Since I spent a good part of the late 70’s and early 80’s listening to “Off the Wall” and “Thriller”, it pains me now to be writing about Michael Jackson’s estate tax liabilities. But, as it turns out, I have grown up to be an Estate and Trust attorney, and Michael Jackson is sadly no longer with us. As Ben Franklin wrote, ” in this world, nothing is certain except death and taxes.” And so it goes.
The IRS is charging Michael Jackson’s estate with $702 million in federal taxes and penalties. They accuse the estate of undervaluing some of the star’s assets by hundreds of millions of dollars. Just one example of the discrepancy in assignment of value is as follows: The IRS valued Jackson’s image and likeness at $434 million. The Estate, on the other hand, valued it at $2,105. How is that possible?
Valuing assets is one of the many tasks required when someone passes away. Some things are easy to value, such as bank accounts and cars. Other things, such as artwork, business interests and intangible assets such as “image and likeness” are more difficult to value. Hiring the proper appraisers and recognizing when a special appraisal is needed is something that we do when we assist with an estate or trust. One of the main reasons for valuing the assets is for tax purposes.
When someone passes away, there are different tax obligations depending on the value of the assets and the beneficiaries who stand to gain from the estate. There will be final federal and state income tax returns for the person who has died. There may be one or more income tax returns for the estate or a trust, if one exists, since these are taxable entities in and of themselves. There may be federal and/or state estate taxes owed based on the value of the estate. And finally, at least in Maryland and a few other states, there is an inheritance tax assessed against certain beneficiaries depending on their relationship to the decedent.
While few if any of our clients are concerned about millions of dollars in estate taxes, it is still important that all tax work be completed in a proper fashion after the death of a loved one. It is our job as estate attorneys to make sure that the tax obligations of both the decedent and the estate are handled properly. And don’t forget that mindfulness about estate taxation should begin before you die while there is still time to make some simple changes. Here at GWEBLAW, we have saved our clients thousands of dollars in taxes by properly structuring things when they come to us to get Wills or Trusts. If you have further questions about this or any other information on our website, please give us a call at (301) 840-8565.