Iconic musician Prince, who died on April 21 at age 57, had no known will or trust. Between his physical assets of cash, homes, and investments and his future royalties, Prince’s estate has been estimated to be worth at least $300 million. Although Prince has six siblings (one full sister and five half-siblings), Prince’s family members will not be his largest beneficiaries.
Both the federal government and Minnesota’s state government will assess estate taxes on Prince’s assets. The combination of Minnesota’s top tax rate of 16 percent and the federal government’s 40 percent rate will result in over 50 percent of Prince’s estate going to the government. In addition, the lengthy probate process due to Prince’s lack of a will is expected to result in massive legal fees paid by the estate.
While it’s hard to relate to Prince’s enormous estate, his lack of an estate plan is a lesson for everyone, whether rich or poor, famous or not. If you do not have an estate plan, you do not have the ability to control decisions to be made after your death. In order to ensure that your wishes are honored and to protect against the government or attorneys reaching the value of your life’s work, take the following steps:
1. GET A WILL. You need a will to ensure that your chosen beneficiaries will get the assets that you want to leave to them. If you do not have a will, Illinois law determines who receives your assets after you die. This may result in your estranged sister receiving your Diamonds and Pearls while your best friend gets nothing. Estates of people who die without a will must go through probate court to determine exactly how assets will be distributed. How long it takes for the court to make these decisions depends on how many arguments there are around the assets, and the number of claimants, contestants and litigants. For smaller estates without a will in place, probate can take about a year. Bigger estates can be in probate for years. No matter the size of the estate, probate is costly, lengthy, and public.
A will is also the only legal document in which you can name the guardians of your children who are minors. Without a will, the court decides for you. To ensure your children end up with your guardian of choice rather than Darling Nikki, you must have a will.
In Illinois, estates over $100,000 with a will in place may still be subject to probate without further estate planning.
2. SET UP A TRUST. A will is a great start in protecting your assets but it is, by law, a public document. If you only have a will, after you die, anyone can look up how much money you had and to whom you left your Little Red Corvette.
To keep your estate plans private and to avoid probate, set up a living trust. A trust dictates who is entitled to your assets and how assets will be distributed. Trusts are legal documents that are not publically available and are not subject to the length, cost and public scrutiny associated with probate. You can also take advantage of estate-tax planning techniques to ensure that state and federal tax exemptions are fully utilized by establishing a living trust.
3. UPDATE ANY EXISTING ESTATE PLANS. The purpose of an estate plan is to ensure that your wishes get carried out, so review your existing estate plan and have it updated as significant or major life events occur. Marriage, divorce, births, deaths, and the sale or purchase of a business are examples of such life events that should trigger a review of your current plan. In the absence of such life events, you should still review your plan at least once every five years. Your Raspberry Beret may have gained significant value while another asset lost value. You may want to change which heir is receiving which asset and when. Attorneys often see families torn apart when they must deal with determining division of property and control after a death. The more control you exert over your own estate plan in life, the less confusion there will be in death.
4. PLAN FOR DISABILITY. A proper estate plan prevents confusion amongst your family members by dictating who will make decisions for you during incapacity. You may still be partying like it’s 1999 but in 2016, over one-half of today’s workforce will experience some sort of disability before death. Those without plans in place may end up in guardianship proceedings in which the court appoints a guardian to make decisions for you. To avoid these lengthy and costly proceedings, be sure that your estate plan includes power-of-attorney documents, which give specific individuals the authority to make medical and financial decisions for you if you become incapacitated.
5. PLAN FOR YOUR BUSINESS. If you are a business owner, be sure that your estate plan includes a succession plan or exit strategy. Without an estate plan, when the owner of a family business dies, the family often has to sell the business to pay the state and federal government estate taxes because their assets are tied up in the value of their family business so cash and liquid assets are not available. Without a succession plan or exit strategy, when the owner of family business dies, the business is often taken over by someone that is not business savvy and the value of the business plummets or the business fails. The sound heard When Doves Cry is nothing compared to the grief felt after the preventable loss of a life’s work.
You may not have Prince’s millions but Let’s Go Crazy and learn from his situation. Many people do not have estate plans because they assume they are young, healthy and have plenty of time. Prince was only 57 years old. Get an estate plan in place now and diligently maintain it to carry out your wishes, protect your assets, reduce conflict and make life easier for your family and loved ones.
If you would like to contact the author, attorney Heather Glaser can be reached at (847) 705-7555 or firstname.lastname@example.org. Starfish and Coffee optional.