Monthly Archives: November 2013

November 26, 2013

Death, taxes…and litigation?

by Morgan Wiener

The old saying is that nothing is certain except death and taxes.  But for the estate of Michael Jackson, another seeming certainty is endless litigation involving the estate. 

Since the singer’s death in 2009, the estate has been embroiled in various lawsuits, some directly related to probate and estate issues, and some to which the estate has simply been a party.  For example, in the months immediately following his death, Jackson’s parents mounted short-lived and unsuccessful attacks on the will and the appointment of the nominated personal representatives.  The estate was also involved in the wrongful death lawsuit brought by Jackson’s family against his concert promoters and has had to contend with issues concerning Jackson’s children, including the identity of their biological parents.  More recently, the estate has been sued by producer Quincy Jones for breach of contract relating to payments of royalties and other fees.  This latest lawsuit was filed last month and seeks damages of at least $10 million.

The Jackson estate is also engaged in a fight with the IRS.  Over the summer, the estate filed a challenge to a $702 million tax bill stemming from what the IRS claims was an undervaluing of the estate.  The estate tax return filed after Jackson’s death valued the estate at approximately $7 million.  The IRS, however, valued the estate at over $1 billion.  A large part of this discrepancy is related to the valuation of Jackson’s image and likeness.  As of the date of his death, the estate valued Jackson’s image and likeness at $2,105, but the IRS valued them at $434 million.  This great discrepancy raises interesting questions about how to value unique and intangible estate assets.  In the case of Jackson’s image and likeness, a factor that may be at play is the fact that Jackson has made so much money after his death (earning $160 million from October 2012 to October 2013, he was Forbes’s top earning dead celebrity for that year).  While Jackson’s image and likeness are certainly valuable now, and have been since his death (it is estimated that he has earned more than $1 billion since his death), the relevant question for estate tax purposes is what was the value of this asset on the date of death.  Given that Jackson was in financial trouble, reported debts in excess of $500 million at death, and had received significant bad publicity over the years, the estate will likely argue that the IRS is attempting to attach a post-death value to an asset that has appreciated considerably in the last four years and that Jackson was, quite literally, worth more dead than alive.

While most estates won’t have these same issues to contend with (or garner years of international news coverage), the Jackson estate illustrates the wide variety of issues and disputes that can arise during administration, even years after a decedent’s death.

November 11, 2013

Approval of Settlement Over the Objection of an Interested Person

by Rebecca Klock Schroer

Fiduciary litigation cases are often complicated by the fact that there are many interested persons/parties involved.  When trying to settle these cases, it is not unusual to have the agreement of all interested persons except for one.  One way to proceed is to seek court approval of the settlement agreement with notice to all interested persons. 

Saunders v. Muratori, 251 P.3d 550 (Colo. App. 2010) is a very interesting appellate opinion that addresses this issue.  Saunders involved a trust dispute in which three of the beneficiaries reached a stipulation and one objected.  The trial court approved the settlement over the objection under Colo. Rev. Stat. §§ 15-12-1101 & 15-12-1102.  These statutes are typically applied to court approval of a compromise in the context of an estate, however, no one in this case objected to the application of these statutes to a trust matter.  The Saunders court upheld the trial court’s approval of the settlement agreement and concluded the following:

As an apparent matter of first impression in Colorado, we conclude that when, as here, trust beneficiaries bring suit for the benefit of a trust, a court may properly approve the settlement of such an action, even over the objection of one of the petitioner beneficiaries, if the settlement is just and reasonable. 

The Saunders court compared the facts to a shareholder derivative suit, because in a trust matter, the court is charged with protecting the interests of the trust, trust assets and the intent of the settlor.  According to the opinion, there are four factors that a trial court should consider when determining whether to approve a settlement agreement:

  1. whether the proposed settlement was fairly and honestly negotiated;
  2. whether serious questions of law and fact exist, placing the ultimate outcome of the litigation in doubt;
  3. whether the value of an immediate recovery outweighs the mere possibility of future relief after protracted and extensive litigation; and
  4. the judgment of the parties that the settlement is fair and reasonable.

Click here to view the Saunders opinion.