2016 was a year of high profile deaths that illustrate the importance of having an estate plan. David Bowie and Prince both left behind large estates that will be distributed very differently. Bowie’s Estate will pass pretty much in the manner he wanted, while early indications suggest that the resolution of Prince’s estate may result in conflict.
There is an inherent difficulty in comparing the estates of these two performers because their circumstances, like the general public, were different from each other. David Bowie was a little older and suffered from terminal cancer for quite some time. Prince had health issues, but he was younger and from what we know, did not suffer from a terminal illness. Prince may have felt that he had “time.” The reality is we do not know how much time we have. As a result, the manner in which their respective estates are to be distributed is quite different and illustrate some crucial points in estate planning that can apply to all of us.
The truth is that we all have a plan when we die. We either die with a will or intestate (without a will). When we have a valid will, the named executor is appointed and the will determines how the estate will be distributed i.e. who inherits our assets. When we die intestate, an Administrator is appointed by the court and the Administrator follows the rules for intestacy for the state in which the deceased lived. David Bowie died with a will and we have heard very little about the related proceedings. The Surrogates Court of Minneapolis, on the other hand, recently appointed a bank to be the Administrator of Prince’s estate, and the bank as Administrator will rely upon the state of Minnesota’s laws relating to intestacy to resolve issues related to the Estate and ultimately distribute its assets.
The question of whether Prince wanted his estate divided amongst his siblings is an open question. Nevertheless, the task of the Administrator in dealing with the myriad of issues related to his personal and business life will require a lot more time an additional expense than if he had planned ahead. Not to mention substantially delay the distribution of his estate. It’s unlikely to be a smooth or neat process.
There are potentially substantial tax implications as well. Both Bowie’s and Prince’s estates exceed the current federal threshold for estate tax purposes. At least a portion of Bowie’s estate could potentially be passed to his wife through the use of marital deductions and other rules that permit married US citizen couples to shield their estates from taxes. Prince’s estate - on the other hand – is likely to be diminished by federal estate taxes as high of 45% on the value of his estate exceeding 5.45 million dollars, the exclusion amount for 2016.
These two examples are instructive for all of us even if we are not millionaires. Having a plan in place removes uncertainty, lessens conflict and lowers the ultimate cost of managing our affairs when we are gone. A Will combined with Health Care Advance directives and financial power of attorney goes a long way toward this goal. If you are not willing to take the time required to put a plan in place, do it for those closest to you. You won’t regret it.