When estates are left behind, particularly large ones, there is often a dispute. Such is the case with the estate of the late Michael Jackson. Even though he left this earth over a decade ago, the value of aspects of his estate is just now being decided by the courts.
Michael Jackson was undoubtedly one of the most famous celebrities to ever exist. The “King of Pop” had an illustrious career that allowed him to acquire quite an estate. That being said, the end of his life was not so pretty. After being dragged through court on child molestation allegations, for which he was acquitted, his reputation was left in disarray. This led to the following question: how much was his likeness and name actually worth following his death?
Well, the answer to that was decided on Monday of this week after years of his estate being tied up in tax court. In the legal process, the estate claimed that his name and likeness were worth $7.2. The IRS disagreed–arguing that they were worth $161 million. This case highlights the difficulties in valuing the names and likenesses of celebrities.
About the Estate Tax
While Texas does not have an estate tax, the Federal government does.
The estate tax, often referred to as the “death tax,” is a federal tax levied on the transfer of a deceased person’s estate before its distribution to heirs or beneficiaries. It is important to note that this tax doesn’t apply to all estates; only those exceeding a certain value, which is determined by a threshold known as the estate tax exemption.
As of 2021, the federal estate tax exemption is $11.7 million per individual or $23.4 million for married couples. This means that an estate valued less than these amounts is exempt from federal estate tax. Any amount exceeding the exemption threshold is subject to estate tax, with rates reaching up to 40%.
The rules governing estate tax can be complex, especially when dealing with substantial and diverse assets. It’s not just the tangible assets like real estate and personal property that are considered but also intangible ones such as copyrights, royalties, and certain types of financial investments. The value of these intangible assets can often be contentious, as demonstrated by the recent dispute over Michael Jackson’s estate.
The Estate Tax Valuation Issue
Judge Holmes, in his 271-page decision, sided largely with the estate, determining the value of Jackson’s image and likeness at $4.2 million. The judge lambasted the IRS expert’s valuation as “fantasy,” citing a major flaw of failing to account for Jackson’s declining reputation towards the end of his life.
In addition to Jackson’s image and likeness, the court also analyzed the value of Jackson’s 50 percent stake in Sony/ATV Music Publishing, held in the New Horizon Trust II (NHT II), and his stake in Mijac Music, held in the New Horizon Trust III (NHT III). The court concluded that NHT II was valueless, contrary to the IRS expert’s valuation of $206.3 million, while NHT III was valued at $107.3 million, closer to the IRS’s estimate of $114.3 million.
Valuating the Right of Publicity
Valuing the name and likeness of a celebrity—often referred to as their “right of publicity”—is a complex process that requires a deep understanding of various factors.
This right includes the ability to control and profit from the commercial use of one’s name, image, likeness, and other distinctive personal attributes. It’s an important part of a celebrity’s overall brand and can often hold substantial value.
Here are some of the key steps involved in this process:
- Establish a Baseline: The first step is to establish a baseline of how much the celebrity’s name and likeness has earned in the past. This may include income from endorsements, merchandise, licensing deals, and other forms of commercial use.
- Analyze Market Comparables: To estimate a celebrity’s market value, one can look at what similar celebrities are earning for the use of their name and likeness. This involves comparing a wide range of factors including their fame, career stage, reputation, and the type of industries they are associated with.
- Project Future Earnings: This step involves predicting how much the celebrity’s name and likeness could potentially earn in the future. This requires a detailed understanding of their career trajectory, brand strength, industry trends, and the expected lifespan of their fame.
- Discount for Risks: Future earnings are typically discounted back to present value using a discount rate, which factors in various risks. These risks can include career volatility, potential reputational damage, changes in popularity, and the uncertainty of future earnings in general.
- Consider Legal and Contractual Restrictions: The value of a celebrity’s name and likeness can also be affected by legal and contractual restrictions. For instance, if a celebrity’s estate has limited rights to commercialize their name and likeness, this could significantly reduce its value.
This process becomes more challenging after a celebrity’s death, as the value of their name and likeness may change significantly.
Due to the high level of subjectivity and the potential for significant financial implications, these valuations often require the expertise of professionals experienced in intellectual property valuation and celebrity estate planning.
The Takeaway
This case serves as a clear reminder of the complexities involved in probate law, particularly for high-profile individuals with substantial intangible assets. As Houston-based probate attorneys, we follow these cases closely, providing our clients with expert advice and guidance on navigating their own probate matters.
Our Houston Probate Attorneys provide a full range of probate services to our clients, including helping with estate taxes. Affordable rates, fixed fees, and payment plans are available. We provide step-by-step instructions, guidance, checklists, and more for completing the probate process. We have years of combined experience we can use to support and guide you with probate and estate matters. Call us today for a FREE attorney consultation.
Disclaimer
The content of this website is for informational purposes only and should not be construed as legal advice. The information presented may not apply to your situation and should not be acted upon without consulting a qualified probate attorney. We encourage you to seek the advice of a competent attorney with any legal questions you may have.
In the end, the courts found some middle ground and ruled that the worth of Jackson’s name and likeness was $4.2 million. Read more about the specifics in this New York Times article.
Need help with planning your own estate or sorting through the legalities of a loved one’s? Look no further than Kreig, LLC. We are experienced probate attorneys that are here to handle those details.
Our Houston Probate Attorneys provide a full range of probate services to our clients, including helping with estate and gift tax planning. Affordable rates, fixed fees, and payment plans are available. We provide step-by-step instructions, guidance, checklists, and more for completing the probate process. We have years of combined experience we can use to support and guide you with probate and estate matters. Call us today for a FREE attorney consultation.
Disclaimer
The content of this website is for informational purposes only and should not be construed as legal advice. The information presented may not apply to your situation and should not be acted upon without consulting a qualified probate attorney. We encourage you to seek the advice of a competent attorney with any legal questions you may have.
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