14 Jan It Pays To Have A Trust—Prince’s Estate Battle
Prince is back in the news again. Early this month, the IRS announced that Prince’s estate was undervalued by $80 million. As you may recall, the probate battle over Prince’s estate has been dragging on since 2016. Every day that passes costs the estate money in attorneys’ fees and court costs. At Phelps LaClair, serving Chandler, Mesa, Phoenix and Scottsdale, our estate planning law firm is dedicated to saving you money, not wasting it in needless court battles. Without question, it pays to have a trust.
Why a Standalone Will is Expensive
When estate planning is mentioned, many people immediately think of a “Last Will and Testament.” While a simple will may seem easy to prepare, a simple will does not cover all the things that are needed in a secure estate plan. The money you think you are saving on the front end will be lost multiple times on the back end. This is because every will must be validated by a probate court.
The estate you think you are leaving to your spouse or your heirs will be diminished by legal fees and court proceedings. If there are claims against your estate by creditors or unnamed “heirs”, the costs can rise dramatically. Having only a standalone will is one of the best ways to drain the wealth you have so diligently acquired.
Prince and the IRS
When Prince died, his estate was valued by his executors (who had been chosen by a probate court) at $82.3 million. The IRS, however, determined that his music recording and publishing interests were overlooked in that valuation. They say that his estate was worth $163.2 million. That is a nearly 100% increase for which taxes must be paid. The additional tax bill comes to $32.4 million in federal taxes, plus another $6.4 million in penalties. In total, the estate must pay out $38.4 million above the $30+ million already paid to the IRS.
Prince left no will. In addition to the tax burden, the estate must also pay the legal fees that the heirs have spent proving their right to a share of the estate. There are six adult heirs recognized by the court. Each of them will pay their fees from their portion of their inheritance. Before paying attorneys, taxes and probate court costs, each share was worth approximately $27 million. After taxes and fees, that number will be significantly lower, perhaps as low as $5 million. While $5 million is still a lot of money, the lion’s share of the estate will go to the government, the courts and the lawyers.
It Pays to Have a Trust
When you have a living trust, your estate will avoid probate. There will be no probate related fees or delays, and no court-appointed lawyers, executors or guardians. You name a successor trustee to carry out the administration of your estate after you pass. You can name a guardian for minor children and set up a trust fund for their care.
With a living trust, you determine who your heirs will be, and what and how they will receive their inheritance. Your living trust can protect them from spurious claims and lawsuits against their inheritance. You can protect your IRAs, 401(k)s and retirement plans from automatic taxation with an IRA Inheritance Trust included in your estate plan.
With a Living Will in your trust, you can plan for unexpected incapacitation from accident or disease. A Living Will in your plan enables you to name persons who will see to your medical and financial affairs if you are unable to. You can include treatment options and end of life decisions, thus taking the burden off of grieving family members.
Avoid The Prince Estate Battle With a Trust
Somehow, even with all his wealth, Prince never got around to creating a trust. Perhaps he was in denial of his own mortality. Maybe he was too busy building his empire. Maybe it was because he didn’t have a spouse or children. The truth is, no matter how large or modest your estate is, whether you think you have no heirs, you will benefit from an estate plan.
Call us today for a free, no-obligation consultation. We will give you our full attention as you lay out your goals and desires for your estate plan. At Phelps LaClair, we know it pays to have a trust. Let us show you how.
Images used under creative commons license (Commercial Use) 01/14/2021 Photo by Nihal Demirci on Unsplash