Berman & Asbel, LLP

Just Because an Asset is Intangible Doesn't Mean it's Not Taxable

Readers may be aware of the fairly recent news involving the estate of singer Whitney Houston. According to reports citing court documents in the case, attorneys for the estate won a significant victory by reaching an agreement with the IRS to pay $2 million in taxes. The IRS had sought $11 million, alleging that the estate had undervalued the worth of certain Houston assets such as royalties, residuals and the value of her name. A term that applies to many of the items on that list is "intangible assets".

The Houston case and others like it reflect the challenge that intangible assets held by individuals and businesses can present in terms of solid estate planning and probate litigation in Pennsylvania.

Some Tax Fundamentals

Those with experience in this area of law would agree that nearly everyone has assets that warrant inclusion in an effective estate plan. A good first step in developing such a plan is to know what property the law says is subject to the Pennsylvania Inheritance tax or, with larger estates, subject to the Federal Estate Tax. The list includes:

  • All real property: Such items as cash, motor vehicles, furniture, homes, possessions, etc., located in the state at the time of a decedent's death
  • All intangible property: This encompasses holdings on paper (stocks, bonds, bank accounts), private business interests, and funds on loan to others. It doesn't matter if these assets are in state or out of state.

Not specifically mentioned, but equally deserving inclusion as intangible assets is intellectual property. Included under this heading would be:

  • Copyrights
  • Trademarks
  • Patents
  • Trade secrets

If a person writes a blog, that too could be considered intellectual property.

But because these are intangible, assigning value for estate purposes is difficult. The potential market for a given asset can change with time. Whether the rights to an asset are exclusive or non-exclusive could also affect values.

These and other factors represent potential valuation land mines that the experienced attorneys at Berman & Asbel, LLP are able to identify and work to avoid by thorough estate planning.

Regarding the Federal Estate tax, the proceeds of a life insurance policy may (depending upon how the policy is set up, the size of the policy and the rest of the estate) be subject to being taxed. Careful planning should include reviewing the size, control and beneficiaries of life insurance policies.

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