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Death and Taxes. Will the headlines next year say that estate taxes have destroyed the finances and estate of Michael Jackson? There is not sufficient information available to the public to know now for certain, but from what we have heard, it appears that the late star’s estate will run into big problems with the Internal Revenue Service.
At the time of Michael Jackson’s death, the amount exempt from federal estate taxes is $3,500,000. To determine the taxes due from his estate, you must add up everything he had control over, had an ownership interest in or was part of his taxable estate under a complex series of rules. Figuring this out may take years.
Calculating Your Taxable Estate. For most people, your taxable estate means your total equity in your real estate, your retirement accounts, your savings and checking accounts, your stock and bond investments, your business interests, your life insurance death benefit, your cars and everything in your home. In counselling with people, I generally find that people are shocked as to how much is subject to estate taxation. Recently, a husband and wife consulted me about planning their estate. They are both practicing CPAs preparing income tax returns for other people. They said they didn’t have an estate tax problem, but when I totaled it up and looked at how they owned their assets, they had a significant estate tax problem.
Jackson’s Assets. According to press reports, the largest asset of Michael Jackson was half of
Sony/ATV Music Publishing, a 750,000 song catalogue that includes music by the Beatles, Bob Dylan, Neil Diamond and others. The speculation is that the Jackson share is worth somewhere between $500 million and $1.25 billion. Reports indicate that although Jackson owned this in a protective trust, he had used this catalogue to secure loans and that his creditors could force a fire sale of this asset. Jackson also had interests in his own songs and recordings, which are skyrocketing in value after his death.
Billion Dollar Estate. So, let us assume all of the assets of the Jackson estate are worth $1,000,000,000 (one billion), a figure often mentioned in press reports. He has a lot of debt which does not go away because he died. Reports are that his debt is from $400,000,000 to $500,000,000. Let us assume the middle with $450,000,000 of debt.
Net Estate over ½ Million. This means that his gross taxable estate is about $550,000,000 (one billion minus $450,000,000 of debt). From this you will subtract legal, accounting and other fees of the estate that could range from $5,000,000 to $50,000,000, depending upon the costs and commissions to sell his assets. So, Jackson’s net taxable estate, after subtracting $26.5 million in fees and expenses and his $3.5 million exemption from estate taxes (if still fully available), would be about $520,000,000.
Pay $230,000,000 by March. The federal rate is 45% so the Jackson estate would owe about $230,000,000 in estate taxes to the federal government. When? Nine months after his death, in March of 2010. In cash.
Creditors Sued Him. Jackson had been fighting his creditors in court for the last several years. He successfully fought an attempt to auction many of his personal possessions earlier this year. He had been sued by his former publicist, video director, attorneys and financial advisors. A financial backer bought Jackson’s Neverland Ranch just before the property was to be sold at auction to cover back debts.
World’s Most Powerful Collection Agency. If you do not pay the IRS the estate taxes due
in nine months, the IRS can lien and sell your property at a distress sale. You can ask the IRS for more time to pay, but this is often in the discretion of the IRS. Given Jackson’s debt problems before his death and the public exposure of this case, do you think the government will give the Jackson estate a break that they may not give to the average person?
Forced Sale of Assets. If Jackson couldn’t pay his bills during his lifetime, where will his estate get the $230,000,000 by next March? Will the IRS force a sale of his assets at fire sale prices? This has happened in other estates where the family ended up with pennies on the dollar compared to the millions the family thought they would get.
Was there Tax Planning? Jackson could have hired tax planners who could have eliminated most of these federal and any state estate taxes. You may be shocked to know that someone can die worth half a billion and not pay significant estate taxes through clever planning. Alternatively, if you don’t plan, the tax system can wipe out most of the value of your estate. Yes, that is the system we have now and it is going to continue this way for years to come.
The world is mourning the passing of this music legend. His legacy is not just money and will live on regardless of what happens to the finances and taxes of his estate. But, his estate is heading for a show down with the most powerful collection agency in the world.
At the time of Michael Jackson’s death, the amount exempt from federal estate taxes is $3,500,000. To determine the taxes due from his estate, you must add up everything he had control over, had an ownership interest in or was part of his taxable estate under a complex series of rules. Figuring this out may take years.
Calculating Your Taxable Estate. For most people, your taxable estate means your total equity in your real estate, your retirement accounts, your savings and checking accounts, your stock and bond investments, your business interests, your life insurance death benefit, your cars and everything in your home. In counselling with people, I generally find that people are shocked as to how much is subject to estate taxation. Recently, a husband and wife consulted me about planning their estate. They are both practicing CPAs preparing income tax returns for other people. They said they didn’t have an estate tax problem, but when I totaled it up and looked at how they owned their assets, they had a significant estate tax problem.
Jackson’s Assets. According to press reports, the largest asset of Michael Jackson was half of
Sony/ATV Music Publishing, a 750,000 song catalogue that includes music by the Beatles, Bob Dylan, Neil Diamond and others. The speculation is that the Jackson share is worth somewhere between $500 million and $1.25 billion. Reports indicate that although Jackson owned this in a protective trust, he had used this catalogue to secure loans and that his creditors could force a fire sale of this asset. Jackson also had interests in his own songs and recordings, which are skyrocketing in value after his death.Billion Dollar Estate. So, let us assume all of the assets of the Jackson estate are worth $1,000,000,000 (one billion), a figure often mentioned in press reports. He has a lot of debt which does not go away because he died. Reports are that his debt is from $400,000,000 to $500,000,000. Let us assume the middle with $450,000,000 of debt.
Net Estate over ½ Million. This means that his gross taxable estate is about $550,000,000 (one billion minus $450,000,000 of debt). From this you will subtract legal, accounting and other fees of the estate that could range from $5,000,000 to $50,000,000, depending upon the costs and commissions to sell his assets. So, Jackson’s net taxable estate, after subtracting $26.5 million in fees and expenses and his $3.5 million exemption from estate taxes (if still fully available), would be about $520,000,000.
Pay $230,000,000 by March. The federal rate is 45% so the Jackson estate would owe about $230,000,000 in estate taxes to the federal government. When? Nine months after his death, in March of 2010. In cash.
Creditors Sued Him. Jackson had been fighting his creditors in court for the last several years. He successfully fought an attempt to auction many of his personal possessions earlier this year. He had been sued by his former publicist, video director, attorneys and financial advisors. A financial backer bought Jackson’s Neverland Ranch just before the property was to be sold at auction to cover back debts.
World’s Most Powerful Collection Agency. If you do not pay the IRS the estate taxes due
in nine months, the IRS can lien and sell your property at a distress sale. You can ask the IRS for more time to pay, but this is often in the discretion of the IRS. Given Jackson’s debt problems before his death and the public exposure of this case, do you think the government will give the Jackson estate a break that they may not give to the average person?Forced Sale of Assets. If Jackson couldn’t pay his bills during his lifetime, where will his estate get the $230,000,000 by next March? Will the IRS force a sale of his assets at fire sale prices? This has happened in other estates where the family ended up with pennies on the dollar compared to the millions the family thought they would get.
Was there Tax Planning? Jackson could have hired tax planners who could have eliminated most of these federal and any state estate taxes. You may be shocked to know that someone can die worth half a billion and not pay significant estate taxes through clever planning. Alternatively, if you don’t plan, the tax system can wipe out most of the value of your estate. Yes, that is the system we have now and it is going to continue this way for years to come.
The world is mourning the passing of this music legend. His legacy is not just money and will live on regardless of what happens to the finances and taxes of his estate. But, his estate is heading for a show down with the most powerful collection agency in the world.
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