By Jeffrey R. Wolfe, Senior Vice President and Manager, Wealth Planning Strategies
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As Halloween nears, many people like to dress up as someone famous, whether real or fictional. However, you should work to avoid some “famous” estate planning errors that happen all too often.
Failing to Plan at All: Prince
Many consider the artist Prince to be one of the most talented and prolific entertainers of our times, whether it be his musical portfolio, his historic Super Bowl halftime show or his fashion. However, Prince was like the majority of Americans in that he had no estate plan. Dying intestate left his estate in complete disarray and exposed it to significant estate taxes that could have been minimized with proper planning. After nearly seven years of litigation to resolve who would inherit Prince’s assets, along with how much estate tax would be owed, his estate settled.
The Takeaway: You should proactively execute an estate plan to determine who will inherit your assets and, if you face an estate tax liability, how to address that liability.
Will Planning vs. Trust Planning: James Gandolfini
Famous for his role on The Sopranos, James Gandolfini earned a significant amount of money. His will left 20% of his estate to his spouse, chunks of money to his daughter, his sisters and other family/friends, and a trust for his then 13-year-old son. There are lots of articles about how Mr. Gandolfini’s will failed to utilize many estate tax savings techniques or failed to protect wealth because his children eventually inherited their assets outright at very young ages. That said, we don’t know what Mr. Gandolfini’s legacy goals were, whether he knew of these tax or asset protection techniques or not, or whether he simply declined these options.
In the grand scheme, the bigger takeaway is that Mr. Gandolfini used a will for his primary planning, which means everything in the will is public record. That’s how we know how much his estate was worth, where his assets are passing, and when. Had Mr. Gandolfini utilized a revocable trust, which is privately administered, we would have no idea where his assets were passing or how.
The Takeaway: Wills are fine planning documents; however, they are public record, involve courts and attorney’s fees, and do not come into effect until death. A revocable trust, however, properly funded and administered, provides privacy, does not involve court involvement and can help address incapacity during life. Consider whether a trust plan may be better for you.
Not utilizing professional expertise – Aretha Franklin
I’m often asked the question, “Can’t I just find an estate planning form online versus utilizing a properly trained estate planning attorney?” My response is typically, “Can’t I find how to set a broken bone online versus utilizing a properly trained orthopedic doctor?” The answer to both questions is “yes,” but professional help is often a better outcome.
For example, Aretha Franklin passed away with a will dated 2010, kept under lock and key in her home, and she had a handwritten will dated 2014 found in a binder in her couch. The wills had competing language, including who would be the personal representative and who would inherit what assets. In the end, after significant litigation, the court determined the 2014 will was the controlling document.
The Takeaway: It’s likely that if Ms. Franklin had engaged a professional in designing her estate plan, litigation over the competing wills could have been avoided, and other planning opportunities could have been considered to better secure her legacy. Consider working with a professional to implement and update your estate plan.
Failing to fund your plan: Michael Jackson
The “King of Pop,” Michael Jackson, avoided many of the issues we’ve covered so far. He had some significant trust planning in place; however, he never “funded” the trust(s) with assets. While, again, there are debates about how those trusts could have been better structured to minimize estate tax and protect assets for his descendants for generations, the bigger mistake is that Mr. Jackson failed to title assets into his trust during his lifetime. Consequently, probate courts were involved, and it took years to finalize Mr. Jackson’s estate.
The Takeaway: Your estate planning is an ongoing process. Once you sign documents, your work isn’t done. If you utilize trust planning, you need to title assets into the trust. Consider making a day of your estate planning: sign your documents in the morning, meet with your financial advisors next to retitle assets, go to the bank to establish appropriate accounts, etc. Moreover, once your plan is implemented, review it every three to five years, if there are any tax law changes or if you have a significant life event (e.g., birth, death, marriage, divorce).
As we don our masks and deal with the scariness of Halloween, don’t make the same famous mistakes as others have made. Work with your tax and legal advisors, along with your financial advisor, to assure your legacy plan is in place and is up to date.
IMPORTANT DISCLOSURES: The information provided is based on internal and external sources that are considered reliable; however, the accuracy of this information is not guaranteed. This piece is intended to provide accurate information regarding the subject matter discussed. It is made available with the understanding that Benjamin F. Edwards is not engaged in rendering legal, accounting or tax preparation services. Specific questions on taxes or legal matters as they relate to your individual situation should be directed to your tax or legal professional.