Celebrity Estates: Taylor Swift, Travis Kelce and Prenuptial Agreements

Speaker A: Welcome to the Celebrity Estates Wills of the Rich and Famous podcast. In this podcast, we break down high profile celebrity estate planning cases for advisors and their clients. Most celebrity estate catastrophes are based on the same issues that everyday people face, just with the volume turned up. Our goal is to identify and extract the individual estate planning issues that lie at the heart of each story. We then discuss what advisors should expect and how to avoid common pitfalls. Hosted by WealthManagement.com senior editor David Lenok.

Speaker B: Hello everyone and welcome to the latest episode of WealthManagement.com's Celebrity Estates Wills of the Rich and Famous for anyone new to the podcast. And each installment, myself and a guest take on a, uh, different celebrity estate and attempt to extract some key lessons that planners can apply to more traditional clients. The idea being that celebrity estate planning stories are low, often ridiculous in their details, generally have at their cores very basic issues that could just as easily apply to non famous or fabulously wealthy clients. To learn more about estate planning and how you can better serve your clients, visit wealth management.com trust estates our, uh, monthly journal features tax law updates, wealth planning, retirement planning and much more written by thought leaders in the industry. That's wealth management.com trusts estates, uh, now we're joined today by Paul Karger. Paul is the co founder and managing partner at Twin Focus as a $12 billion plus multifamily office advising ultra high net worth families and entrepreneurs. His firm also facilitates the difficult conversations families must openly have around inheritances, structuring wealth upon marriage and the shared values in philanthropy. Thanks so much for joining us, Paul.

Speaker C: Great to be here. Thanks for having me, Dave.

Speaker B: And today's subject. Yes, we have two are the principals in what my wife has jokingly referred to as the American Royal wedding, Travis Kelce and Taylor Swift. For anyone living under a rock, I guess I'll give the quick rundown of who these people are. Travis Kelsey is an American football player for the Kansas City Chiefs. 11 time Pro Bowler, seven time All Pro. His career earnings from football alone, not counting his successful podcasts and various endorsements and such standard over $112 million and counting as his career is still ongoing. Taylor Swift is of course the biggest pop star in the world. The only artist to have been named the IFPI Global Recording Artist of the Year six times a record eight of her albums have sold over a million copies in their first week and publications such as Rolling Stone and Billboard have ranked her among the greatest artists of all time. Forbes estimates her net worth at somewhere north of $2 billion, which if, uh, true, would easily make her the wealthiest female recording artist in history. The pair, whose surprise romance has captivated much of the country for the past two years, was wed in a very intimate ceremony in front of only 1,000 of their closest friends and family in Madison Square Garden in the middle of New York City. Uh, one of the more interesting aspects of this pairing is that it's somewhat unusual to see a wedding where both parties possess what you would call generational wealth. And yet there's still such a giant imbalance in the prospective networks of the parties involved. Unsurprisingly, Swift's management has confirmed that the pair has signed a prenuptial agreement. That said, prenuptial agreements aren't only for the ultra wealthy, and they need not be the dirty word that they've sadly become over the years. Paul, what are some of the main benefits of a prenup? Uh, both for ultra wealthy clients like Travis and Taylor, and maybe also for those of more relatable means.

Speaker C: Sure. I think relatable means is a key term there. There needs to be something to negotiate around. So it's. Parties coming in with no wealth wouldn't necessarily necessitate having a prenuptial or an anti nuptial agreement. I think it comes down to the fact that marriage is not just an emotional commitment, but it's really a financial partnership. And this is whether you have billions or hundreds of million or low digit millions of dollars or just or no money coming into a relationship, just husband, wife, starting out at the beginning of their careers, it's still a financial partnership. And for ultra high net worth individuals and families, prenups are put in place to protect both spouses and they're put in place to preserve harmony and also to create some clarity around for future generations around the wealth.

Speaker B: Yeah, I think one of the things to highlight with prenuptial agreements is the nature of them as an agreement. I think over the years it's easy to think of a prenup as. And maybe there are some bad ones that are. That is something that is just foisted on the sort of less powerful read west, less financially powerful party by the other. And that is they're only meant to protect the one person and the other just has to sign it or lose it. But that's not really how these are meant to work ideally.

Speaker C: Uh, that's absolutely true. Prenups are really planning tools, not necessarily a sign of mistrust. And the wealthy of families use these agreements as risk management tools. It's a way to really flush out expectations right up front, which I think is super healthy. A lot of times the financially disadvantaged party has no idea the magnitude of maybe the wealth that's involved. And there needs to be fair disclosure around that. And so it's just really healthy. I've had many situations where parents have said, you know what, our kids wealth is protected inside their trusts. We don't need our kids to sign prenups. And I push back on that because that may be true to a certain extent. And trusts are absolutely a great tool to protect wealth long term over time from creditors and disgruntled spouses and so on. But at the same time, as I mentioned, it's really good to just level set expectations. And the whole idea of a prenup is if the marriage is dissolved at some point and people go their separate ways, you're trying to mitigate litigation. That's the whole idea, is you're trying to mitigate the things you're fighting over. And as I often tell my clients, or oftentimes children of my clients, it's best to negotiate these types of things when you love each other as opposed to when you hate each other.

Speaker B: That's a great line.

Speaker C: Yeah.

Speaker B: Uh, as difficult as it is, uh, to make to cast risk management in a romantic setting, it is best to have that conversation then, when everyone still likes each other.

Speaker C: Dave, you mentioned, you mentioned a, uh, document that's forced sometimes upon a party, a financially disadvantaged party. Uh, I would say that the best prenups are fair, transparent, and really well negotiated. For prenups to be valid, number, number one, you need to do a full disclosure of assets on both sides and assets as well as income. And you don't want to hide assets. It's not in your best interest if you're the financially advantaged party, to hide assets. So it's got to be a full disclosure of assets. Number two, both sides need proper representation. Oftentimes a financially disadvantaged party may not have necessarily the means to hire an attorney. It's okay for her or his future in laws and prospective spouse to supply capital to do that, to supply some funding for those legal expenses. And lastly, it's actually really good for there to be a healthy negotiation. You know, you don't want to wait until two days before the wedding, so to speak, on the way to the wedding to sign a prenup. You really want to allow enough time for a healthy discussion, dialogue and, uh, negotiation. And you really, for these things, for these agreements to be valid, you can't have duress you don't want a situation where the financially disadvantaged party Sundays, I was five days out from the wedding. This was thrown on me. I felt like I had to sign it because it may get contested in court because of that.

Speaker B: Yeah. I think one of the great things you mentioned to highlight there is that the financial advantage party will financially give the means to the other party to hire their own attorney, not, oh, you can also use mine. That's a very important distinction.

Speaker C: Absolutely. And I think the other part is just having wealth is complex, and it's more complex than most folks realize. The 95% of population that doesn't have an extreme amount of wealth thinks, oh, this, these wealthy families should have a pile of cash. It's just not the case. I mean, there's sometimes there's dozens of entities and trusts and various tax treatment across all of these various entities. So it is really complex, and it's good to try to chart this stuff out up front. I often see interesting asks in prenups, prenup negotiations, and on both sides. It's. You're not just having attorneys fight back and forth over what the terms are, but at the end of the day, you have to go home and as I say, have pillow talk with your spouse or with your perspective spouse. And sometimes the financially disadvantaged party feels disadvantaged because they don't have necessarily the level of sophistication or the experience with handling these matters. And so it's, it's. It can be an emotionally charged situation. And, you know, you want to try to minimize that. Again, you're perhaps supposedly in love and planning to get married. You don't want a. This prenup negotiation to. To derail that. I have seen situations, many situations, where these, these conversations derail the marriage. And as I said earlier, it's good to understand expectations up front. You know, just, uh, because on paper, the child may be worth 5 million, 10 million, 50 million, 100 million. That doesn't necessarily mean half of those assets are going to flow to their spouse. Again, the best prenups are fair, transparent, well negotiated, and they need to be fair. They need to be fair and reasonable. I've also seen certain situations where the couple gets to the finish line and the financially disadvantaged party's attorney says, I would not advise you sign this prenup. And they actually send a legal letter to the financially disadvantaged party saying, I'm advising you not to sign this letter. And sometimes they go ahead. Most of the time they go ahead and sign it anyway. But the attorney has got a CYA There the attorney is trying to protect themselves.

Speaker B: You don't want these things to become like a, uh, sort of Damocles hanging over the marriage or one, one party is just silently gathering sort of regret, you know, over the course of years.

Speaker C: 100%. I recommend you try to get these things negotiated. And as I say all the time to my clients and children of my clients, you throw it in a drawer, don't think about it unless and until you have to.

Speaker B: We've been talking about this. The often wrong assumption that there's one financially advantaged party or one financially disadvantaged party. But what if we just have two relatively similarly financially well off parties, but they just, they care about certain assets differently. Like maybe I'm an artist and I want to protect my music, but my spouse owns a business and they want to protect their business. What role does the prenup plate in that sort of idea? Or it wouldn't make sense to split the assets. All of them would be like, well, it makes more sense for you to have this and for me to have this.

Speaker C: That's a great point. That's exactly what it's for. Maybe there's inherited assets, trophy assets, business assets. Oftentimes when you have two financially advantaged parties or no advantage, just two wealthy parties, it's just what's mine is mine, what's yours is yours. And anything we, we put in together, share. Of course, once that agreement is drafted and thrown in the drawer, you need to make sure you're compliant with that mindset ongoing. So that when Travis and Taylor decide to buy a home together, do they split it? I would imagine Taylor, with a net worth of a billion plus, 2 billion plus whatever the number is, can afford a much nicer, much bigger home than Nestle Travis can. There's questions around that. But maybe Taylor decides to buy that luxury property in the Hamptons and it stays in Taylor's name. So there's ongoing considerations. Once you've drafted thrown the prenup in a drawer, you've got to ensure that you're compliant. And it's one of the roles that advisors like myself are working with clients continuously on to help them maintain compliance with these types of documents.

Speaker B: So you mentioned throwing the prenup in a drawer. I'd like to ask you about, is it ever time to just take it out of the drawer? Maybe someone's a couple in my previous artist and businessman conversation, maybe the business has gone downhill and the artist has really succeeded and they decide we've helped each other. This prenup that we've signed is now going to maybe punish one party more than we than it would have because circumstances have changed so greatly since the marriage started. Is it ever something that you could just pull out and rework and take a prenup and change it into a sort of a midnup?

Speaker C: You would turn it into what they call a postnup which are held at much higher standards. But I've seen it done. It's not super common. I've absolutely seen it done. I've seen banks, when they're doing financings around certain companies and so on, want to see new terms. So for sure they are held to higher standards. Postnups are harder to execute and there's more disclosure. And frankly, you also have to figure out if you're negotiating a post up on either side, you've got to figure out what your leverage is. You obviously had some leverage on a prenup because you can say, hey, this doesn't work. We're just not going to get married. Now that you're married, you've got to figure out what's what the advantage is to both sides to actually be negotiating this agreement.

Speaker B: I think you mentioned it very briefly, but I think something overhanging. Basically every topic that we talk about on this show is taxes. How does that interact with the prenup? What are some of the tax considerations here that a prenup can either when drafted properly, can help sidestep or when drafted poorly, can blow up in your face.

Speaker C: I think it's really about the, the underlying complexities of the asset base and the estate structure. For example, if you had an individual getting a quote unquote financially advantaged family marrying into a, uh, disadvantaged family and the prenup provides for if things don't go right after 10 years, the financially disadvantaged party gets $10 million. Well, you know what? That heir of that trust may not have $10 million at that time. They may have to go knock on the door of the trustee. To which point the trustee can say, I'm not making a distribution out of the trust so you can pay off your ex wife. That's not the way it works. The prenup has to be considered in the grand scheme of all of the families planning. And it's why it's really a great idea to involve the families, estate planners, financially advantaged families, family attorneys and estate planners in this process. Whether or not they're deeply involved throughout or they're just involved on an ancillary or a basis before the actual agreement is signed. It's a really good idea to make sure that all of these pieces are coordinated.

Speaker B: Did you mind expanding a bit on that estate planning aspect? Obviously we're talking very much about a during life thing.

Speaker C: Sure.

Speaker B: So what impact can uh, prenup have on sort of an estate plan? Why should they be brought in?

Speaker C: Sure. So marriage, marriage creates all kinds of planning opportunities. There's in the U.S. for U.S. citizens, there's what they call the lifetime gift exclusion between husband and wife. Um, sorry. There's an unlimited marital deduction between husband and wife. In theory, husband and wife could pass assets back and forth during their lifetime without any kind of tax impact. Everybody also has a lifetime gift exclusion of 15 plus million a year. There's trip planning considerations. Maybe the wealthy family, the in laws decide that they want to use the financially disadvantaged party. The new spouse's lifetime gift exclusion, they could fund her with this 15 million. She could turn around and put it in a trust for her kids. So this tax planning should begin really before the wedding. And there's just a whole host of things to think about. I often tell my families, my M clients, once they've signed that prenup and they've gotten married, the next stage is, let's start to think about this mar the planning, the estate planning. You can just do more efficient planning. You've got to coordinate all of the investment tax strategies. You've also got to think about things from a family governance perspective. I've seen situations where, you know, one actually one party passed away. They, so they didn't actually have to use a prenup. Financially advantaged party passed away and was a huge amount of wealth left in trust to his financially disadvantaged party, the wife. And she was, she was not sophisticated, she was not really well equipped to take on all of these assets. But all of a sudden she's sitting in the place of her husband and she's receiving monies for the benefit of herself as, as well as for her children. You've got to plan around other types of concentrated stock positions, liquidity events and so on. There's also planning around charitable giving. A lot of time in, in family estate plans, a family may leave the ability to make charitable gifts to their children, you know, out of the foundation. So all of that needs to be integrated into thinking through marital planning.

Speaker B: Yeah, uh, it always, I find it so interesting how the prenuptial agreement can affect the estate planning, uh, of the generation previous. I think one of the tales is all this time is I don't trust my kid's spouse. Right. That's that one comes up pretty often. And I want to get this money or this, this right or this or whatever, this property to my grandkids or to my son or to my daughter and to their children. But, oh, I don't want that spouse that I hate to really be able to just take it and run away with it. It's like. But if, you know, that generation has a prenup in place to prevent that, then it takes a lot of the estate planning burden off or God forbid,

Speaker C: my, my child predeceases me. And I don't want my, the spouse to receive all of these monies because that spouse may go remarry. And I want to ensure that these monies stay in my bloodline.

Speaker B: Yeah, I like. It's very interesting, the idea that everything is so interconnected, that the prenup could still be so relevant to generations that aren't party to the agreement at all, to the, to their planning.

Speaker C: Yeah, yeah, 100%.

Speaker B: We're coming to the end of our time here. Paul, if there was one lesson or statement to get out there that you like to about the, the utility prenuptial agreements for both either high net worth or just regular folks, what would that be?

Speaker C: I would say, number one, they're not evil tools. They're not. It's not a sign of mistrust. It's really a planning tool, number one. And number two, start early. Start early. In terms of the conversations you have with your prospective spouse, I would often joke going out on dates many years ago about having my future wife sign a prenup. It's a good idea to get that conversation out there. And so our many children of our clients are trying to have those conversations early in the relationships. Number two, as soon as you've got a ring on your finger and a date in mind, start the planning process. These prenups take longer than you expect. And it's not necessarily because there's something nefarious going on, but attorneys are busy. It takes time to have drafts back and forth. As I mentioned earlier, there's some pillow talk that has to go on in the interim. So start early. You may think it's. You can get this thing done in a few months, but once lawyers get involved, start opening up the aperture of what's going on and the, the considerations. It can take time, early and often.

Speaker B: Yeah, absolutely. I think that the misconception probably sort of the bad rep of prenups is something that fading with time a little bit. I know, just.

Speaker C: I think so.

Speaker B: Anecdotally, with my own family. My wife's cousin is getting married. This is people in their 20s and he is less financially advantaged than his future wife and they asked him to sign a prenup and the older generations of the of uh Maro's family are so scandalized by this request and everyone under 30 is whatever makes sense. Like why are we mad about this? Hopefully this is a thing that's going away with time, but thank you so much for your time. Paul and unpacking sort of what can be a scary topic, but it's actually a really useful planning tool that should be used more often.

Speaker C: Dave, Great to be here with you and I really appreciate being able to share some of my experiences and insights.

Speaker B: Awesome. And for all listeners, I'll see you or I guess you'll hear me on the next episode of Celebrity Estates Wills of the Rich and Famous.

Speaker A: Thank you for listening to the Celebrity Estates Wills of the Rich and Famous podcast. Click the subscribe button below to become notified when new episodes become available. The information covered and posted represents the views and opinions of the guests and does not necessarily represent the views or opinions of informawealthmanagement.com the content has been made available for informational and educational purposes only. The content is not intended to be a subscription substitute for professional investing advice. Always seek the advice of your financial advisor or other qualified financial service provider with any questions you may have regarding your investment planning.