5 June 2014 0 Comments

Final Mistakes of the Famous

shutterstock_93089554Just because a person happens to be famous and wealthy doesn’t mean that when death takes them their affairs are in order.  Here are a few examples of how lack of planning turned out to be  costly for the heirs of the rich and the famous.

Michael Jackson

According to legal documents obtained by the L.A Times, when the pop icon died the executors of the estate told the IRS that the net estate was around $7 Million.  The IRS disputed this calculation and said that the estate’s value was closer to $1.125 Billion.  And, in a highly unusual move, the IRS claimed executors so grossly mislead the agency, it doubled the tax penalty. 

The IRS is looking for more than $702 Million in estate taxes and the Michael Jackson Estate disputes the IRS position.  Michael’s children will take the hit and the attorney’s will be on the clock for years.

There are various estate planning techniques that can be employed to establish and minimize estate valuation. But these must be implemented prior to death.

Philip Seymour Hoffman

When the actor died in February, 2014 his estimated net worth was $35 Million.  Hoffman wrote his will in 2004 after the birth of his first child with long-time companion Mimi O’Donnell, whom he never married.  They had two more children in the next 10 years, but Hoffman never updated his will to include them.  He also did not have a revocable trust, which would have kept the details of his estate from becoming available to the general public.

After the $5.34 Million estate tax exemption, the rest of the estate will be taxed at 40%, giving Uncle Sam an immediate $12 Million of revenue.  Had Hoffman and O’Donnell been married, there would have been an unlimited marital deduction and no estate taxes would have been due until O’Donnell’s death.  O’Donnell would have had the entire $35 Million for the benefit of her and their children during her lifetime.

If, for all practical purposes Hoffman and O’Donnell were living for years as husband and wife, then it seems unfair that the tax laws should penalize them.  But, a marriage certificate is the only document acceptable to the IRS in establishing the benefit of the unlimited marital deduction.

I am not aware of whether Jackson and Hoffman had life insurance.  That’s one of the benefits of proceeds from a life insurance policy—confidentiality.  Estate tax on proceeds can also be avoided by establishing ownership of the policies in an Irrevocable Life Insurance Trust.

Next…the estates of Marlon Brando, Sonny Bono and Jimmy Hendrix.

Leave a Reply