By Jeffrey R. Wolfe, Senior Vice President and Manager, Wealth Planning StrategiesPrint This Post
Many consider the artist Prince to be one of the most talented and prolific musicians of our times. From the song and movie Purple Rain to his amazing Super Bowl halftime show, Prince always had a plan for his music and his career. Unfortunately, he didn’t have such a good plan when it came to his estate.
Prince suddenly died in April of 2015. In an interesting, maybe a bit over the top, example of why you should do your estate planning, Prince’s estate finally settled this last month, six years after his death! Prince died without any planning and was thus intestate, meaning dying without a will (or trust or anything). Because of this lack of planning there were multiple issues that cost the estate time and money.
First was a court fight over his heirs (Prince had no children, so the intestate rules were stretched). Eventually the court determined Prince’s heirs to be his six half-siblings. Who knows if this is who Prince wanted to benefit from his large estate.
Next was a court fight over the value of his estate for estate tax purposes. Since Prince had no planning, the tax bill, and how to pay it, became a huge fight. The estate and the IRS battled over the value of his estate (including the value of his music catalog, image and likeness, etc.). In the end Uncle Sam became one of the biggest of Prince’s beneficiaries with the final tax valuation for Prince’s estate being $156 million, and Uncle Sam gets 40%!
Prince’s lack of planning leads to some lessons for all of us:
1) Don’t assume your loved ones have an estate plan. Make sure you and your loved ones have a plan so you can decide where your estate may pass.
2) Probate is slow, public and costly. And, without a will, probate can lead to long litigation over the proper beneficiaries. Consider trust planning vs. a will, but at least make sure you have something in place.
3) Dying intestate often leads to unintended beneficiaries. Who knows who Prince wanted to benefit from his life’s work, if he wanted to create a charity, or if he wanted it all locked away forever? Moreover, anyone with a taxable estate can do proactive planning to limit and plan for the eventual federal estate tax bill. Because he didn’t plan, Prince’s biggest single beneficiary was the IRS, surely not his intent.
In short, even if you walk in through the “out” door, get to your legal advisors to establish your estate plan. Make sure you decide who’s getting your “Diamonds and Pearls” and your “Little Red Corvette” and that the IRS doesn’t become the reason your “Doves Cry.”