People with significant assets may have to consider whether the estate tax will take a portion of their finances after they pass on. The tax can be quite high, and currently applies when the estate is valued at $5.25 million or more. However, there are ways to create an estate plan that minimizes or eliminates the amount tax your estate will owe, allowing greater control over where your property will go after death.
One factor in calculating how much is owed in estate tax is first figuring out what the estate itself is worth. That is a major factor in a dispute between the IRS and the executors of music legend Michael Jackson’s estate. The executors recently filed litigation to settle the matter in court.
According to Forbes, Jackson’s estate has been valued at between $80 million and $500 million at his death in 2009. Obviously, the amount of tax that the estate will have to pay could differ wildly depending on what the final valuation is.
Part of the problem in determining an exact figure is determining what Jackson’s future earnings were worth at the time of his death. Besides assets held at that time, the ability to collect future income is considered as well.
For Jackson, those future earnings turned out to be considerable, with his estate earning $170 million in 2011 and $145 million from renewed album sales and other revenue. But that may not have been so easy to predict at the end of Jackson’s life. Though he was in the midst of an ambitious comeback series of concerts, Jackson had gone heavily into debt in his final years, putting up much of his property to guarantee those loans and lines of credit.
Also, he only released one album in the 2000s, and it was not nearly as successful as his prior records. In this and other ways, Jackson’s estate, while quite large, may not have been worth as much as the IRS claims.
We will keep an eye on this story and provide updates as they occur.
Source: Forbes, “Michael Jackson’s Estate To IRS: Beat It,” Kelly Phillips Erb, Aug. 21, 2013
