The Beatles recorded “The Taxman,” written by George Harrison, in April 1966. The song famously lamented about the woes of paying taxes:

Let me tell you how it will be
There’s one for you, nineteen for me
‘Cause I’m the taxman
Yeah, I’m the taxman

Should five percent appear too small
Be thankful I don’t take it all
‘Cause I’m the taxman
Yeah, I’m the taxman

According to Paul McCartney, “[The solicitors and accountants] said, ‘Look, when you’re dead you’re going to pay taxes,’ – ‘What?’ – ‘Death duties.’ So [George Harrison] came up with that great line [in the song]: ‘Decalre [sic] the pennies on your eyes,’ which was George’s righteous indignation at the whole idea of having got here, made all this money and half of it was about to be removed by force.”

Fast forward to the summer of 2021. The estate of music superstar Michael Jackson recently scored a victory against the “Taxman,” also known as the IRS. Specifically, U.S. Tax Court Judge Mark Holmes “sided with the estate in valuing Jackson’s name and likeness at $4 million instead of the $61 million estimated by the IRS’s outside tax expert.” This massive differential in the valuation of these significant assets in Michael Jackson’s estate will, in turn, presumably  reduce the federal estate tax owed by his estate by a dramatic amount.

While the discrepancy in valuations in the Jackson estate represents an extreme example involving some huge numbers, there are lessons for the rest of us in this example. The American Institute of CPAs commented about the Jackson case, “You may not have an estate the size of Jackson, but this is a reminder of the value of effective estate planning and assuring your assets are valued properly for tax purposes, and to keep the IRS from knocking on your heirs’ doors.”

Good advice. I find that, when I make initial inquiries regarding an estate planning client’s net worth, many clients do not have a fully accurate picture of the nature and extent of their assets. In particular, many people fail to recognize life insurance as part of their assets that may eventually be taxed. Also, people in the Seattle area sometimes underestimate the value of their primary residence due to the rapidly escalating real estate market. Additionally, after completing an estate plan, people sometimes fail to track whether their assets have significantly increased or decreased, thus necessitating a revision to their estate planning documents.

Do you have questions about estate planning strategies to reduce your liability to the Taxman? If so, please let us know. We’d be happy to help.

This post is for informational purposes and does not contain or convey legal advice. The information herein should not be used or relied upon in regard to any particular facts or circumstances without first consulting with an attorney.

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