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The executors of Michael Jackson’s estate are involved in a high-stakes estate tax case against the Internal Revenue Service in the United States Tax Court. In attempting to value the estate, each side is roughly one billion dollars away from the other’s valuation. The implications for this estate tax case may only impact celebrities and ultra-high net worth individuals, but the core concepts of valuating an estate and estate plans in general are important for all individuals.
The executors of Michael Jackson’s estate filed an estate tax return with a value of $7 million. The IRS, on the other hand, issued a deficiency claim with reported value of the estate at $1.32 billion. Due to the stark difference between the estate’s valuation and the IRS’ valuation, the IRS is demanding Michael Jackson’s estate pay an additional $505.1 million in estate taxes and $196.9 million in penalties and interest.
As the case proceeds, the crux of the dispute is how to value Michael Jackson’s name and likeness after his death for estate tax purposes. Ordinarily, estate taxes are derived from valuing the deceased’s more tangible assets, such as cash, stocks, real property and other marketable securities. In fact, the valuation of an individual’s name and likeness is not supposed to consider post-death events, but these factors may nonetheless permeate into the court’s judgment. Specifically, the IRS alleges that Jackson’s name and likeness holds a value of $434 million. The estate, however, claims his name and likeness is valued at $2,105.00. These figures will be disputed in court.
The take-away from Michael Jackson’s estate tax case may not be known until the case has been decided. In the meantime, Michael Jackson’s case provides us with several important reminders about proper estate planning. First and foremost, estate planning is important for individuals of all ages. We cannot control our fate, but we can control is how we plan for the inevitable. In addition, proper estate planning can:
- Minimize taxes and expenses;
- Provide support for your loved ones;
- Preserve family wealth for future generations; and
- Distribute assets according to your wishes.
In light of these reminders, we encourage all individuals to review their estate plans, including their wills and trusts, with an experienced estate planning attorney. If you do not have an estate plan, now is the time to schedule a consultation with an estate planning attorney to formulate a plan. For more information about the estate planning process, please contact our experienced estate planning attorneys.