Good News Bad News

Americans love lists. Maybe it’s because we’ve gotten lazy in our old age. Maybe it’s because social media has destroyed our attention spans. Regardless of why, open any magazine or news site, and you’ll find one or more lists filling space. Sometimes, they’re informative and fun. Mostly, though, they’re clickbait sludge. (Odds are good it was ChatGPT that did the “writing,” too.)

Forbes magazine launched their flagship list of the 400 richest Americans back in 1982. Since then, they’ve added so many lists they have an entire web page dedicated just to helping you find them: billionaires, of course, along with best-paid athletes, richest self-made women, hip-hop cash kings, and the Cannabis 42.0. But their most fun list might be the annual Highest-Paid Dead Celebrities. For 2024, Michael Jackson took home the gold with $600 million. Freddy Mercury (lol) took home the silver with $250 million. Dr. Seuss snagged the bronze with $75 million, proving healthcare reform is still no match for your kindly family doctor.  And Matthew Perry joined the list at #9, powered by $17 million in Friends royalties.

Of course, none of those celebrities are actually enjoying those millions. So what really happens to them? And who winds up paying the tax?

If celebrities do their homework before shuffling off this mortal coil, their estate plan governs where their income-producing assets go. Those assets may include song royalties, film or TV residuals, and the like. They may pass outright to a spouse or may be held in trust for children or other heirs. In most cases, the income eventually gets passed to another taxpayer, who simply reports that income on their own return and pays tax on it.

Stars who earn enough to make the Highest-Paid Dead Celebrities list face another hurdle, however. Most of them wind up owing millions in estate tax (or at least their heirs do). That can mean years of expensive court battles debating asset values. When Michael Jackson’s executors filed his estate tax return, they valued his image and likeness rights at just $2,105. The IRS politely laughed and came back at $434,264,000. Twelve years after his death, the Tax Court released a 271-page opinion settling the matter at $4,153,912. That meant over $170 million in tax savings.

But celebrities don’t always do their homework. And recent history is full of cases where they die without wills, and assets get tied up in court battles. Prince—currently #6 on the Dead Celebrities list at $35 million—died without a will. So did Aretha Franklin. So did Black Panther star Chadwick Boseman. When that happens, income generally accumulates in an estate account while survivors fight it out for the spoils. Executors file Form 1041 to report the estate’s income and deductions, then pay tax on anything not distributed. (By the way, accountants love filing Form 1041. Just because clients die doesn’t mean we can’t still bill them.)

Dying without a will is a great way for a celebrity to waste money on unnecessary taxes. It also means their assets can wind up with someone they never would have chosen. When Doors frontman Jim Morrison died at age 27, his estate passed to his wife, Pamela Courson. Just a few weeks after a court finalized her inheritance, she OD’d, with no will—and Morrison’s estate passed to her parents. Morrison’s mom and dad had to spend six years fighting in court for 50% of the Lizard King’s royalties. Unintended consequences! Get some!

You all know the lesson here, besides “don’t do ketamine in your hot tub.” It’s “do your homework!” Many tax and financial disasters can be prevented with a little bit of planning and paperwork. We’re here to help with the plan.

Today, your average accountant or tax professional focuses their effort on making sure the debits match the credits. It’s scary how much they can leave on the table! That’s why we don’t stop with telling you how much you owe. We take the time to look for those tax "disconnects" to make your income disappear like your kids’ candy. There's nothing scary about it at all. So call us when you're ready to pay less. You'll think the savings are pretty sweet!