How Will I Know?

In 2012, the singer Whitney Houston died suddenly, drowning in a hotel bathroom after years of battling drug addiction. Yet the world will always treasure her musical legacy. The Guinness Book of World Records reports that she was the most awarded female artist of all time, with two Emmys, six Grammys, 30 Billboard Music Awards, and 22 American Music Awards, among 400+ awards. Rolling Stone listed her debut album as one of the 500 greatest albums of all time. And VH1 put her number three on their “greatest women of the video age” list, behind Madonna and Janet Jackson.

Houston also left a considerable financial legacy, estimated at $20 million. She saved all her estate in trust for her only child, Bobbi Kristina Brown, with instructions to release 10% when Brown reached age 21, another sixth at age 25, and the remainder at age 30. (Brown died in 2015 from her own drug overdose, leaving the ultimate fate of the estate in the hands of lawyers, who are sure to bill lots of hours.)

But Houston’s estate includes far more than cash and securities. It also includes her music catalog, digital performance royalties, movie and television residuals, and “publicity rights,” meaning her right to control the commercial use of her name, image, and likeness. Now, it’s easy to value assets like cash or stocks. But valuing the music catalog involves estimating the amount of future royalties, and valuing publicity rights is even more subjective.

Naturally, the IRS gets so emotional about those sorts of intangible legacies, especially with estate tax rates in 2012 running at 40% on amounts over $5,120,000. In fact, estate tax returns are audited more than any other type, with the IRS examining over 30% of estates reporting $10 million or more in assets. (Does that mean estate taxes are the tax man’s “Greatest Love of All”?) These disputes often come down to a battle of valuations, which makes a good appraiser all the man you need.

The IRS determined that Houston’s representatives underestimated the value of her intangible assets by $22.6 million. They imposed a $7.92 million deficiency and $3.17 million in penalties. The parties were scheduled to go to trial next month. However, on December 26, 2017, the estate filed documents agreeing to settle for $2,275,366. (“Didn’t We Almost Have It All,” we can imagine the folks at the IRS humming as they deposit the estate’s check.)

This isn’t the first time the IRS has battled over pop star publicity rights. Executors for Michael Jackson’s estate valued his at just $2,105, which essentially argues that the King of Pop’s bizarre controversies and misadventures had rendered his image essentially worthless. Attorneys at the IRS told them to beat it, valuing those rights at $434 million. That case is still working its way through court — last month, a Tax Court judge denied the IRS’s bid to provide additional evidence to support seeking penalties up to 40% of the allegedly understated tax.

The Tax Cuts and Jobs Act of 2017 doubles the estate tax “unified credit” to $11.2 million per person for 2018. This should cut the number of estates filing returns to less than 4,000 per year. But careful planning is still in order to make sure your legacy goes where you want it going. So call us when you’re ready to plan, and let’s make beautiful (financial) music together!

Share this post:


  • We started our residential real estate business and brought Damon on as our principal adviser for all matters relating to taxes & accounting. We have doubled our business each year and Damon is a critical partner that has allowed us to successfully focus on our business.

    – Dan and Rachel Kendall
    Owners, The Rachel Kendall Team, LLC - Raleigh, NC
  • Damon Yudichak is a diligent and consistent professional. I’ve worked with Damon since 2009 and I’ve felt like a valued customer since the beginning of our relationship. His firm is consistent, courteous, and knowledgeable. He and his firm are a vital link to my business.

    – Al Sullivan, President
    Inspirus Consulting, Inc. – Cary, NC
  • Owning a small business… to me, it’s worth millions! Bringing Damon on for accounting and tax purposes… just a reasonable monthly fee! Keeping our business legal and my business partner sane… PRICELESS!

    – Tonya Baskerville, Owner
    Art on the Fridge, LLC – Raleigh, NC