Debate Prep: The Candidates’ Estate Tax Plans

By David Herzig

With the first Presidential debate tonight, we are sure (or at least I hope) to hear about various tax plans.  I would expect that the estate tax would be a topic of conversation since there is such a sharp contrast between the candidates.  The current reporting spins that Donald Trump wants to eliminate the estate tax; while, Hillary Clinton wants to tax the rich through a two-prong increase on the estate tax.  I thought it would be useful in advance of the debate to discuss the candidates’ actual estate tax plans. (If there is a PA for Lester Holt looking for some last minute questions for the candidates – scroll to the bottom and steal away no attribution needed!)

Currently, there is an estate (or death) tax. Unfortunately for the fisc, the tax accounts for less than 1 percent of federal revenue.  (See, Tax Foundation). What is amazing is that at other points in time, the tax actually raised revenue and effected many estates.  The primary reason for the drop in revenues even though overall net worth has increased, is related to the exemption amount available for taxpayers.  In 1976, the exemption amount per estate was $60,000 while today it is $5.45 million.  (I tackle a lot of these issues in my upcoming University of Southern California Law Review article).

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Prince and the Estate Tax

As radio stations play Prince songs all day long and Purple Rain makes a return to the theatre, I was struck by the vast amount of content Prince not only produced but owned. Sadly, immediately, I thought of the potential estate tax value of Prince’s estate.  This unique situation is playing out right now with the Michael Jackson estate but here Prince owned more of his own work.

Currently, conservative estimates have his estate at $300 million.  But these estimates may be way off as Prince actually owned his recording and publishing copyrights. According to the LA Times, music industry insiders say they “can’t imagine a catalog that would have a higher value.”

There is much speculation on who will receive his estate.  Because, probate has not been opened, we do not know if Prince had a will yet or not. There has been speculation that he had no will since he was unmarried and had no children.  But this seems rather silly (and kind of offensive) to me given his concern for protecting the value of his catalog during life. I would expect to see a pour-over will to a trust.

What will be interesting is what type of estate planning he engaged in during life.  Normally, estate tax returns are private and only the estate, the beneficiaries and the IRS know what is on them. However, in the case with a hard to value asset (e.g., a massive music library), there is often a difference of opinion between the estate and the IRS as to the value of the asset.  Since the resolution of the difference is in court, we will get a glimpse into the planning done by Prince.  One point to make here is that if the beneficiary of the estate is Jehovah’s Witnesses as has been reported (speculated), then this might not end up in court because there would be no tax due because of the estate charitable deduction.

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