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.
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.
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