Deceased Celebrities and Their Shocking Estate Tax Bills
By CHM on Mar 27, 2008 in Featured, Financial Planning, Retirement, and Now!
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Last week over on Get Rich Slowly I read a post about the recently deceased Hollywood star Heath Ledger.
In that post there was a snippet from the NY Times reporting that Ledger’s will was last updated in 2003. Because he met his girlfriend after that date and had a child years later, sadly, neither were included in his will.
JD goes on to write that even young people need to be mindful of proper estate planning. And I’m here to say that I totally agree, although for most (young people) I’d recommend focusing on the simple stuff, like crafting a will.
You would think I’m about to write about wills and the like… but I’m not going to right now. Though I will say (pun;), if you are married, have just had a baby, or have begun to build wealth, it’s important to have one. Any major changes in your life should have you thinking, “I need to update my will!”
With that said… when I read the Heath Ledger post it reminded me of an article I had seen years earlier - about the massive estate taxes that famous celebrities owed the US government upon their passing.
In memory of them all, I thought I’d share some of the basic tenets of current US estate tax law and list a few prominent Americans that gave much of their net worth back to Uncle Sam in the form of estate taxes.
What is included in the gross estate?
Your gross estate consists of everything you own or have an interest in at the date of your death; the fair market value of these items - at the time of death - is used to calculate their worth. (I’m going to try and keep it simple, because when you really get down to it, estate planning can get sorta/kinda complex.)
Let’s assume all of the details have been worked out and you know the value of your estate. (Btw, I know you’re still with us, alive and kicking - I just want you to have a better idea of your potential future estate tax liability, more than slightly morbid, I know:)
What is the estate tax ‘exemption equivalent’?
Although that phrase is kind of intimidating, don’t be scared, it’s really not that bad. The ‘exemption equivalent’ is the amount you can pass through to your heirs without having to pay estate tax to Uncle Sam:
- For 2008 - you can pass the first $2,000,000 of your assets w/o owing estate taxes. The top estate tax rate is 45%.
- For 2009 - you can pass the first $3,500,000 of your assets w/o owing estate taxes. The top estate tax rate is 45%.
- For 2010 - there is no estate tax, as per the Act signed into law by GWB in 2001. For this one year ONLY, there is what is called a “sunset” provision on the estate laws, where no estate tax is owed. On the bright side, if you are vulnerable to estate tax this would be the year you’d want to go.
On the flip side, if you’re a wealthy person I would be scared to come out of the house. If I was Bill Gates, I wouldn’t attend too many family functions without the accompaniment of heavy security. Although I say this tongue in cheek, I guarantee there will be some very strange goings-on in 2010. - For 2011 - currently the laws are set to revert back to the federal estate thresholds used before the 2001 Economic Growth and Tax Relief Reconciliation Act. Those in the know think this won’t happen, as new legislation will be introduced sometime in the next few years to avoid this reversion. If the laws do revert back to 2001 levels, I predict you will see a surge in the amount of lawyers practicing estate law.
Once again, this post is getting too long and I haven’t even gotten to the good stuff… the celebrity gossip. Before I get to that, in all seriousness, these are the basic facts you need to be aware of when it comes to estate taxes.
The majority of Americans won’t be running up against these thresholds, but if you are in your 20’s, 30’s or 40’s, proactively planning your future, there’s a much higher likelihood of you running up against some of this down the road. So, like everything else, I recommend educating yourself on the many estate possibilities. Without further ado…
Here’s a list of famous and prominent Americans who did not:
- The King - Elvis Presley - When he died in 1977, his estate was valued at more than $10 million. After going through probate, his estate taxes and fees consumed a shocking 73% of his estate. His heirs were left with less than 3 million dollars.
- Nat King Cole - when he died his estate was valued at over 3.5 million. After estate taxes and settlement costs, his daughter Natalie received less than $1 million.
- Marilyn Monroe - although her estate was small at the time of her death in 1962, she still paid out over 55% in estate and settlement costs.
- Howard Gould - the last surviving son of Jay Gould, the famous railroad builder - left a gross estate of over $67 million dollars. He had to pay a whopping $52 million in estate settlement costs, losing nearly 78% of his estate.
- Senator Robert Kerr - from Oklahoma was worth over $20 million at the time of his death in 1978. He owed the IRS over 9 million dollars. Ironically, he was one of the senators that supported the legislation to allow Congress to tax someone’s estate up to 55% (at the time), in the first place.
- Charles Woolworth - co-founder of Woolworth’s, lost 10.3 million or 62% of his estate to Uncle Sam.
- Lawrence Wein - senior partner and founder of famous New York law firm Wein, Malkin and Bettex, lost over $22 million (or 61%) of his fortune to estate taxes.
- Currently, the estate of the “Godfather of Soul” James Brown is heading down the same path as some of the aforementioned. His estate is estimated to be somewhere in the neighborhood of $150 million dollars and JB did little to no estate planning.
I think you get the picture!
In conclusion
For most Americans, there are some simple estate planning moves you can make to prevent the devastation many of the above experienced. But let’s not get too ahead of ourselves, start by making sure you have a will in place and it’s up to date; and then go from there…
Tags: estate tax exemptions, federal estate tax
Ron@TheWisdomJournal | Mar 27, 2008 | Reply
Great points. You reminded me that I need to update MY will. I haven’t done so in 10+ years and there have been quite a few changes since then…including the birth of my son.
CHM | Mar 27, 2008 | Reply
It’s one of the things I find most people always put off. I have clients that I constantly remind to update their wills and they continue to put it off.
I think people don’t like the association with dying, therefore they choose not to address it.
clambelly | Mar 27, 2008 | Reply
Good post. But don’t forget your health care proxy (living will). You don’t want to risk becoming the next Teri Schiavo. The bottom line is that without a will and health care proxy, the government will be intimately involved with your business. And nobody wants that.
Mrs. Micah | Mar 27, 2008 | Reply
Wow. If I was rich, I’d probably create some kind of trust for my heirs…and leave a bunch to good organizations.
Dylan | Mar 27, 2008 | Reply
Don’t forget about state taxes! Some states have much lower exemption amounts than the federal estate tax.
Evan | Mar 28, 2008 | Reply
J.D. here who does estate planning DAILY!
Couple of Points:
1) Dylan made an excellent - these are known as Decoupled States (there are 18 of them). New York is one of them, where the exemption amount is $1,000,000 - so those people with a taxable estate of $2,000,000 will owe nothing to the federal gov’t but will have the honor of paying Albany $99,000 (approximately).
2) You should do a post on wealthy celebrities that paid “next to nothing” in estate taxes. Jackie O. had an estate of approximately 30 million but paid less than 1 million in taxes using a Charitable Lead Annuity Trust (CLAT) - this is oppossed to the 55% some of our other celebrities paid.
3)It is interesting if you look at which quitiplutes (sp) actually pay the estate tax you would be suprised. The highest always does - mainly cause you can’t shelter THAT much money, but the 2nd quituplute pays LESS THAN THE 3rd because of proper planning!
Sorry for the long comment, I just love this subject.
clambelly | Mar 28, 2008 | Reply
quitiplute? J.D. do you use that word DAILY!?
CHM | Mar 28, 2008 | Reply
@clambelly, Dylan and Evan - thanks for the feedback, all great points.
I tried to keep it pretty light, I’m sure there’s a lot of things that could be added, in fact I could break out an individual post on each of the things you mentioned. For now, I’ll leave it to the comments section for anything further. Maybe a few guest posts down the line may be in order, I’d love it;)
@Mrs. Micah - setting up trusts is definitely one of the ways to go when it comes to estate planning. I like where your heart is.
Jerry | Jul 4, 2008 | Reply
As someone who just signed $945,000 of my mother’s estate over to the IRS, I feel the pain and mostly agree with you; that said, accuracy in stating your case is important, and I find an aspect of your discussion problematic. Of Howard Gould, you write >>He had to pay a whopping $52 million in estate settlement costs, losing nearly 78% of his estate.<< You make similar observations about others on your list. Howard Gould didn’t have to pay anyone anything. He was dead. He could have spent everything he owned, including that $52 million, in his lifetime, and no one would have had a right to object. He didn’t, so his heirs, who presumably had no claim on any of the money other than the fact that Howard was their friend, or father, etc., had multiple millions of dollars dumped in their laps. In order to accept this windfall, they had to cut a check to the IRS. They still received a huge amount of money that they did not work for, did not earn, and did not deserve in any real sense of the term. I, myself, am a small time millionaire because my mother and father (1) worked hard, and (2) got lucky. I am not a big time multi-millionaire because my mother and father (1) did not work hard enough and/or (2)did not get lucky enough. But I can’t lose sight of the fact that I’d have received no money at all from them if my father didn’t get lucky one night in April, 1960 — something for which I can hardly take any credit. I hope that I can preserve and perhaps even grow this wealth to pass along to my own children, but they don’t have any claim to it should I decide to spend it all before I go, or leave it to charity. The real problem is not taxes, but spending: The federal government is deeply in debt, and will either have to dramatically raise revenues, somehow, or simply print more money and let inflation run rampent, or default. All the options look ugly in the details. Personally — once I accept the fact that our government has been spending like the proverbial drunken sailor and, one way or another, my children or I will have to pay the tab — I’m OK with estate taxes. Having the IRS take money from the stack I leave when I die is far preferable to taking more out of my paycheck.
kentuckyliz | Aug 23, 2008 | Reply
Don’t forget, permanent resident aliens in the US only have an estate-tax free threshold of $50,000. Part of the reason why me and my entire family naturalized.
Was Heath Ledger a US citizen? I thought he was Australian. Would he be subject to US estate taxation laws and processes, or Oz? I’m cornfused.
If US state laws apply, his son will get a % of the estate determined by state law, automatically, regardless of what the will says. In fact, some former Heath floozies who suspect his fatherhood of their chile might be doing DNA testing to see if they can get a piece of the action. That’s if they’re smart, anyway. No telling.
There’s a really good intestacy calculator on the Forbes website. Pretty motivating to finally get the will thing done.
People forget about changing their beneficiaries on their life insurance, investments, and retirement plans. Sometimes the new wife gets frozen out because hubby never changed the forms and the first wife laughs all the way to the bank. Probably a good little reward for her for the pain of being tossed out for a younger model trophy wife. LOL
(Those beneficiary designations on those forms for those accounts are what rule those distributions, regardless what the will says. Life insurance, IRAs, retirement plans are done outside of probate. It’s very quick to transfer and retitle those assets directly with the companies.)