Chad Bordeaux.  They have over 50 years of combined experience as entrepreneurial CPAs.  They’ve owned businesses and helped business owners exceed their wildest dreams.   They have been able to help businesses earn many times more profit than the average business in the same industry and are passionate about helping industries that help families build great memories.