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It’s Not Right But It’s Okay

Wednesday, 10 January 2018 20:44

The estate of Whitney Houston settled its dispute with the IRS over outstanding estate taxes. The IRS had contended that the valuation of Houston’s back catalog and image and likeness was undervalued by $22 million resulting in $11 million of additional taxes. The settlement was for $2 million. Oddly, or perhaps not given the state of journalism in 2018, the focus of most articles was on the value of her image and likeness but the IRS and the estate differed on that valuation by only $200K.

A few small points:

1. Since the death of Michael Jackson, the IRS has been taxing the image and likeness of dead celebrities with the value based on expected licensing revenues in the future.

2. Cool fact – Robin Williams said that his likeness cannot be used for 40 years after his death rendering its value worthless.

3. In the age of streaming music, the longer the estate held out the less valuable the back catalog of albums became.

4. This was purely a principled, but unemotional, victory for the estate. Houston’s daughter died nearly 3 years ago and Houston was divorced. Any estate tax savings will benefit her mother and her brothers.

Hillary and Hypocrisy Both Begin With H

Monday, 23 May 2016 21:55

clintondebate

Hillary Clinton’s recently released financial disclosure statement reveals that she and her husband both created a qualified personal residence trust in 2010 and transferred ownership of their NY home to it. They did not transfer their more expensive Washington DC house to a similar trust.

Several quick educational points:

1. A qualified personal residence trust allows them to transfer the house at a discounted gift tax value based on how long they wish to reside in the house and the current interest rates.

2. For example, if they decided to live in the house for the next 20 years (and not die), they would be able to transfer the entire $1.7 million house to Chelsea while only valuing it at $400K for gift tax purposes.

3. Future appreciation is also excluded from their estate.

4. They would have been wise to transfer the DC property via this technique because that house has doubled in value while the NY property has only increased nominally.

5. While this estate planning technique is available to everyone, I find it hypocritical that a woman campaigning for higher estate taxes and other taxes in the name of the greater good does everything she can to avoid those taxes.

Don’t Stop ‘Til You Pay Enough

Thursday, 29 August 2013 15:43

I previously blogged about the income earned by Michael Jackson’s estate since his death.  His estate is now embroiled in a dispute with the IRS over the value of his estate and the commensurate estate taxes owed.  His estate representatives claimed a total estate value of $9 million on his estate tax return while valuing his image and likeness at only $2,000, while the IRS values the image and likeness at $434 million and the total estate at more than $1 billion.

Several points:

1.  This issue is different than paying income taxes on the earnings since his death.  Those taxes have presumably been paid.

2.  The IRS valuation seems very high while the estate value seems too low.  MJ had borrowed extensively prior to his death to support his lifestyle, including his zoo, and was planning  a series of London concerts to pay off the debt.   The debt would reduce the value of his estate by $500 million or so.

3.  I would love to negotiate with the estate and buy the right to market MJ’s image at their stated value of $2,000.

4.  Estate taxes are levied on the value of assets at the time of death. At the time of his death, MJ was not listed as a billionaire by Forbes, had not had an endorsement since 1993,  and was not on Forbes’ list of top earning musicians in 2008 the year prior to his death.  No one could predict how popular he would be in death.  Child molestation rumors, erratic behavior, dangling babies from balconies, and continual disfiguring plastic surgery have a way of frightening advertisers, shrinking a fan base, and reducing earnings.

5.  The Police earned $115 million in 2008 and were Forbes top earning artist of the year. Huh?

What in the Name of Tony Oliva?

Thursday, 29 August 2013 01:30
Carl Pohlad was the owner of the Minnesota Twins.  He died in early 2009.  His estate is currently embroiled in a $121 million dispute with the IRS about the value of his ownership interest and the commensurate estate taxes owed.  The IRS claims that his interest was worth $293 million while his executor claims it was only worth $24 million.  The executor’s value is much lower because it claims that even though Mr. Pohlad owned a majority interest in the team through several entities, he owned only 10% of the voting shares and he died when the stock market was at a 12 year low.
Several points:
1.  Fractional interests of privately held businesses are difficult to value.
2.  Voting control of an entity is worth significantly more the non-voting interests.
3.  Mr. Pohlad died when the financial markets had collapsed and the stock market was being pummeled. However, baseball teams with television contracts and other revenue streams have different business cycles than financial institutions, and should not be valued in the same manner.
4.  As if the Twins habitually losing to the Yankees in the regular season and the playoffs is not ignominious enough, it has be to be more galling to the Pohlads and Twins fans that George Steinbrenner’s estate did not pay any federal estate taxes on his $1.6 billion (yes, with a B) interest in the Yankees because he died in 2010 when there was no federal estate tax.

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I am an attorney located in Cincinnati, Ohio who practices in the areas of estate planning, probate, asset protection, and small business advice. I make a difficult and bewildering process as simple as possible. Most importantly, I provide "more for less" for my clients.