We interrupt our three-part article on “The 12 Pitfalls & Traps That Will Keep You From Retiring Well” to discuss recent events in the music world in this month’s Imagine That Newsletter. One of B.B. King’s signature songs “The Thrill is Gone” could be the theme song for the heirs of Prince and B.B. King since these two great musicians did a poor job in planning for their eventual demise. Their heirs can all join in and sing: “The thrill is gone away from me. Although I’ll still live on, but so lonely I’ll be.”
Prince, the electrifying musician, was 57 years old when he died in his Minnesota home on April 21, 2016. He died of an apparent drug overdose to an opioid pain medication named fentanyl.
He left behind a massive fortune! While there is speculation as to the exact value of his estate, Prince’s real estate holdings and music rights alone are estimated to be worth $250 million. The value of Prince’s music rights was clearly evident in the first week after his death when he had a record-breaking five albums in the top 10 of the Billboard Top 200 Songs chart.
As to family, although both parents are deceased, Prince left behind his sister and five half-siblings. A half-sister of Prince had predeceased him but she did not have any children. Prince had a son in 1996 with one of his two ex-wives but the child died shortly after his birth.
Unfortunately, it appears that Prince did no estate planning. Nada. Zippo. He had no will or Living Trust. When someone dies without a will (the technical term is “intestate”) there are laws in each state that govern how the assets are distributed and to whom. Under Minnesota law, full siblings and half-siblings are treated equally for purposes of inheritance. If, indeed, no will or a Living Trust turns up, then Prince’s estate will be equally split among his sister and five half-siblings.
In even the most common of cases, going through the probate process can frequently be an expensive and long process. In the case of Prince, the probate hearings could easily stretch out for years, with court costs alone totaling in the many thousands of dollars.
For example, the Probate Court will have to determine if there are any additional heirs. While nearly 700 people have come forward, claiming that they are a sibling or child of Prince, there are two notable potential heirs. First, a man has filed documents with the Probate Court, alleging that Prince had adopted him. The man contends that there is a written will, which acknowledges the adoption and leaves $7 million to him. Perhaps not surprisingly, this man has not yet produced the will or informed the court of the location of the will. He is, after all, in prison at this moment in time – so stay tuned. Second, a woman has also filed documents with the Probate Court, alleging that she is Prince’s half-sibling. She contends that they have the same father and requests DNA testing to substantiate her allegations. Rumor has it, she knows all the words to “Purple Rain” as well.
In addition to the court costs, which will reduce the estate assets, there will likely be substantial attorney’s fees before this is all settled. Some are estimating this will run into the millions of dollars all by itself. This will, of course, further reduce the amount of the inheritance that each beneficiary will receive sometime in the distant future (decade?)
If privacy is a concern, well too bad. Everything is open to the public when you are in the probate process. The media is permitted to attend all of the probate hearings since they are open to the public.
But we haven’t even gotten to the largest drain on the estate assets. In the U.S., if you are single and die in 2016, you will be subject to a federal estate tax of 40% on any assets over $5.45 million ($10.9 million if married). And, since Prince was a resident of the State of Minnesota, there will be nearly $40 million owed to the state plus the federal estate taxes. (The feds do give a credit for the $40 million, but still … ) These onerous estate taxes, which I call “involuntary philanthropy,” must be paid by January 21, 2017. As the special administrator appointed to handle the estate assets said: “If we do not [pay], the government will not wait. They will have a fire sale, and that is not in the best interests of anyone.” It is entirely possible that, after selling assets at less than fair market value to raise the cash necessary in such a short time frame, there may be little left to split. Prince’s heirs may leave the courthouse singing, “Why You Wanna Treat Me So Bad?”
Since we do not want any of our clients to wind up in the same situation as Prince and his heirs, we have made it a priority to review our client’s entire situation so that we can offer sound planning advice. Wealth Legacy Group, Inc. has a “four legs of the table” process with the first leg being a review of all current estate planning documents by our in-house attorney and me. This allows us to confirm and understand the client’s intentions, and determine what documents are missing, out-of-date or have the common errors in drafting we inevitably find.
Prince would also have been advised of our “zero estate-tax” planning process. This process will eliminate all of the exorbitant estate/inheritance taxes. We do this by using both traditional and “non-traditional” tools, techniques and strategies.
Had Prince been a client of Wealth Legacy Group, Inc., we would have not only eliminated his death taxes, but also kept his estate out of the Probate Court. The Probate Court will now, unfortunately, have to sort out the mess that was left behind – which will likely take years, and cost a great deal of money. A living Trust is administered privately, and avoids the expensive, time-consuming and public probate hearings. By helping him understand the various options available to him, and us to understand who and what was most important to Prince, we could have then planned exactly how he wanted to have his estate distributed. With a will and a Living Trust correctly drafted by one of the highly competent law firms we use, Prince would have specified exactly how much money he wished to leave to each named beneficiary. This is true regardless of whether these were family, friends or non-profit organizations that he supported.
Rather than paying the “involuntary philanthropy” of estate and inheritance taxes, Prince could have engaged in “voluntary philanthropy” by directing his estate assets towards supporting the numerous causes he was engaged or interested in. For example, while alive, Prince made gifts of $1.5 million to his own charity, Love 4 One Another, and $1 million to the Harlem Children’s Zone among others.
Most wealthy and affluent Americans (and their advisors) do not understand that the government gives us a choice in how we support the “social well-being” of our country. If we do not choose, the federal and state inheritance taxes are there as a default. They are “voluntary taxes” … that is, we do not have to pay them IF … if we elect in advance how we wish to support the social well-being of our country. In this way, we can support those programs that are in direct alignment with our own values. This has been permitted under the law and especially since the Tax Reform Act of 1969. Sadly, Prince’s advisors, if any, did not help him understand the benefits of thinking these things through in advance. Now it is too late to “unring the bell”.
B.B. King, the legendary bluesman, died at the age of 89 last year of congestive heart failure at his Las Vegas home. B.B. King had been married twice but never had any children with either spouse. In his authorized biography, The Arrival of B.B. King, he acknowledged that his sperm count was too low to actually conceive a child. But that didn’t stop him from leaving behind a vast “family”: 15 children from 15 different women. King never disputed his paternity with these children and instead claimed them as his own. Eleven of the surviving children are now fighting over the estate, which is valued at between $30 and $40 million.
Although King was better prepared than Prince since he had a will and Living Trust drafted, his heirs are still “singing the blues”. Four factions of the children have filed separate lawsuits in Nevada against the Trustee. Many of the children claim that they are entitled to generous gifts set forth in a 2007 will and a Living Trust. But the Trustee of King’s estate says that there is a new Living Trust, dated in 2014, which names the children but does not provide them with specific monetary gifts. Generally, under trust and estate law, the latest Living Trust supersedes earlier versions. But the children contend that B.B. King lacked the mental capacity to create a new Living Trust in 2014 because he was nearly blind and was suffering from cognitive impairment and memory loss as a result of his Alzheimer’s disease. The children are seeking to have the 2007 Living Trust control the disposition of the estate.
B.B. King could have saved his heirs a lot of time, expense and aggravation if he had provided specific monetary gifts to his 11 living children in the 2014 Living Trust. Since this did not happen, the children have, not surprisingly, assembled teams of lawyers to contest the issue. The litigation could continue for years.
How Does This Apply to You?
Estate planning helps musicians (and the rest of us) shape their own legacy. While there are situations that sometimes are difficult to address up front, leaving others to fight over them after you die does no one any good. As the saying goes, “If you want things complicated after you die – keep them simple while you are alive”. The opposite is also true. Things can be fairly simple and routine after you die, but it won’t happen by accident. It takes intentional planning that remains current as the rules change.
What do you want for your legacy? One that is thoughtful and intentional – or one that promotes in-fighting among family members that used to love each other? Wouldn’t it feel better to know your beneficiaries will be humming a “happy tune” after you pass away, rather than them squabbling over your assets and singing “The Thrill is Gone”?
DON’T LET YOUR LEGACY SONG BE LIKE PRINCE’S! I CAN ASSIST YOU.
If you do not have your estate documents in place, or you need a review of your estate documents to ensure that they reflect your present intentions, please contact me (R. J.) to discuss how to provide for your loved ones and shape your legacy. Don’t let your legacy song be like Prince’s, “When Will We B Paid”, but instead, make your beneficiaries feel “Delirious” as they go shopping for a “Little Red Corvette” or some “Diamonds and Pearls” … or better yet – committed to positively impacting the world, helping the less fortunate and each other humming … “I Would Die 4 U”.
Gee … positively impacting the lives of others for generations … Imagine That!