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Celebrity tax blowups

By Judy Martel · Bankrate.com
Wednesday, February 26, 2014
Posted: 6 am ET

For all the news about how the wealthy avoid paying taxes, there are plenty of rich and famous who snag headlines for the whopping tax bills due upon their deaths.

After he died last year, executors for the estate of actor James Gandolfini revealed that the $70 million estate may have a tax bill of $30 million. Now, both Michael Jackson and actor Philip Seymour Hoffman are in the news for tax troubles.

The IRS contends that the estate of Jackson, who died in 2009, owes more than $702 million in taxes and penalties, according to a report in the Los Angeles Times.

The IRS is taking executors to court, charging that although the estate of the late singer and performer was valued at approximately $7 million, it is actually worth more than $1.1 billion. The reason for the wide disparity in valuations is due to the puzzle of how to value a celebrity's publicity rights after death.

Philip Seymour Hoffman

Philip Seymour Hoffman

Although the estate values Jackson's likeness at $2,105, the IRS contends it is worth more than $434 million.

Hoffman's failure to trust

In the case of actor Hoffman, who died earlier this month, public documents suggest that he drafted a will in 2004 leaving everything outright to his partner Marianne O'Donnell, according to Investment News. He and O'Donnell never married and had three children together.

Because they weren't married and couldn't take advantage of the marital deduction, the estate will be taxed upon Hoffman's death and upon O'Donnell's death. If he had used a trust, he could have passed some of the assets to his partner free of estate tax.

As it is, Hoffman set up a trust for his firstborn that would take in any of the assets renounced or disclaimed by O'Donnell. However, it appears Hoffman failed to update his will upon the subsequent births of his two daughters, which could set the stage for battles among inheritors.

Keep up with your wealth and mortgages and follow me on Twitter: @JudyMartel.

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3 Comments
Peter
March 10, 2014 at 6:30 pm

Isn't the federal estate tax exemption amount to $5 million??
SO if someone is worth more than that they should be taxed at 40%
They wouldn't of made that kind of money without living the "American way of life". AT their death (an their legal spouse) they should repay the "American system" in estate tax of money they probably wouldn't of made anywhere else.
Personally I make 100K a year... so between federal & state income tax, real estate tax, school tax, sales tax, gasoline taxes, telephone and internet state taxes and surcharges, energy (gas & electric) taxes and surcharges, if I get 40K out of my 100K, that would about right. SO 60% of my money goes to taxes... The so-called "Rich" (as Warren Buffett agrees to) pay usually pay a lower tax rate than us regular guys. Usually the "rich" make sure lawmakers keep those tax rates lower for the rich. Since they make so much money from not paying their fair share in taxes while alive, let the rich pay back what they owe when they die.

tina
March 07, 2014 at 10:05 pm

totally agree with you RAUL 110%

Raul Allegre
March 07, 2014 at 3:32 pm

It is wrong that the government automatically gets a huge chunk of these people's estates when they die. And saying they can afford it or they should have sheltered it does not make it right. If you legally earn money over your lifetime then you've already paid taxes on that money. I don't care how much you make, the government absolutely shouldn't be able to take 40% when you earn it and then take 40% of what's left when you die. That's slavery. Can you imagine each week working the first three days for the government and the last two days for yourself? We need to stop demonizing the wealthy and stand on principles of right and wrong. Being successful shouldn't make you a punching bag for partisan politicians.

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