Why Selling Your Music Catalog is a Bad Estate Planning Idea: An Open Letter to Musicians
Dear Fellow Musicians:
The music industry has seen a flurry of music catalogs being sold recently, most notably Taylor Swift, Bob Dylan and Stevie Nicks. Many articles have been written speculating as to why there has been such an increase in activity. While historically high valuations is certainly part of the equation, “estate planning” has also been seen as a motivating factor. According to at least one source, other artists like Dolly Parton may be looking into selling their catalogues for this very reason. But there is a problem: selling your music for “estate planning” purposes is a bad idea.
First, what is estate planning? Simply put, estate planning provides for what happens to your “estate” (i.e., the property and rights you own) when you die, while typically being heavily tax focused and seeking to mitigate or all together avoid estate taxes. Your estate plan either names the people or institutions who will inherit your estate or, if you decide to create a trust, the people or institutions that will manage and control your estate.
Statistically, traditional estate planning does not work, so selling your music catalog as part of a traditional estate plan is setting yourself up for failure.
A primary goal of estate planning is to preserve the value of your estate for future generations and create what is commonly referred to as “generational wealth.” But here is the catch: traditional estate planning has historically (and epically) failed to preserve estates and create generational wealth. Families with traditional estate plans still face a 70% chance their wealth will be lost by the second generation and a 90% chance it will be lost by the third generation. In other words, selling your music catalog as part of a traditional estate plan means that there is a 70% that the proceeds from the sale will be lost during your children’s lives and a 90% the proceeds will be gone during your grandchildren’s lives. All of the tax savings, capturing the historically high valuations of music catalogs, diversifying your assets, etc., will not matter in the long run because your estate will most likely be gone in two or three generations. Statistically, traditional estate planning does not work, so selling your music catalog as part of a traditional estate plan is setting yourself up for failure.
Why, then, are you being advised to sell your music catalog? Well, think about who is giving that advice and how they stand to benefit. The sale of a music catalog, particularly one as substantial as those making headlines, is a major commercial transaction that will make a lot of people a lot of money—commissions will be paid left and right and exorbitant legal fees will be incurred. In addition, an otherwise illiquid asset will generate millions upon millions of investible dollars that can be pumped into the stock market and managed by banks, brokers and other financial advisors who will all now be able to reap substantial commissions and other fees from those sale proceeds.
Without purpose, without direction and application, money is valueless.
That is not to say that those advising you to sell your music catalog necessarily have nefarious intentions—most honestly do have your best intentions in mind. They simply do not know any better or that other options exist. We are raised in a culture that worships the almighty dollar, a culture that sees money as an end all unto to itself. We are indoctrinated with the notion that the more money you have the better off you are. This leads to our obsession with tax planning and the misguided principle that paying as little taxes as possible is a priority so that you can keep most of your money. We put profit before purpose.
Money, however, is just a tool. While as a society we have come to value money as a status symbol, it’s real value is derived from its application—that is, what you do with your money, or the purpose that you give it. Without purpose, without direction and application, money is valueless. This is the real problem with traditional estate planning—it focuses purely on what you own (i.e., you estate) when you die and not why. Without that clearly stated purpose or direction reflected in every aspect of your estate plan, beneficiaries end up fighting over what to do with the assets, litigation ensues, families are destroyed and your assets are ultimately mismanaged and quickly squandered over the course of two or three generations.
The alternative, and the solution, to estate planning is to have a legacy plan. When we talk about the legacy of an artist like Prince, Tom Petty or Aretha Franklin (some of the greats we have lost in recent years), we are really talking about what their life meant to the world, their impact on society and culture, what their music and other creative works represented and stood for. We are talking about, in hindsight, the purpose their life and creativity served and will continue to serve long after they are gone. Unlike a traditional estate plan, which focuses purely on preserving what you own when you die, a legacy plan focuses on preserving why. Rather than plan for your death and taxes, a legacy plan’s focus is life and purpose. After all, the life you live is the legacy you will leave.
Instead of merely increasing the value of your estate, selling your music catalog should increase the value of your legacy, enhance your creativity, expand your impact on society and culture, and ultimately empower the fulfillment of your life purpose and greatest potential.
Being creative is not something you choose to be, it is who you are. Making music, making art, expressing yourself creatively is not something you choose to do, it is something you are compelled to do. There is a force within you, a force that pushes or pulls you to make music, to express the truth and emotion inside of you through some form of creative expression. Expressing your truth, delivering your message to the world, affecting the lives of those who experience your music and creativity, that is your life purpose. Your music catalog is (or at least should be) an embodiment of your life purpose. It is the physical manifestation of your life purpose in a commercial, consumable form (one of many potential forms, I might add). Selling your music catalog, therefore, means giving up control of some or all of the creative assets that represent your life’s work and purpose, that represent your why.
From a legacy planning perspective, selling your music catalog simply to “cash in” or purely for tax planning purposes is a mistake. Unless you are in dire need of the money to survive, there must be a reason beyond finances driving the sale. Instead of merely increasing the value of your estate, selling your music catalog should increase the value of your legacy, enhance your creativity, expand your impact on society and culture, and ultimately empower the fulfillment of your life purpose and greatest potential. If you are considering selling your music catalog, you better know more than what you are getting for the sale—you better know why, and the sale better be part of a comprehensive legacy plan figured out and implemented well in advance.
