IRS to Michael Jackson Heirs: We Want More Money!
by Terri Eyden on
By Teresa Ambord
More than four years after he died, Michael Jackson's heirs are still waiting for their shares of his substantial estate. If the IRS has its way, they'll continue to wait a lot longer.
Last May the IRS issued a "notice of deficiency," demanding a great deal more tax money. Of course, attorneys for the estate are fighting back. They responded with a petition stating the IRS has greatly overvalued assets in the estate, including Jackson's famous Neverland Ranch, a Bentley automobile, intellectual property, real estate, and trusts.
Part of the problem is that estimates of the estate's value swing widely, between $80 million and $500 million. Jackson's attorneys say the valuations they submitted "were accurate and based upon qualified appraisals by qualified appraisers who had extensive experience in valuing entertainment industry assets." The IRS disagrees.
So far, few other details have surfaced, but one attorney for the estate, Paul Hoffman of Hoffman Sabban & Watenmaker, summed it up simply: "The IRS is wrong."
The petition against the IRS was filed on July 26 in US Tax Court in Washington by attorney John Branca and music executive John McClain, the coexecutors of Jackson's estate (Estate of Michael J. Jackson v. IRS, 17152-13, US Tax Court [Washington]).
The Jackson Three
It's true, Jackson's trust for his three children – Prince (fifteen), Paris (fourteen), and Blanket (ten) – has not yet been dispersed. But don't worry too much about them, financially speaking. The New York Daily News reports they live in a mansion, go to a posh private school near Beverly Hills, and have a lifestyle that costs roughly $70,000 a month.
A Tangled Web
Predictably, since Jackson's death, hundreds of motions, matters, and claims have been filed against the estate, and sorting it has been slow. Meanwhile, trusts established for his three children have not been dispersed. One expert observer, Rocco Beatrice (managing director of Estate Street Partners), said "because of poor estate planning, Michael's family will have to still wait years until his probate, estate taxes, creditors' claims, and other legal battles are finalized.
"When a person dies with even assets of $500,000, everybody wants a piece of the pie. The government wants the taxes, the creditors want their money, the lawyers, appraisers, and accounts involved with the probate want their fees, and lastly, the family gets their share," said Beatrice. "The reason Mr. Jackson's assets have been tied up in probate court for so long is because there are many issues to sort out. Every single creditor has an opportunity to make and negotiate a claim, property that has to be sold and/or maintained, and challenges have to be heard."
Great Entertainer, Poor Financial Planner
The New York Daily News at one time reported that Jackson used what is known as a "pour-over" will, with revocable trusts for each child and for his mother, Katherine Jackson, who is the guardian of his children. A pour-over will is one that pours the assets into one or more trusts after death.
According to Beatrice, Jackson would have been wiser to establish an irrevocable trust, which he described as a "completed gift." This type of trust puts assets outside of the person's estate and, therefore, they aren't subject to estate tax. It also protects assets from future lawsuits and pays money out over time, like when the beneficiaries reach age milestones. If Jackson had done this, Beatrice speculated, the family could be using their shares of the money now.
Beatrice added his opinion that Jackson's will and financial planning have come close to failing his family completely. "I'm glad Mr. Jackson could afford to make a donation to the government, but most people don't want to throw away 35 percent to estate taxes (55 percent in 2013). They want to keep it in their family."
Jackson's death occurred in June 2009 when he was fifty. The death was eventually ruled to be a homicide by the Los Angeles County coroner, caused by acute propofol intoxication. His doctor, Conrad Murray, is currently serving four years in jail on involuntary manslaughter charges in the matter.
Wait, there's more!
There's always more at AccountingWEB. We're an active community of financial professionals and journalists who strive to bring you valuable content every day. If you'd like, let us know your interests and we'll send you a few articles every week either in taxation, practice excellence, or just our most popular stories from that week. It's free to sign up and to be a part of our community.
Premium content is currently locked
2 weeks 3 days ago by mucar1990