Michael Jackson’s Estate: Nightmare for the Family and Long-Term Income for Attorneys, Accountants and Appraisers

Hang on tight. The administration of Michael Jackson’s estate is likely to be a wild ride! Is there a will? Is there not? If so, who gets a cut? What did Jackson own when he died on June 25? How much is it worth? Is there enough cash to pay the federal estate taxes that will come due on March 25, 2010? Given the rocky nature of the Jackson family relationships in the past and the questions surrounding who the mothers of his children are, this particular estate will be anything but boring. And it will undoubtedly prove to be a source of long-term income for the attorneys, accountants and appraisers involved.

Is There a Will?

The Wall Street Journal reports that a lawyer for the pop singer could file a will, believed to be his last, in the Los Angeles Superior Court as soon as Thursday, July 2nd. This may be the 2002 will that some say divides his estate among his mother, three children and one or more charities. Other sources report that at least 3 wills have surfaced since his death.

Update 7/1/09: Jackson’s will was filed with the court today. You can see a copy of the five page document here. It leaves everything to a trust created in 2002. This type of will is called a pour over will because it pours over everything to a trust. Three executors are named. It specifically omits Jackson’s former wife, Deborah Rowe. Katherine Jackson, the singer’s mother, is nominated as guardian of his children. Diana Ross is the backup guardian.

Meanwhile, the Associated Press reports that his parents said in a court filing on June 29th that the singer died without a valid will. Los Angeles Superior Court Judge Mitchell Beckloff gave Jackson’s mother temporary guardianship of the singer’s children, presumably based on that representation.

Update 7/1/09: The Associated Press reported that Judge Beckloff ruled that Katherine Jackson will continue to have limited control over Michael’s estate until Monday. The executors named in the Will filed with the court today had filed an objection. The Will gives them control over the estate.  Beckloff says he granted Katherine Jackson “slim” authority to take control of her son’s items from Neverland Ranch. Roughly 2,000 items were slated for auction earlier this year, but the sale was stopped after Jackson sued.

Hearings are set on July 6 and August 3 on Katherine Jackson’s request to take charge of Jackson’s and the children’s estate and her request to be appointed permanent guardian of the children.Of course, those requests may be moot if Jackson did, in fact, have a Will that includes other instructions.

How Much is Jackson’s Estate Worth?

How much the estate is worth will presumably have to wait until wrangling over the estate’s return is finished – probably many years from now. The federal estate tax return is due on March 25, 2010 – 9 months after Jackson’s death. Because of the hard-to-value nature of his estate’s primary assets, you can count on the estate reporting a low-ball value that the IRS will then automatically reject. There will be work aplenty for lawyers, accountants and appraisers for years to come.

Jackson’s estate includes a 50% interest in Sony/ATV Music Publishing. The 750,000-song catalog includes 251 songs by the Beatles as well as songs of Elvis Presley, Bob Dylan, Neil Diamond, Lady Gaga and the Jonas Brothers. Robert Frank in The Wealth Report says this asset alone is worth between $500 million and $1 billion. An article by Anthony McCartney, an AP entertainment writer, puts the value as much as $2 billion. Wikipedia cites various sources placing the value of the entire company between $600 million and $1.5 billion.

The Sony interest is, however, collateralized by a $300 million loan held by Barclays PLC. The Wall Street Journal reports that Sony has the right to buy half of Jackson’s 50% share. That could provide the estate with cash it’s going to need. How much they’ll get may be another question.

The estate also includes Mijac, the publishing catalog that includes Jackson’s own music. This may be worth perhaps $75 million – probably more now that Jackson has died. It is reportedly collateral for a $73 million loan.

Sony currently controls the master recordings of Jackson’s music. They are to revert to Jackson (and presumably now his estate) in five years.

How Much Will the Estate Tax Bill Be?

Let’s say the estate turns out to be worth $1 billion with about $500 million of debt. Depending on how much he left to charity, the estate could owe federal estate taxes of as much as $223 million. That amount would be reduced about 45¢ for every dollar left to charity.

From all the news reports I’ve seen, there isn’t anywhere near that much cash laying around. The estate had better be very good at negotiating the sale of its assets. The IRS doesn’t care what the estate gets at a fire sale. It’s going to value Jackson’s assets at what it thinks they are worth.

And given Joe Jackson’s comments about founding a recording studio, if the family gains control of the singer’s assets, it would have a strong incentive to value Jackson’s catalog as low as possible so the songs could be released through his father’s new business.

California’s estate tax is a ‘pick up’ tax equal to the state death tax credit under federal estate tax law. The federal credit has been repealed for the period 2005 through 2010. Therefore Jackson’s estate will owe no California estate or inheritance tax. If Jackson owns assets in other states, they may want to line up at the trough with the feds.

Final Thoughts

Watching the estate over the next few years may be almost as entertaining as watching Michael himself. Look for more articles in the coming months!

Share your thoughts with others by leaving a comment.

Related articles from WalterBristow.com:

1. Katherine Jackson Still Trying to Gain Control of Michael’s Estate
2. How to Look at Michael Jackson’s Probate Court Files Online
3. Senate Estate Tax Bill Would Exempt $3.5 Million
4. Whither the Estate Tax?
5. Obama Calls for More Estate and Gift Taxes to Pay for Healthcare