At only 17 years old, Chloe Kim has probably not spent much time thinking about trust and estate planning opportunities, but, maybe she should.
On February 12, Kim won the gold medal for the women’s snowboard half-pipe event at the PyeongChang 2018 Winter Olympics. Kim is certainly not a surprise winner at these Olympic Games. Although she was unable to compete at the Sochi Winter Olympics in 2014 due to age restrictions, Kim joined U.S. Snowboarding in 2013 and has been an incredibly successful snowboarder for the last four years, having won three consecutive X Games gold medals and Youth Olympic Games gold medals in both the half-pipe and slopestyle disciplines, among other notable accomplishments on the snow.
These successes have brought Kim several high-profile endorsement deals with brands such as Visa, Toyota, Nike, and Samsung. Now that she has won an Olympic gold medal, and in combination with her outgoing personality, Kim is already on her way to becoming a celebrity in the U.S. and potentially around the world. Before Kim’s gold medal run, she had approximately 15,000 Twitter followers; only a week after Kim won the gold medal that number had soared to 325,000.
As a result of her athletic success, one of Kim’s most valuable assets at this point in her life is her right of publicity. The right of publicity is a generally recognized property right of public figures, such as athletes and entertainers, to control the commercial value and exploitation of their name, likeness, or similar personal characteristics, or to prevent others from misappropriating that value for commercial benefit. Put another way, the right of publicity is the right of an individual to control and choose whether and how their identity is used for commercial purposes, such as in an advertisement for promotion of a product or service. While there is no federal legal protection for the right of publicity in the U.S., this intellectual property asset finds protection in statute or through court decisions in more than 30 individual states.
The IRS has been paying more attention to the value of the right of publicity in recent years in connection with the untimely deaths of celebrities such as Prince, Michael Jackson, and Robin Williams. In these and other instances, the post-mortem value of the right of publicity can have a significant bearing on estate taxes owed to the IRS or other taxing authorities. In the case of Michael Jackson’s death, his estate and the IRS originally put forth significantly disparate values to Jackson’s right of publicity – the estate estimated a value of $2,105 compared with the IRS’ valuation of $434 million.
Beyond post-mortem issues of value and potential effects on estate taxes, there is also the opportunity to address the value of the right of publicity prior to the passing of notable public figures. More specifically, it can be advantageous to implement estate-planning techniques to avoid, reduce, or postpone post-mortem estate taxes related to the right of publicity by gifting or transferring such rights while the public figure is still alive. Implementing such a strategy at a time when the value of the right of publicity is relatively low could further increase the benefit of a gift or transfer.
The value of the right of publicity can be estimated by determining the net present value of future expected cash flows that are attributable to the right of publicity including some or all of the earnings from promotions, sponsorships, appearances, and other similar activities. If one were to value Chloe Kim’s right of publicity prior to the Olympics and again after she won her gold medal, with all else being equal, the value would likely be significantly higher after the gold medal win. This conclusion is based on two primary assumptions. First, Kim’s success translates into greater marketability as a spokesperson and celebrity, resulting in greater cash flows expected to be earned from endorsement deals after winning gold. Second, the risk of earning future cash flows attributable to the right of publicity has decreased after the gold medal win compared with the pre-Olympic valuation risk incorporating only a probability of winning gold.
As a result, if Kim had executed an estate-planning strategy focused on the value of her right of publicity prior to the Olympics, the advantage of executing that strategy would have likely been greater than compared with after the gold medal win when the value of her right of publicity likely increased dramatically.
Kim has further opportunities to take advantage of what may still be a relatively low right of publicity value today versus what it will be in the future to the extent she continues to achieve greatness in the snow and continues to grow her personal brand. For example, the value of Kim’s right of publicity may very well be significantly higher after the next Olympics if she is able to win another gold medal similar to her male counterpart Shaun White, who has parlayed Olympic success and exposure into a globally known brand, which translates to increased revenue streams and personal wealth.
While it may seem odd to consider estate-planning issues at such a young age, we have been presented with similar situations. One such situation involved a college football player who was exploring the execution of an estate-planning strategy based on the value of his right of publicity prior to the 2017 NFL draft – before he experienced professional and monetary success. Chloe Kim currently has a unique opportunity to improve her future financial situation based on one of her most valuable assets, her right of publicity.