Who Gets the Little Red Corvette? We’ll Never Know. The Importance of Having a Will.
Prince was not the first famous person to die without a Will. Others who died intestate include: Abraham Lincoln, Ulysses S. Grant, Howard Hughes, Martin Luther King, Jr., Sonny Bono and Pablo Picasso. Dying intestate is usually a huge financial mistake.
In Prince’s case, as in similar cases of intestacy, dying without a Will causes several problems. First, there is confusion among the family as no one knows what his true wishes were. Confusion often leads to litigation. Second, the costs are often greater because the steps to administer the estate are more involved. For example, an administrator usually needs to pay for and post a bond (based on the value of the estate), whereas an executor named under a Will generally does not. Third, Prince’s assets will pass under the rules of “intestacy” (in this case the law of Minnesota), which often is not the distribution (to family or charity) that the decedent would have wanted. This can be especially problematic for single people or those in second marriage situations. Fourth, if minor children are involved, a court proceeding will be necessary to name guardians for them. And, without a Will, the decedent makes no provision for taxes and expenses, which can result in large tax liabilities or other unintended consequences.
All of these outcomes are easily avoidable. In Prince’s case, the estate appears to consist largely of real estate and intellectual property rights (ie, his catalog of published and unpublished music). From the tax planner’s perspective, this means it is largely illiquid, which is problematic. The federal estate tax, imposed at a rate of 40%, is due nine months from the date of death. Although it may take months to determine whether Prince actually had an estate plan, at the moment it appears the artist took few, if any, steps to plan for liquidity to pay taxes or to reduce his estate tax exposure.
Outdated Wills also present problems. Fiduciary choices (executor, guardian, trustee) often change over time. In addition, our choices as to who should inherit our property also may change over time. We all know a story about someone who unexpectedly (or undeservedly) inherited under a Will, or someone who was unintentionally left out.
In a notable case in our office, we represented the estate of a deceased estate planning attorney who did not update his own Will for over 40 years. The document led to significant litigation due to outdated tax planning and unanticipated tax allocations, among other problems.
Most of us, therefore, should have up-to-date Wills. The Will governs the disposition of your assets and ensures that these assets pass to your family and loved ones in the manner you desire. A Will usually includes tax planning, that is, setting up a structure that minimizes federal and state estate taxes. You appoint an executor, the person who is responsible for carrying out your wishes. You may also appoint guardians for minor children, and trustees for any trusts created under the Will.
Basic estate planning documents also include a power of attorney and health care directive – documents to plan for incapacity by naming an agent to make decisions on your behalf if you are unable. Estate planning documents should be reviewed by an attorney every three to five years or following a significant life event.
Proper estate planning is a gift to your family. It accomplishes your objectives, avoids confusion, saves money, minimizes taxes, and gives you the peace of mind of knowing that your affairs are in order.
As the law continues to evolve on these matters, please note that this article is current as of date and time of publication and may not reflect subsequent developments. The content and interpretation of the issues addressed herein is subject to change. Cole Schotz P.C. disclaims any and all liability with respect to actions taken or not taken based on any or all of the contents of this publication to the fullest extent permitted by law. This is for general informational purposes and does not constitute legal advice or create an attorney-client relationship. Do not act or refrain from acting upon the information contained in this publication without obtaining legal, financial and tax advice. For further information, please do not hesitate to reach out to your firm contact or to any of the attorneys listed in this publication.