The larger an estate is, the more prone it will be to errors and mistakes due to its complexity. Nevertheless, you'd think that a man like Michael Jackson would create the most rock-solid estate possible, but the King of Pop made a big mistake in his estate planning that everyone can learn something from.
Let's see what we can learn from Michael Jackson's estate planning mistakes.
The Jackson estate disputes its value with the IRS
It's hard to believe, but Michael Jackson -- who passed away in 2009 -- did not have a complete and comprehensive estate plan -- and it cost his heirs millions in taxes and legal fees. Unlike less-prepared celebrities, Jackson completed a will, which certainly helped in the distribution of the King of Pop's assets to his heirs.
However, problems arose after Jackson's death when it came to the valuation of his assets. Jackson's executors and lawyers valued the musician's estate at approximately $1 billion. Also, when they filed the estate's taxes with the IRS, they valued certain assets in a way that the IRS did not agree with. For example, they stated that Jackson's name and image held a value of only $2,105. The IRS later challenged this estimation, claiming that his image should be $434 million.
The disputes regarding IRS taxes pertaining to the Jackson estate have triggered an unbelievable $700 million in estate taxes.
Can we learn something from the Jackson situation?
The primary point that we can learn from Jackson's exorbitant estate taxes is this: Be realistic when it comes to the valuation of estate assets. The Jackson brand is clearly worth more than $2,105. In the case of Jackson's estate, it seems that the executor of the estate made a bad judgment call to try and save money on taxes by discounting the value of his brand.
The IRS doesn't require you to be exact with your estimations, but if you grossly undervalue assets in your estate valuation it could trigger an investigation, penalties and the payment of extra money.
Avoid estate valuation problems after you've died
One way to avoid these issues related to estate valuation and estate taxes is to hire an excellent attorney with experience handling estates such as yours. Also, consider your executor with care. Be sure to choose an estate executor who has experience with the kinds of assets contained in your estate.