Some of us lead complicated lives. And some of us leave behind complicated deaths. Prince has just done the later. According to a recent article in the Wall Street Journal, Prince did not leave behind a will with his recent untimely death.
But that is just the beginning of the issues. Estate tax attorneys have the job, at the moment, of placing a financial value on his name, image and likeness. The only similar situation with which they have to access is Michael Jackson, and his estate-tax battle will be in U.S. Tax Court this February. In Michael Jackson’s situation, for instance, the estate said his image and likeness were worth $2,105 when he died in 2009, while the IRS placed his worth at $434 million. That’s quite a difference.
As Jonathan Blattmachr, a Principal in the estate planning advisory group of Pioneer Wealth Partners, “This could be very ground-breaking.” As he explained, a victory for the IRS could mean that celebrities change how their estate plans handle their image rights.
Certainly, Michael Jackson’s case has tax planning consequences for any famous person who is famous enough to earn money beyond the grave. But, as Jonathan Blattmachr points out, there are no rules for the IRS or taxpayers to follow. He has made some interesting suggestions for these situations. He suggests exempting the value of names and likenesses from the estate tax but taxing future earning as regular income. As Jonathan Blattmachr said, “Michael Jackson will be different from Prince who will be different from Madonna. It’s horribly speculative as to what the value is.”
As the Wall Street Journal explained, the hardest issue won’t be his real estate, song royalties or unreleased recordings – but figuring out the cumulative value of his profit potential on the day he died.
Now what? Prince’s estate will have nine months to file its tax return and estimate his net worth. The IRS will have three years to challenge their predictions and numbers if they disagree with the assessment. And, of course, tax court is always an option.