Prince’s untimely demise is an unfortunate lesson for us all. I cannot stress enough that you must plan for your estate distribution because if you do not clearly lay out your wishes, you are creating a situation in which you have no control over how your assets are divided among your family.
By Steven Adler, Esq.
In fact, dying intestate opens the door for anyone to assert a right to your wealth, including business partners, distant relatives, friends, and even unknown children. In Prince’s case, it will take years to figure it all out.
Prince died on Thursday, April 21, at his home in Minnesota. He was just 57. He was found unresponsive inside an elevator at his home and recording studio and was pronounced dead at 10:07 a.m. An autopsy performed on Prince's body showed that he died of an opioid called Fentanyl. Fentanyl is a potent synthetic opiate that's used to treat severe pain, such as after a surgery. It is similar to but more powerful than morphine.
The singer songwriter leaves behind a great legacy including a vast collection of musical recordings and properties such as his recording facility called Paisley Park. It is estimated that his estate is worth from $300 to $800 million. However, one thing Prince did not leave behind, was a Last Will. In fact, it appears that Prince did no Estate Planning at all. As it turns out, Prince’s failure to plan for his untimely demise may cost his Estate as much as half of its worth, or from $150 to $400 million.
If someone dies without a Last Will, then his or her residency state’s laws of intestate succession determine who will inherit your property. Most states intestacy laws are nearly identical. In Prince’s case, since he was not married and had no children, Minnesota State law determines that his entire estate will pass to his siblings, both his full and his half siblings, and the alleged children of his pre-deceased siblings. While it is common knowledge that Prince has 1 full sister and 5 half siblings that have survived him, to date, there are around 700 other people who have already filed claims to be his heirs as well. With even just a little planning, Prince could have determined who should be in charge of his Estate and who it should benefit.
In the meantime, while all of this is being worked out, the Surrogate’s Court appointed The Bremer Trust as the Special Administrator of Prince’s Estate to manage and to monetize Prince’s intellectual property until they figure out who should be the Administrator and who will be his beneficiaries. This could easily lead to legal fees and administration expenses in the tens of millions.
In 2016 the Federal Unified Credit is $5,450,000 per person and the highest tax rate is 40%. Minnesota also has a Unified Credit, but it’s just $1,600,000 and its highest rate is 16%. Therefore, depending on the ultimate date of death value of all of Prince’s property, his Estate will owe an Estate tax in excess of 50% or from $150 Million to $400 Million.
What planning could Prince have done?
- Last Will – With a Will, Prince could have determined who should be his Executor and who should receive the benefits of his Estate. The Will could also have created a trust or a foundation to manage and monetize his intellectual property according to his wishes, and not those of the Court appointed administrator.
- Revocable Trust – Prince was a very private individual – Although the probate of a Will is public, the administration of a revocable trust is private. Therefore, Prince could have easily kept all of the terms and conditions and even the beneficiaries of his estate private.
- Estate Taxes – Prince could also have easily and even significantly reduced his Estate’s exposure to Estate Taxes had he done any one or more of the following:
- Charitable Trust – Price was a devout Jehovah's Witnesses. He could have made a charitable contribution or created a Charitable Trust which would have been deductible for Estate Taxes.
- Irrevocable or Dynasty Trust – Imagine if Prince contributed his Purple Rain IP and/or all of his recordings, both released and unreleased to an irrevocable trust back in the 90s. While he would have had to pay a relatively small gift tax at the time, all of the appreciation and future income potential of the music owned by the trust would not only have escaped the Estate Tax. Moreover, he could have controlled how and when and if at all, his music will be monetized even after his death.
- Life Insurance – Prince could have purchased millions of dollars of life insurance and placed it in an Irrevocable Trust, the proceeds of which would have been excluded from his gross estate, but yet could have been used to pay his Estate Taxes.
- Family Limited Partnership – Prince could also have transferred his music and other properties to a Family Limited Partnership which, as long as he was the General Partner, he would have maintained all of the control while he was alive, even if he gave away or sold limited partnership interests to family, friends and/or charities.
What if Prince hadn’t died, but was Incapacitated?
Imagine if Prince had not died, but had been temporarily or permanently incapacitated. Who would have managed his affairs? Who would have made his health care decisions?
If Prince had a Power of Attorney and a Health Care Proxy, then people of his choosing could be making his business and health decisions. The same would apply if Prince had created a trust. The Trustee would have been able to take over management of his affairs without Court intervention.
It’s been said that over the years, Prince fired many of his professional advisors and that he did not trust many people. However, that is no excuse for his failure to implement even the simplest estate plan because now, his Estate will clearly not be administered and monetized as he would have wanted.