With the death of Prince, the topic of celebrity deaths and estate planning (or lack thereof) is all the news.
Not to mention the values of such estates.
As I noted in yesterday's blog post, Michael Jackson's estate is claiming a value of $2,105 ... but the IRS number is in excess of $434 million.
They are at an impasse.
Since his death at age 50 in 2009, Jackson has experienced a commercial resurgence thanks to the savvy executors who have managed his assets.
For example, the documentary This Is It grossed $261 million, a Cirque du Soleil tribute show sells out in Las Vegas, plus money continues to roll in from albums, video games, and other lucrative memorials.
The Service argues that the value of Jackson's name and image upon his death amounted to more than $434 million.
Again, what did the estate claim as the valuation? Just $2,105.
The Hollywood Reporter, in its recent article titled "Michael Jackson Estate Faces Billion-Dollar Tax Court Battle," notes that lawyers estimate the estate (which is scheduled for trial in 2017) could be worth more than $1 billion, with interest and penalties.
Some tax specialists even wonder whether the IRS will seek criminal tax evasion charges.
The outcome could affect celebrity estate planning.
What matters most for tax purposes is the value of Jackson's name and likeness at the time of his death—not in the present day, after his executors have worked their magic.
Adam Streisand, a probate attorney who has worked with celebrity estates such as those of Ray Charles, Marlon Brando and Marilyn Monroe, thinks the IRS will not successfully point to the post-death earnings of other celebrities as part of the valuation process.
On the other hand, this is the first time the IRS is pursuing estate taxes for "name and likeness."
Ultimately, it is nearly impossible to nail down a number when it comes to the "Jim Croce effect." This refers to the singer who died in an airplane crash in 1973. This "effect" stands for the proposition that many entertainers are worth more dead than alive.
A judge's valuation could center on what licensors were willing to pay to be associated with Jackson, not what he actually received in sponsorship and merchandise deals.
A California law gives celebrities posthumous rights to their names and images. This law has been a boon to the spouses and children of these famous people.
And rightfully so.
Consequently, this statute codifies the concept that a celebrity's name and image is a property right like a house.
However, there have been ramifications and unintended complexities, as seen in the Jackson case.
Remember: “An ounce of prevention is worth a pound of cure.” When making your financial, tax and estate plans, do not go it alone. Be sure to engage competent professional counsel.
For more information about estate planning in Overland Park, KS (and throughout the rest of Kansas and Missouri), visit our estate planning website and be sure to subscribe to our complimentary estate planning e-newsletter while you are there.
Reference: The Hollywood Reporter (April 20, 2016) "Michael Jackson Estate Faces Billion-Dollar Tax Court Battle"