Estate planning can include tricky appraisals, tax implications

When someone comes up with an idea, whether it is in the form of an invention, a patent, a book, a song, or any other concept that might last longer than a person's life, they need to consider the monetary value of these ideas in their estate plan. For example, when Michael Jackson died, it was important to the Internal Revenue Service that his estate appraisal included future royalties that his heirs might make on his songs.

When he died, he hadn't produced an album in years and his reputation had been tarnished from multiple lawsuits, resulting in minimal sales of his works. However, after his death, sales of his albums exploded, making it very difficult to appraise his estate, which included royalties, for estate tax purposes.

Similarly, the estate of the author of one of the most famous novels of all time, J.D. Salinger, could be difficult to appraise. The author of "The Catcher in the Rye" reportedly wrote five unfinished manuscripts before he died in 2010, which could be published in the next couple years, and generate unknown revenues and royalties.

While many people might think that they don't have anything that could generate royalties, it is important that they think about anything they've worked on that could potentially find great success after their death. The reason this is so important is to try to prevent the IRS from raising questions regarding a person's estate well after a person's beneficiaries thought the estate was settled. If the IRS believes an estate was inaccurately appraised or that they were misled, they could require an audit, costing the heirs of an estate more time and money, and resulting in potential penalties.

Source: The New York Times, "Putting an Estate Value on the Assets Unique to You," Paul Sullivan, Sept. 27, 2013