Michael Jackson needed life insurance. You probably do too. I have not read whether or not he had any, but let’s take a look at his estate and learn why people need life insurance for estate planning.
Michael Jackson’s Estate: The value of Michael Jackson’s estate has been estimated at over $1 Billion dollars. Jackson owned a 50% stake in the Sony/ATV Music Publishing catalog, whose value alone may exceed $2 Billion. There has been wide speculation as to the value of this 50% share, but for the sake of this article, let’s assume that when you add up the value of Neverland Ranch, art, publishing rights to his music, and countless other valuables, his estate assets equal $1 Billion.
Estate Taxes: After paying Jackson’s debts, the executors must pay estate taxes on the remaining value of the estate. From the date of his death, Jackson’s executors have 9 months to file IRS form 706 and pay any estate taxes due. The first $3.5 Million will pass to his beneficiaries estate tax free, but every dollar after that will be taxed at a federal rate of 45%.
NOTE: As of Jan. 1, 2011, only $1 Million can transfer estate tax free.
If your net worth exceeds $1 Million, you may need life insurance.
Assuming Jackson’s taxable estate is valued at $100 Million, that means his estate will have to come up with $45 Million in 9 months. There may also be CA death taxes and probate costs to pay. How could his estate possibly afford this? It most likely can’t. And if the estate doesn’t have the cash to pay, it will have to liquidate assets.
Note: Some of the value of the estate will be excluded from estate taxes depending on if it was held by a trust and how those assets were titled. In addition, any money in the estate donated to charitable organizations is not taxable.
Where Life Insurance Comes Into Play: Since selling Jackson’s stake in Sony/ATV, or his ranch and art would be difficult, or next to impossible to do in 9 months, life insurance could have helped Michael Jackson’s estate tremendously. Remember, his problem is not insolvency, but the 9 month time crunch. His problem is not that he can’t pay the estate tax, but that his money is all tied up in his assets. Wouldn’t a $20 or $30 Million dollar life insurance policy made sense as an excellent source of liquid cash to pay estate taxes now?
If your net worth is more than $1 Million dollars, you need to speak to an agent to see whether or not life insurance fits with your goals of transfering your wealth. Call me at (619)564-4873.
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