New York Estate Planning & Elder Law Blog
The estate planning dispute that occurred following Prince’s death in 2016 has arisen again after the Internal Revenue Service determined that Prince’s estate is worth approximately $163 million or twice what Prince’s estate representatives reported on his estate tax return. This difference resulted in approximately $39 million of penalties and interest being placed against Prince’s estate.
This discrepancy is not the first time that the estate of a deceased celebrity has been undervalued. For example, following Michael Jackson’s death in 2009, representatives claimed that a likeness of Michael Jackson was worth $2,105. The artist’s fortune had dropped substantially in the years before his passing as a result of child molestation claims. Michael Jackson’s estate was also reported to be insolvent with assets estimated to be worth $236 million with debts of approximately $500 million. The Internal Revenue Service, however, later disagreed and valued Michael Jackson’s likeness at approximately $435 million. Michael Jackson’s estate later disputed this valuation and the case is still pending.
What happens next with the valuation of Prince’s estate will be decided on by the United States Tax Court. This article reviews just two critical lessons that everyone should understand about the valuation of estate assets.
# 1 – It’s Difficult to Predict Valuation of Assets
Valuating assets is an abstract art and does not rely on hard and fast principles. An asset’s value is defined as the price that a prospective buyer is prepared to pay a prospective seller assuming that both seller and buyer have reasonable knowledge about the assets and are not subject to any undue pressure.
Valuating assets in a person’s estate is also often a difficult process because people are not familiar with the process. One of the best ways to make sure that you’ve fully disclosed assets in an estate is to obtain the assistance of a qualified, independent appraiser who can submit a valuation report addressing the nature of the property.
# 2 – Understand the Value of Well-Written Estate Plans
The best-written estate plans can help to minimize the amount of time that assets undergo probate proceedings. The best-written estate plans can also greatly help to minimize an estate’s tax liability or at least provide some predictability in regards to how taxes will apply to an estate.
# 3 – Beware of the Associated Penalties
Besides the substantial taxes that might be payable on an Internal Revenue Service examination, Internal Revenue Code Section 6663 creates penalties for taxpayers who undervalue assets on estate and gift tax returns. The amount of these penalties are based on a percentage of the difference between the final determined value and the value originally reported on a tax return. No penalty exists if the value per a tax return is more than 65% of the final determined value.
Speak with a Knowledgeable Estate Planning Attorney
Administering an estate is not an easy process, even if your loved one’s estate is much smaller than Prince’s. One of the best things that you can do to navigate the various estate planning issues that arise is to contact a knowledgeable estate planning lawyer. Schedule a free case evaluation with Ettinger Estate Planning today.