Estate Planning for Jedis: George Lucas' Sale of Lucas Films is Estate Planning Genius

On October 30, 2012, it was announced that George Lucas, creator and famed director of Star Wars has reached a deal with Disney to sell his film company, Lucas Films, for a total of $4.05 billion.  The question is:  "Why now?"

In recent posts, we have discussed the impending estate and gift tax changes to occur at the end of 2012.  Similar to the estate and gift tax changes to occur, the capital gains tax rate will significantly increase at years end.  Specifically, for those investors in the highest income bracket, long term capital gains tax rates set to jump from 15% to 20%.  Accordingly, assets sold that were held for more than one year (i.e. Lucas Films) will incur a 5% greater tax on the capital gains from those sales.

George Lucas has proclaimed that the sale of Lucas Films is the culmination of a great filmmaking career and a chance to begin another chapter of his life, one focusing on philanthropy.  However, for those of us who analyze this deal from a pure estate planning perspective, we see it differently.  It is clear to us that George Lucas has received comprehensive estate planning advice.  Reports suggest that the legacies of George Lucas had no interest in taking over the operations of Lucas Films.  As such, were Lucas Films to remain an estate asset of George Lucas, upon his death, his beneficiaries would be burdened with the sale of such asset and the tax implications which would ensue at the time of the sale.  By completing this sale now, he has utilized the lower capital gains rate on the sale of Lucas Films and saved millions in capital gains taxes.

New reports suggest that George Lucas will donate the totality of the $4.05 billion in proceeds to a charitable foundation, with a focus on education.  Setting aside the amazing impact this donation will have, this donation accomplished two further goals.  First, this removes $4.05 billion from George Lucas’ estate; lessening further estate tax impact at such time that George Lucas would pass away.  Finally, the donation creates a charitable deduction against future taxes to George Lucas and his estate.

The sale of Lucas Films created the perfect storm of brilliant estate planning and unbelievable philanthropic achievement.  It is a win for all parties involved.  While most of us cannot utilize these benefits to this level, now is the time to consider taking advantage of these current tax benefits by considering the sale of assets yielding significant long term capital gains.  As always, you should consult your local estate planning attorney before taking such action.  May the force be with you!

-  Adam Abramowitz, Esq.

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