Like many deaths, the death of the legendary pop star Prince came as a shock and surprise for the world. What shocked estate planning attorneys even more so is the possibility that Prince may have died without a will or an estate plan, which could have huge ramifications for his estate and heirs.
Estate planning has many benefits that include allowing a person the peace of mind of knowing how their assets will be divided among his or her heirs. Estate planning is also one of the best ways a person can preserve his or her wealth, avoid costly taxes, and ensure friends and loved ones are provided for. Many individuals also choose to protect their assets with certain types of trusts.
Prince died at the age of 57 and his estate is estimated to be worth around $300 million. What many people do not realize is that when a person’s estate goes through the probate process without any estate planning, the estate will be taxed by the federal and state government. It is likely that his estate will be hit by a federal estate tax rate of 40 and state tax rate of 16 percent. This means Prince’s estate may have to pay more than $120 million in taxes before it can be passed to his heirs.
For example, Prince could have transferred the rights to his songs in an irrevocable trust. Intellectual property, like music rights, are shown to grow value throughout a person’s lifetime and even more so after death. An irrevocable trust is an estate planning tool that allows a separate legal entity, similar to a business, to own and utilize the trust’s assets. The trust can be managed by a trustee, a manager that protects the trust assets, and managed by the rules set forth in the trust document by the person who created the trust.
By placing his song rights in a trust, Prince could have ensured his songs were used only in the manner he would have intended. Additionally, the trust could have been made to pay out dividends to the heirs he left behind. The trust would also have allowed Prince’s estate to avoid costly taxes. For instance, if Prince had transferred the rights to hit song “Purple Rain” in the 90s, Prince could have paid the gift and estate tax on the song at its current value. The song would then be free to gain value, even after his death, and would no longer be subject to any capital gains taxes. It would have also prevented his estate from paying the costly 2016 probate taxes today.
Since Prince’s death, many stories have emerged of how important charity and giving were to the pop star. He had given millions to impoverished families in secret, and had become a devout Jehovah ’s Witness before his death. Unfortunately, none of his estate will be left to charity or religious organization under the rules of intestate succession. We would have recommended the singer set up a charitable trust, such as a charitable remainder trust. A charitable remainder trust is an irrevocable trust that generates a potential income stream for its beneficiaries, with the remainder of the donated assets eventually going to one or more charitable organizations. This estate planning tool would have allowed Prince to take care of his siblings and also provide for the charity of his choice.
So how will Prince’s estate be divided then?
When a person dies without a will in the United States, then that person’s estate will pass to his heirs according to state law of intestate succession, and will not pass to his heirs as he himself might have dictated. What this means is that if a person doesn’t have a will, the state will make one for that person.
Intestate succession can be complicated if the decedent has many family members left behind. In Minnesota, if a person dies with siblings but has no spouse, decedents, or parents, then the siblings will inherit everything. This means that Tyka Nelson and her 5 siblings or half siblings could each inherit 1/6 of Prince’s estate after taxes and creditors are paid. However, because Prince did not leave his assets to them in a will or a revocable trust, the state of Minnesota will decide which sibling gets what.
When a probate court is in charge of dividing assets, this usually means a lot of legal bickering will ensue between the heirs. For instance, even though Michael Jackson died with a will in 2009, his family is still fighting over the star’s assets and don’t have a court date until 2017.
Having a will or trust is one of the most important decisions a person can make for their loved ones. These documents allow an estate’s assets to be divided as the person who owns them sees best. It also prevents years of litigation that can cause loved ones to fight over what they believe they should be entitled to. Estate planning is not just important for rich music stars, is something every person should have regardless of wealth. For more information on estate planning in Florida, contact the Law Office of David Goldman PLLC today.