Death & Taxes: The Michael Jackson Estate, The IRS And Posthumous Celebrity Valuations
The gap between $2,105 and $161 million is, it is fair to say, significant. The first (lower) number is the valuation the Michael Jackson estate put on the singer’s name and likeness at the time of his death; the second (considerably higher) number is what the IRS estimated his name and likeness to be worth. Unsurprisingly, neither side agreed with the other’s calculations.
After a four-year legal dispute, the United States Tax Court judge in the case has ruled that the singer’s name and likeness were worth $4.1 million immediately after he died. This ruling has huge implications for the tax bill the estate now has to pay, but it also has huge implications for how such intellectual properties are valued at the time of an artist’s death as well as how they can be subsequently managed and grown.
The IRS, meanwhile, took his enormous fame (or infamy) as being a highly monetizable asset, hence the blockbuster number it arrived at.
This is a wider issue here, of course, about what name and likeness rights are worth and what they actually generate. Some artists are highly selective about how and where their name and likeness is used commercially, either exploiting them sparingly or having a blanket ban on their use in any context. If they do not commercially exploit them, these rights could very well be valued in the tens of millions (or even the hundreds of millions as demand for a breaking of the ban increases), but their actual material earnings are zero and will remain so as long as the artist or their estate rebuff all offers for their use.
The Jackson estate still outperforms all other celebrity estates today – but the odds of this happening immediately following his death appeared slim.
Michael Jackson was seriously in debt when he died and those debts transferred to his estate. It has been estimated that Jackson was $500 million in the red when he died and the first thing John Branca and John McClain, as co-executors of his estate, had to do was to clear the debts and swing the estate into profitability, achieving what has been termed a “$1 billion turnaround” in a matter of a few years.
Even when things are neatly tied up with a solid will or trust and the estate is not shouldering a huge burden of debt, there can be a huge disparity between what an estate believes it is worth and what the IRS estimates it is worth.
The estate of Aretha Franklin also had issues with the IRS over $7.8 million in federal income taxes she owed during her lifetime, but both sides reached a tentative agreement in early 2021 over what had already been paid and the amount that was now owed.
Depending on just how a will or trust was structured, a hefty tax bill can derail an estate in the earliest days of its operation at the precise moment when getting things in order and putting deals in place are at their most critical. That is when unwise or highly damaging decisions are made – selling part or all of the estate, agreeing to unsuitable brand partnerships or synchronisation deals – that might clear debts in the short term but which undermine the commercial and cultural viability of the estate in the longer term.
Equally, when a tax valuation is placed on an estate, it might not marry with the actual cash reserves or earning path of that estate, forcing it into the costly position of challenging that valuation or the even more costly position of accepting the valuation and paying the resulting taxes.
Because of the market power of the Jackson estate, this ruling on the value of his name and likeness will likely affect all other estates lower down the posthumous economic pecking order.
Leaving Neverland could have killed the value of Jackson’s name and likeness outright, plunging it even lower than that $2,105 sum; but his estate has proven itself to be, time and again, eminently resilient. In 2009, his name and likeness might have been at rock bottom in commercial terms, but in 2021’s stock market of public opinion it appears to be business as usual.