When I started blogging about estate planning, I wasn’t sure how often I’d get to write about Michael Jackson, but here I go again. My excuse this time is that his estate recently received a tax bill for $702 million. That may sound like a problem, but I, for one, aspire to receiving a tax bill that large when I die.

Mistakes can cost you

While most of us won’t be lucky enough to have to fork over that kind of money after we die, there are a couple of lessons that everyone can draw from this. First, note that 28% of the bill ($196.1 million) is actually a penalty, not a tax. In an act of extreme chutzpah, the people responsible for estimating the value of the estate to the IRS claimed that Jackson’s image and likeness only had a taxable value of $2,105. This has become a small point of disagreement, as the IRS has informed the estate that it thinks the value of Jackson’s likeness is closer to $434 million. The estate’s low-ball valuation must have come as news to the people who make their livings impersonating Jackson. Also, Jackson’s beneficiaries (i.e., the same people set to benefit from the estate’s assets) have filed a lawsuit against Sony, claiming $40 billion of damages as a result of Sony allegedly using a fake Michael Jackson to promote his last tour, so apparently they think his image is worth something. The first lesson, therefore, is to pick good people to handle your estate for you. Mistakes can dearly cost the people who you were hoping would receive your assets.

Even for the King of Pop, liquidity is king

Second, no matter how large your bottom line is, it is critical to ensure that you have adequate liquidity to carry out the plan that you put in place. The article reporting this tax dispute does not specify whether the estate has sufficient liquid assets available to pay a bill that large, but it seems likely to be a problem, given how much of the estate is $built on non-liquid assets, like copyright ownership of his songs. If your estate contains lots of assets that would be difficult to sell, like a closely held business, art, intellectual property, and maybe even real estate, it is critical to remember that your beneficiaries might have to pay taxes, insurance, and other ongoing costs to maintain those. The more they’re worth, the bigger this problem could be. The second lesson, therefore, is to carefully consider what portion of your estate will be immediately available to your beneficiaries, and whether it will be sufficient to cover any new financial obligations that they might be inheriting as well.

Update (10/19/2014):The IRS recently admitted to making a mistake when calculating the value of Jackson’s estate. Surprised? Don’t be. The mistake to which it admitted resulted in a lower valuation. The IRS is now demanding $29 million more.