The IRS recently targeted the estate of late performer Michael Jackson with a bill for $505.1 million in taxes with $196.9 million in tax penalties, citing millions of dollars worth of Jackson’s assets and holdings, including his 50 percent share in the massively successful Sony/ATV music catalog. However, many experts say a judge will likely free Jackson’s executors from the estate tax obligation. The estate will only be subject to the penalties in the event the court rules against it.
Texas is home to many successful business owners, wealthy families and other individuals who will likely be subject to estate taxes upon their deaths. While many argue that estate taxes serve an important function in funding public services, they often threaten the estate holder’s right to bequeath their wealth to their heirs. This makes it important for such individuals to carefully plan their wills to account for estate taxes and exercise other effective asset protection strategies.
While Jackson did indeed possess millions in assets prior to his death in 2009, he also held a substantial amount of debt — nearly $500 million according to most sources. This means his net assets were likely less than the $702 million tax bill facing his estate. Some commentators have speculated the IRS is valuing Jackson’s likeness and image at over $400 million, which sharply contrasts with the $2,105 value the estate ascribed to those factors. Analysts are unsure about how much Jackson’s image is truly worth; he had not landed an endorsement deal or recorded a high-grossing album for over 10 years prior to this death, but his likeness and legacy have both surged in value posthumously.
Jackson’s executors have contested the IRS assessment of his estate. The maximum estate tax rate when Jackson passed away was 45 percent, suggesting that the federal tax agency estimated his estate to be worth around $1.5 billion. According to the executors, as well as Forbes Magazine and similar sources, Jackson was worth significantly less than $1 billion in 2009. While his name has earned millions since, the law requires the IRS to base estate tax valuations on an individual’s assets at the time of his or her death.
Source:
Forbes, “Why The $702 Million IRS Tax Claim On Michael Jackson’s Estate Won’t Stand Up” Zack O’Malley Greenburg, Aug. 23, 2013
