Prince was an extraordinary songwriter, musician, and onstage performer, and his death in 2016 created a void in the entertainment landscape. He was a very wealthy man, and his royalty rights generate ongoing income, so his estate was very valuable.
It would be logical to assume that someone in this position would have a professionally prepared estate plan in place. In fact, Prince did not have a will or any other estate planning documents, so he died intestate.
The federal estate tax carries a 40 percent maximum rate, so it can take a toll on your legacy if you are wealthy. It is only a factor for high-net-worth individuals because there is a credit or exclusion that gives you the ability to transfer a certain amount tax-free.
Right now in 2022, the federal estate tax exclusion is $12.06 million. This is a record high level that came about as a result of a provision that is contained in the Tax Cuts and Jobs Act that was enacted in 2017.
Back in 2016 when Prince passed away, the exclusion was $5.45 million. In addition to the federal estate tax, there are 12 states in the union that have state-level estate taxes. Prince lived in Minnesota, and there is an estate tax in that state. The exclusion was $1.6 million in 2016.
There are steps that can be taken to gain estate tax efficiency, but Prince did not have an estate plan in place. As a result, the entire taxable portion of his estate was potentially subject to full taxation.
When someone passes away intestate, the probate court takes control of the matter. They appoint an estate administrator, and in the Prince case, Comerica was named as the administrator. The IRS had a great deal of interest in this matter, and they estimated the value of the estate at $163.2 million.
Comerica countered with a figure of $82.3 million. Negotiations between the two parties and other procedural matters resulted in a very lengthy probate process. The time consumption is a problem for the heirs, because no inheritances are distributed while the estate is being probated.
After six years, the two parties came to an agreement with regard to the taxable value of the estate, and as you might expect, the IRS was the winner. They settled on a figure of $156.4 million.
Other Probate Drawbacks
Aside from the time consumption, there are other probate pitfalls. The executor or estate administrator is entitled to payment for their time and effort. One can only imagine the expenses that were billed to the Prince estate by Comerica.
Even in cases that are not as extreme, the executor’s payment will trim down the value of the estate, and there are court costs. An accountant and a probate attorney will be engaged in many instances, and there will often be appraisals and liquidation expenses.
Why do you think that we know all of these intimate details about another person’s estate? Probate is a public proceeding, so anyone that goes through the appropriate channels can obtain the records to dig into the details, so there is a loss of privacy.
Probate is necessary in intestacy cases, and a will is admitted to probate as well, and a similar process will unfold. It is time consuming, it is expensive, and the records are available to anyone that wants to access them.
If you avoid intestacy through the utilization of a revocable living trust, you would be the trustee while you are living. After your death, the successor trustee that you designate will distribute the assets, and the probate process will not be necessary.
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In addition to the probate negatives, when someone passes away intestate, the assets are distributed under the intestate succession laws of the state. The true wishes of the decedent may not be honored under these circumstances.
If you are going through life without an estate plan, today is the day for action. You can schedule a consultation at our Bluffton, SC estate planning office if you call us at 843-815-8580, and you can use our contact form to send us a message.