The great musical artist Prince passed away in 2016, and he was a very wealthy man. In addition to the assets that he had in his possession, his music and likeness rights will continue to generate revenue for years to come.
You would think that someone that is in this position would have worked with an estate planning attorney to put a plan in place. In fact, he did not have a will or trust, so he died intestate.
When someone dies intestate, the probate court will enter the picture to provide supervision while the estate is being administered. An estate administrator will be appointed by the court, and this individual or entity is sometimes called the personal representative.
Final debts are paid during probate before the assets are distributed, including taxes. In the Prince case, Comerica was named as the estate administrator, and the federal estate tax was a significant factor.
This tax is applicable on the portion of an estate that exceeds the exclusion, and it carries a 40 percent maximum rate, so it can have a significant impact. At the time of this writing in 2022, the exclusion is $12.06 million.
Back in 2016 when Prince died, the federal estate tax exclusion was $5.45 million, so there was more estate tax exposure. The amount of the estate that should be taxable in light of the ongoing earnings from royalties was a matter of contention between the estate and the Internal Revenue Service.
Comerica contended that the value of the estate was $82.3 million, and the IRS estimated the value at over $160 million. These negotiations and other factors contributed to a very lengthy probate process.
A few months ago, they finally came to an agreement with regard to the value of the estate: The final valuation is $156.4 million. Prince was a resident of Minnesota, and there is a state-level estate tax in Minnesota, so that tax has been levied as well.
Estate Tax Efficiency
There are estate tax efficiency strategies that can be implemented to ease the estate tax burden. Unfortunately, Prince did not take the time to put protective measures in place. As a result, tens of millions of dollars that could have gone to the heirs to the estate are now in the coffers of the state and federal government.
If you pass away intestate as a person that is not a multimillionaire, the estate tax situation will not be a factor. However, there are other significant negatives that can come about if you pass away without a will or trust.
First, even if there are no major complications like we saw in the Prince case, probate will take about eight months at minimum. No inheritances are distributed while the estate is being probated, and you probably want your loved ones to receive their bequests in a timelier manner.
Ultimately, assets that are part of an intestate estate are distributed to the closest relative or relatives under the intestate succession laws of the state. In many instances, the way the assets are distributed would not be consistent with the true wishes of the decedent.
Take Action Today!
As you can see, intestacy can cause a world of hurt, and you are taking an unnecessary risk when you go through life without an estate plan. Many people do not know where to begin, and this is where our firm can enter the picture to provide guidance.
We can gain an understanding of your situation and your legacy goals and help you devise a plan that ideally suits your needs. If you are ready to get started, you can schedule a consultation at our Naperville or North Aurora, IL estate planning office if you call us at 630-568-8611.
There is also a contact form on this site you can use to send us a message, and if you reach out electronically, you will receive a prompt response.