When you think about estate planning, you typically do not think about the American musician Prince. However, now that the controversy over his estate is complete and the estate has been settled after six years in court, we should take a closer look at how some of the issues his estate faced could have been avoided.
High-Net-Worth Individuals Need the Basics Too
Prince was the latest in a string of high-profile celebrities who passed away recently without having a Last Will in place. When someone passes away without a Will, the government has a set of default rules regarding who will receive the deceased’s estate. Many times, this may include people you may not want to receive your “Diamonds and Pearls.” With a little planning, you can easily get in place your own plan for “The Future.”
Another aspect of estate planning that many people do not consider is privacy. When your estate passes through probate (the court process to administer your Will), all of the proceedings are public record. Prince’s estate assets are widely known, since his estate passed through probate. We know the estate’s value, how the estate was valued, and who the assets are distributed to.
From the court documents, we know that Prince’s estate was ultimately valued at $156 million dollars. The final valuation is the result of several rounds of valuation with the IRS. Because Prince did not take steps to protect himself, his full estate is subject to estate taxes based on the 2016 tax rules.
Taxes, Taxes, and More Taxes
On the federal level, we all are entitled to the “Lifetime Unified Credit Exemption.” This is the amount of our estate that we can protect from estate taxes and the “Thieves in the Temple” at our death. In 2022, the exemption amount is $12.06 million for a single person. If you are married, you and your spouse can combine your exemptions and transfer $24.12 million to your beneficiaries federal estate tax free. For Prince, the exemption amount was $5.45 million. The estate tax rate reaches 40% after the first $1 million is taxed, so of the majority of Prince’s estate is paying the 40% rate. Ultimately, Prince’s estate owes roughly $60 million in federal estate taxes.
Because Prince was purified in the “Purple Rain” of Lake Minnetonka and a Minnesota resident at the time of his death, his estate also owes state estate taxes. Minnesota is one of 12 states that has a state estate tax, and the exemption amount is lower than the federal level; in 2016, the state estate tax amount in Minnesota was $3 million. As a result, Prince owed a state estate tax bill of roughly $24.24 million.
6 Years and Many Millions Later
Additionally, because of the complexity of Prince’s estate, a bank was hired to administer the estate and to coordinate logistics throughout the court process. Comerica Bank received $3 million for the 6 years of work they performed for the estate.
When you run the numbers, Prince’s estate could not say “Take Me with U” to every dollar he had and had to “Kiss” goodbye to about $87.24 million. Only $68.76 million remained for his heirs to split and receive as proceeds.
On average, it takes between 6 to 10 hours between meetings, signing documents, and working with your advisor to get your estate plan up and running. Prince’s advisors might not have saved him every dollar in taxes, but they could have saved his beneficiaries six years of time for the government to decide how the estate would be distributed and kept his estate private from the public and tabloids.
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