(Source: Forbes): Danielle and Andy Mayoras – When most people think of Hugh Hefner, they picture the famous Playboy bunny logo, young and buxom blonde women by his side, and his ever-present robe and captain’s hat. But people should also think of his smart business and planning sense. After all, Hefner started a unique business with $8,000 in 1953 and grew it into a massive global enterprise.
How Hefner used the resulting wealth to plan for his golden years and beyond was as unique and innovative as the way he lived his life. It certainly isn’t a road-map for everyone, but it worked out well for him.
It started at least as far back as 2010, when Hefner and his second wife, Kimberley Conrad, finalized their divorce after a 12- year separation. At this time, records from his divorce pegged his net worth at about $43 million plus the value of his Playboy Enterprises stock and real estate. Those records also revealed his yearly income to be nearly $3.5 million, with his expenses topping out at just over $1.3 million annually.
The big open question, of course, was: What was the Playboy stock worth? In 2011, Hefner partnered with a private equity group to purchase the Playboy stock and take the company private, for a total package worth $207 million. When the dust cleared, Hefner ended up with a 37% ownership interest in the new company along with an employment contract that paid him one million dollars per year, gave him editorial control over the Playboy brand, and the right to remain in the famed Playboy mansion practically rent free for the rest of his life.
Considering Hefner did not invest his own money for the buy-out, this deal made a lot of sense. The rise of the internet meant sinking profits for Playboy – as with most other print publications — to the point that it lost $14.7 million during its last quarter as a public company. So walking away with 37% and the ability to continue his Playboy lifestyle with a comfortable yearly stipend was impressive.
Hefner even had the foresight to protect what he had left through a prenuptial agreement with his third wife, Crystal Harris, whom he wed in 2012. Reportedly, the prenup provided Harris with $5 million plus a house, which cost another $5 million, that Hefner purchased for her and transferred to a trust that Harris controlled.
It is never easy when someone remarries late in life – particularly when the new wife is younger than the children. Most of the time, you can expect at least tension, if not an outright family feud. Yet Harris, age 31, and Hefner’s four children – ranging in age from 26 to 64 – appear to be the exception, not the rule. In fact, the family’s view of Harris turned from initial skepticism to gratitude, commending Harris on how she took care of Hefner in his time of need at the end of his life.
Hefner’s careful planning also makes it unlikely that an inheritance fight will be forthcoming. According to multiple reports, including a revelation from former girlfriend Holly Madison who discovered and read his estate planning documents in 2008, Hefner devised about half of his wealth to his four children, with the other half earmarked for charity, including the University of Southern California film school. He left Harris enough to be comfortable, without jeopardizing his children’s inheritance. Given his careful planning we expect that Hefner used some form of trust, so that the assets will pass to his intended beneficiaries privately, outside of probate. And by using charitable planning, this enables the Hefner family to minimize estate taxes.
The only downside to Hugh Hefner’s planning is that much of his wealth is tied up in the 37% ownership interest that he has in parent company that now owns Playboy Enterprises. For Hugh Hefner’s heirs to benefit from that, the shares first have to be sold, likely back to the private entity that owns the majority ownership stake. The pricetag is expected to come in around $45 million, but how much money will actually be realized is hard to predict. With no public market for Hefner’s ownership interest, determining fair value of that interest is tricky.
And what about the famed Playboy mansion? In 2016, the mansion was sold to neighbor Daren Metropoulos for $100 million. The downside to the deal? Hefner didn’t receive any of the money because he didn’t own the house, Playboy Enterprises did. But there was significant upside too. Playboy Enterprises paid $1 million per year back to Metropoulos so that Hefner could live in the mansion for the rest of his life.