Ch-ch-ch-ch-changes

2/3/2016

Rock & roll fans lost an icon last month when the legendary singer and songwriter, David Bowie, passed away - just two short days after celebrating his 69th birthday. Bowie's career is considered transcendent; while he is famously known for pioneering "glam rock," his artistry has influenced dozens of musical genres, impacting the music world in a way that is unlike any other figure in rock history. Rolling Stone magazine's obituary hailed him as "one of the most original and singular voices in rock & roll for nearly five decades," whose "flair for theatricality won him a legion of fans." His last album, Blackstar, dropped on his birthday and immediately hit #1 on several Billboard charts.  

Rock stars like David Bowie are famous for earning enormous sums of money and blowing those fortunes on pricey mansions, pricey cars, and pricey entourages. But Bowie's fame inspired him to take charge of his finances, and he became one of rock's savviest money managers. Naturally, his particular financial plan included proactive steps to pay as little tax as possible.  

In the autobiography “Backstage Passes: Life on the Wild Side with David Bowie,” the star’s first wife, Angie, shared that Bowie was living large in California; yet, a $300,000 tax bill was mounting against him. "These were tax debts accumulated over the past few years," she recalled, "during which time vast quantities of taxable cash he had generated had vanished into various murky areas."  

Bowie had several choices: He could stay in sunny California, where combined federal and state rates topped out at 81% or he could head home to England and pay 83%. Instead, he sent Angie to her birthplace in Switzerland and arranged residency in the village of Blonay above Lake Geneva. Sure, it meant spending "significant amounts of time in Switzerland." But Angie likened it to "work release from a very nice, court-ordered health resort," with "an almost ludicrously low tax rate of about ten percent."  

In 1992, Bowie opted for a more modern love and married the supermodel, Iman, who preferred the glamour of London and New York to the quiet charms of a Swiss village. Would that mean a return to high taxes? Of course not! He bought a 640-acre estate near Dublin in Ireland, which exempts artistic royalties from tax.  

Then, in 1997, Bowie released his greatest financial hit: the so-called "Bowie bond." Bowie needed cash to buy out his former manager without having to sell the rights to any of his songs. So, instead, he transferred the copyrights into a special purpose trust which then issued $55 million in bonds secured by the royalties to the songs. By borrowing against those future royalties rather than selling them, he was able to take tax-free cash. Bowie's deal made him a hero for artists looking to securitize future royalties. The “Bowie bond” also offers significant estate-tax advantages for an artist's heirs in that they can pay estate tax on their intellectual property without having to sell it.  

How well did Bowie's moves succeed? Time may have changed Bowie, but in his golden years, he really did become a richer man. This weekend, reports surfaced that he left a $100 million estate, with half going to his wife and half to his children. He also left $2 million to his longtime personal assistant and $1 million to his daughter's nanny. (We realize that half plus half plus $3 million equals more than the entire estate, but when you've sold 140 million (!) records, you can get away with that sort of math.)