Are you a fan of the HBO series, Game of Thrones? The show follows a cast of medieval characters that are embroiled in a civil war to determine who will rule the Seven Kingdoms. The drama ensued following the death of their King, Robert Baratheon.
Following Robert’s untimely death, his closest advisor, Ned Stark, questioned his rightful heir’s legitimacy. While his questions clearly had merit, the heir (the evil Prince Joffrey), ultimately had Ned beheaded as several other potential claimants began scheming, strategizing, and raising armies to fight for the Iron Throne.
This all makes for great television and a welcome diversion from reality on Sunday evenings. When a real King (or Prince) dies unexpectedly, however, the drama can be anything but entertaining if proper planning wasn’t in place. Take, for example, the recent passing of the pop superstar, Prince Rogers Nelson.
Prince departed this world at the relatively young age of 57. He left a fortune estimated at $300 million. What is not included in that figure is the value of his unreleased songs or potential future revenue for licensing, merchandise, or even tours of his Paisley Park Studios.
For some indication of how valuable those future income streams may be, you can look at a real King’s premature passing, Elvis Presley. When he died in 1977 at age 42, the estate was valued around $10 million. After taxes and other estate costs, “only” about $3 million remained. This 70% shrinkage of the Presley estate is often cited as an example of the costs of poor estate planning. But recent estimates from Celebrity Net Worth put the current value at $300 million, primarily thanks to a huge collection of licensing and merchandising deals that is producing $60 million a year in income!
Unlike the King, who did have a simple will, Prince apparently died without a will or any other indication of what his wishes were for his fortune. The King had a relatively short list of heirs, which included his grandfather, great-grandmother, and nine-year-old daughter, Lisa Marie Presley.
Prince, on the other hand, has an ever growing number of relatives filing to be heirs to his estate. Those include a sister, six living half siblings on his mother's side, one living but disputed half sibling on his father's side, a niece and nephew (children of a deceased half sibling), and a possible love child from a teenage fling that currently resides in a Colorado prison.
I asked Austin estate planning attorney Kelly Kocurek about the consequences of dying without a last will and testament, “If someone dies without a will, they are deemed to have died intestate.” (Not to be confused with the chronically overcrowded road between Austin and Dallas.) “In the event an individual dies intestate, such individual misses the opportunity to control the administration of their estate and the disposition of the assets included in their estate. In an intestate estate, the state, not the decedent, determines who receives the assets included in the decedent’s estate.”
He added, “As a result, the decedent loses their opportunity to set up an estate plan that carries out their wishes for the distribution of their assets and that takes into consideration any tax issues that may arise at their death. The decedent also loses the opportunity to designate the individual or entity that will serve as the executor of their estate and administer their estate at the time of death. Finally, the cost to administer an intestate estate is usually greater than the cost to administer a well-planned estate. “
Ultimately, all that means that if you die without a will, a judge will decide who are the rightful heirs and who gets what. But first, another relative, Uncle Sam, will move to the front of the line. The IRS will collect Federal Estate Tax of 40% of the value of the estate in excess of the Estate and Gift Tax Exemption ($5.45 million in 2016). In Prince’s case, the state of Minnesota will also take up to 16%.
So how do you avoid creating a drama worthy of Sunday nights on HBO with your estate plan (or lack of one)? Start by including your estate plan as part of your annual overall financial review. Make sure your plan addresses goals that are important to you and the legacy you wish to leave. That can include strategies that:
Control to whom and how the estate is distributed
Determine who will be in charge of the administration and distribution of the assets
Minimize the taxes and other expenses owed by the estate
There are a multitude of approaches that estate planning experts such as Kelly can help you implement, depending on your priorities. If you would like to learn more about some of the considerations to keep in mind when reviewing your plans, see previous Accountable Updates, It’s a Good Friday for Estate Planning and El Niño, Explosions, and Estate Planning?.
Of course, if you haven’t looked at your overall plan recently, the summer is a good time to do so. You know, because winter is coming!