Over the next few months (years?), we’ll be talking a bit about the situation with Prince and his estate. While we don’t revel in someone’s death or the misery of his family, the situation as it stands provides an instructional scenario for us to learn from in a very public way. Please feel free to check back often for updates as this story unfolds.
A recent story in the St. Paul Pioneer Press explained that half of Prince’s estate is going to be wiped out due to estate taxes. According to reports Prince’s estate was worth roughly $200 million when he passed away. Between the taxes in the state of Minnesota (approximately 16%) and the federal taxes (about 40%), the estate is going to need to pay over $100 million to the government. So now, his heirs (which we think will be his 6 siblings) will get to split the remaining $100 million….at least in theory. There is also the minor detail of the fact that their will be some very large costs to administer his estate. Getting through the court system is going to take some time, and in turn, a large amount of that remaining sum will be eaten up within the courts, to the executor of his estate (Bremer bank) and all of the lawyers that have a vested interest. And this will likely take a long time to work through this. It’s already been 9 months and the end is nowhere in sight. Take, for example, Jimi Hendrix. When he died in 1970, he was 27. His estate was finally settled in 2004. Yes, that’s correct, it took 34 years to clean up the estate of a 27 year old.
In both of these cases, specifically Prince’s, this was avoidable. For a firm like Kiecker Law that deals with this daily, that’s the frustrating thing. It could have been avoided by proper planning. Yes, it would have been better if he would have done extensive planning, but if he would have at least had a will the inevitable some bickering between family members would have been avoided. Some of those people may not have been happy, but at least Prince’s wishes would have been upheld. Now, we don’t really know what he wanted. The state of Minnesota is deciding that now.
To be sure, most of our estate’s are nowhere near the size to which Prince built his. That, frankly, isn’t the point. The Pioneer Press article points out that estates that are less than $5.45 million for individuals and $10.9 million aren’t taxed aren’t subject to federal estate taxes. That is 100% true. What isn’t true, though, is that there aren’t any taxes to be paid by smaller estates or those that are inheriting the estate. There could be everything from capital gains taxes to inheritance taxes to income taxes. It all depends on how the estate is made up. Is it made of up retirement plans or cash or land or life insurance? Each type of asset and the cumulative value of those assets is going to cause each estate to be taxed differently. And that’s precisely why we think it’s so important for each individual or family to do their own planning utilizing an attorney (and usually in conjunction with a financial planner and/or accountant).
Again, it’s not the size of the estate that matters. In fact, one could argue that it’s even more important for someone with a smaller estate to complete their planning. Each dollar means more to someone that has a smaller estate. For someone like Prince, even though half of his estate is gone, there will still be nearly $100 million there to split among his heirs. That’s not necessarily true for someone that has an estate of $500,000. Each of those dollars will likely be of more value to the heirs. The part that really matters in most estate plans is that we can avoid the bitter arguments that can tear families apart. Our philosophy is that we want to keep your family out of the court system and away from arguments between siblings, kids, and families. The more you control what happens to your stuff after you are gone, the less likely that there will be bitterness and anger. Our belief is that family and people are more important than money and stuff. If we do more to help you keep the peace between your heirs, we (and you) have done your job and left a legacy that you and your family can be proud of.