Estate Tax Rules for High Earners in Entertainment: A Primer

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Catherine O’Hara died on January 30, 2026, at age 71. Her estate illustrates why entertainment professionals face tax planning challenges unlike anyone else’s. Her death reignited questions about how the wealthy in entertainment plan for assets that don’t fit neatly into conventional categories: payments actors get when their work airs again later, things like movie rights or music catalogs that keep making money, and royalty streams whose value depends on factors no one can predict with certainty.

O’Hara’s career spanned decades of iconic roles—from “Home Alone” to “Beetlejuice” to “Schitt’s Creek,” where she collected Emmys and Golden Globes. When an entertainment professional dies, executors face the task of valuing things like “what those future payments from a sitcom that might or might not remain popular on streaming platforms for the next twenty years are worth in today’s dollars.” The IRS has opinions about how to do this. Those opinions frequently differ from the estate’s opinions by tens of millions of dollars.

Why Entertainment Assets Are Hard to Value

When someone dies, their executor must determine what each asset they owned would sell for as of the date of death. For a bank account, this is trivial. For a house, you hire an appraiser. For shares of publicly traded stock, you look up the closing price that day.

Residuals—payments actors, writers, directors, and other entertainment professionals get whenever their work is reused beyond its initial release—are different. You need to estimate how long the show will remain commercially viable, project future payment rates based on union contracts and distribution agreements, and adjust for the fact that money today is worth more than money in the future.

A show that goes into syndication generates residuals. A film licensed to a streaming service generates residuals. TV shows pay differently than movies, and streaming pays differently than broadcast, depending on union contracts.

The IRS counts these future payments as income the person earned before dying. This income must be included in the taxable estate at what it would sell for, and then income tax must be paid on it when beneficiaries receive the payments. This creates a form of double taxation: estate tax applies to the present value of the income stream at death, while income tax applies to the actual payments as beneficiaries receive them over time. The combined effect can result in total taxation exceeding 60 percent, particularly when state taxes are included.

Music catalogs present similar challenges. An appraiser has to look at past royalty payments, guess how popular the music will stay, and figure out what future payments are worth today. For someone like Prince, whose catalog included both mega-hits and deep cuts, this becomes a judgment call about cultural staying power. Will people still stream “Purple Rain” in 2045? Almost certainly. Will they stream the B-sides from his lesser-known albums? Maybe not.

The IRS and estates often fight about these valuations for years in court, costing millions.

The Michael Jackson Case: A Cautionary Tale

The case dragged through Tax Court for years. The IRS initially took the position that Jackson’s name and likeness were worth $434 million. During litigation, the IRS adjusted its position to approximately $161 million on brief, down from its initial $434 million claim. The estate argued that Jackson’s public image had been severely damaged by scandal in the years before his death, making his name and likeness far less commercially viable than the IRS claimed.

The court agreed that you value his image based on how famous he was when he died, not how famous he became afterward. The court valued the assets as of the date of death, not based on what happened afterward.

This case set a rule that applies to all entertainment estates now: valuation must reflect the facts as they existed at death, not the benefit of hindsight. It illustrated how much money hangs on these judgment calls, and how willing the IRS is to challenge valuations it considers unreasonably low.

Prince’s Estate: When There’s No Plan at All

The parties eventually settled before trial, but the case consumed years and millions in legal and accounting fees. Prince’s lack of planning meant that Minnesota’s estate tax—which has a much lower exemption than the federal system—took a substantial additional bite. Had he established trusts or other structures during his lifetime, much of this could have been avoided or minimized.

Planning Tools High Earners Use

Entertainment professionals with serious money use specific strategies to reduce taxes and pass wealth to their families.

A revocable living trust lets you control your money while alive and decide where it goes after you die. For entertainment professionals, trusts can be designed to manage residual income and royalty payments, ensuring these income streams flow to designated beneficiaries according to the deceased’s wishes. Trusts also keep your estate details private instead of having them filed in court for everyone to see.

A more complex strategy uses a special trust to hold life insurance. When you die, the insurance payout isn’t counted as part of your estate, and the money can be used to pay taxes. For someone with a $40 million estate, a $10 million life insurance policy held in this kind of trust can provide cash to pay the federal tax without forcing heirs to sell valuable intellectual property assets at fire-sale prices.

Dynasty trusts let you pass money to your kids, grandkids, and beyond while paying taxes only once instead of every time it passes to the next generation. Some states now let trusts last forever instead of ending after a certain number of generations.

You can own intellectual property through special business structures that give you tax breaks. These structures let you transfer ownership at a lower value because a partial stake in a private company is worth less per dollar than a full stake. You can transfer a music catalog through an LLC at a lower value, which means you can pass more total wealth to your kids without paying taxes.

You can put valuable assets into a special trust, get paid from it while you’re alive, and have what’s left go to charity when you die. The trust doesn’t pay taxes when it sells assets, and you get a tax break for the donation.

These strategies require lawyers, accountants, and financial advisors working together. For high earners, what you pay for good planning is usually much less than the taxes you save.

State Taxes: The Secondary Hit

California, where O’Hara lived, doesn’t impose a state estate tax. Entertainment professionals in other states aren’t so fortunate.

Connecticut has its own separate state exemption that is lower than the federal level. Most states with estate taxes have exemptions far below the federal threshold. If you own property in multiple states or moved around during your career, you need to plan for state taxes. You might move to a state with lower taxes or own property in a way that reduces state taxes.

Some states tax the person receiving the money instead of taxing the estate. Close family members usually pay less tax than distant relatives or friends.

Portability: The Married Couple’s Advantage

For married entertainment professionals, portability is a valuable tax break. If one spouse dies and doesn’t use their full exemption, the surviving spouse can use the leftover amount.

When the first spouse dies, their unused exemption normally disappears forever unless you take a specific step. But if you file the right tax form within nine months, the surviving spouse can use the dead spouse’s unused exemption later. This can double the total exemption available to the couple.

You have to make this choice on your tax return within nine months of death (or fifteen months if you ask for extra time). Miss the deadline and you lose that exemption forever.

Portability means you don’t need complicated trusts to save both spouses’ exemptions. But portability only saves on taxes—it doesn’t protect assets from creditors or let the dead spouse control where money goes. If you have kids from different relationships or complicated family situations, trusts might still be better.

What Happens After Death

When an entertainment professional dies, the person in charge of their estate must list all assets, pay bills and taxes, and give the rest to heirs. This process often takes years, especially with entertainment assets.

The executor must determine what each asset would sell for as of the date of death. For valuable or hard-to-value assets, you need to hire professional appraisers. For entertainment assets specifically, this valuation process can be extraordinarily complex, requiring specialized expertise in intellectual property valuation.

Once you know what everything is worth, the executor files a federal estate tax return within nine months. This form reports the total value of the estate and how much tax is owed. If the state has estate taxes, you also file state tax returns.

If taxes are owed, they’re usually due within nine months. But if the estate is mostly a private business or intellectual property, you can pay taxes over time instead of all at once. You can pay interest for five years, then pay off the rest over ten more years.

If the estate doesn’t have enough cash to pay taxes without selling valuable assets, life insurance can provide the money. Or the estate might sell intellectual property, sell the right to future royalties, or borrow money. How you do these deals affects how much money the heirs actually get.

The Streaming Era: New Complications

The 2023 actors’ contract changed how actors get paid for streaming shows, including bonuses based on how many people watch. As the entertainment industry changes, the way actors and musicians get paid will keep changing, which makes it harder to value their income.

Social media accounts and digital assets are new types of property that nobody knows how to value yet. An influencer with millions of followers has created something valuable, but the IRS doesn’t have rules for how to value it. How much is a YouTube channel’s future ad money worth today? Nobody has figured out the answer yet.

Old residuals were based on how many times a show aired in different cities at different times. Streaming residuals are based on how many people subscribe or how many hours they watch, not on TV airings. This makes it even harder to guess what actors will earn in the future.

Planning Implications for High Earners

Valuing entertainment assets is complicated, state taxes are all different, and tax laws might change—so get professional help.

The lesson from years of celebrity court cases is that planning ahead works much better than scrambling after someone dies. Entertainment professionals who plan ahead—documenting asset values, setting up the right ownership structures, and working with experts—pay less in taxes and leave their money where they want it to go.

If you don’t plan or plan poorly, the results are devastating. You pay huge taxes, families fight over money, creative work gets lost, and lawyers get rich. Hiring lawyers, accountants, IP experts, and financial advisors costs a lot. But for entertainment professionals with valuable assets, the money you spend on experts usually saves you many times that amount in taxes.

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