George Lucas’s Jedi estate planning

11.2.12
Marketwatch

Why the “Star Wars” creator’s decision to sell his film company to Disney was a savvy move.

Star Wars creator George Lucas (C) poses with Storm Troopers.

In the “Empire Strike Back,” Yoda admonishes Luke Skywalker for spending his life dreaming of the future, “never his mind on where he was … what he was doing.” But at 68, George Lucas, the creator of the “Star Wars” saga, seems to be doing much thinking about the years ahead – in fact, experts say, his decision to sell his company to Disney was an estate planning move worthy of a Jedi Master.


Disney will buy LucasFilm for $4.05 billion in cash and stock, the two companies announced Tuesday. By cashing out now, experts say the filmmaker spared his family the need to pick up the pieces of his empire after he’s gone. It also allows him to focus his remaining years on his charitable endeavors – particularly Edutopia and the George Lucas Educational Foundation, which he founded in 1991. “I am dedicating the majority of my wealth to improving education,” Lucas wrote in 2010 (pdf) on GivingPledge.com , which invites the world’s wealthiest people to commit most of their money to philanthropy.

Since none of Lucas’s three adopted children plan to take over his film empire, financial advisers say the strategy will save his heirs the the responsibility of managing their inheritance – and potentially going through the often long and fraught process of dividing it. “Mr. Lucas has obviously surrounded himself for years with world class legal, estate and tax advisers,” Wade Westhoff, a financial adviser based in Danville, Calif., says of the Disney deal. “This is a textbook example of exit planning for a private business owner.” (Lucas and a spokesman for LucasFilm were not immediately available for comment)

That Lucas struck a deal in 2012 may be no accident either, advisers say. Long-term capital gains tax from the sale of assets held more than one year are taxed at a rate of 15% for investors in the 25% income tax bracket or above (Lucas’s level), and zero for investors in the 10% or 15% bracket. Those rates are set to jump to 20% and 10%, respectively in January. “He probably wanted to take advantage of the lower rate on long-term capital gain while it’s certain,” says Bill Smith, managing director at CBIZ MHM, a national accounting and professional services provider.

Of course, Lucas is far wealthier than the average American business owner. “With smaller mom-and-pop businesses [this kind of planning] can be more complicated,” says Charles Sizemore, a financial adviser based in Dallas, Tx. The owner of a restaurant or a landscaping business probably won’t have the option of selling to a Fortune 500 company, he says. “They may have to bring on a junior partner or work out a royalty arrangement with a new buyer,” he says.

 But perhaps more than the money, experts say Lucas was also taking steps to ensure the future of his vision and ideas. Disney says it will produce “Star Wars Episode 7” for release in theaters worldwide in 2015 and will release more films every two to three years. “I felt like I wanted to put the company somewhere in a larger entity that would protect it,” Lucas told reporters this week. “We could go on making Star Wars for the next 100 years.” Should Lucas decide to set up trusts for his children, Westhoff says this deal will provide a steady income for his grandchildren, great-grandchildren, great-great-grandchildren – and beyond.