Over the years many celebrities have provided cautionary estate-planning lessons, and Prince, who died last Thursday at age 57, is another example.
Born Prince Rogers Nelson, Prince died without a will, according to court documents filed yesterday by his sister, Tyka Nelson. He's not alone—approximately 56 percent of American adults do not have a will, according to the National Association of Estate Planners & Councils.
The lack of a will could cause big complications for Prince’s financial estate, which is worth an estimated $300 million, according to media reports. It could also lead to big headaches for his potential heirs.
According to court filings, Nelson’s petition listed her and five half-siblings as heirs, and asked the court to appoint a special administrator for the estate because no personal representative had been appointed in Minnesota, where Prince lived, or elsewhere. Minnesota law treats surviving half-siblings the same as full siblings, raising the possibility of a drawn-out family battle.
However, someone could still come forward with a will or trust document. When Michael Jackson died in June 2009, his executors filed a will six days after his death.
Why You Need a Will
You need a will to ensure that your chosen beneficiaries will get the assets that you want to leave to them. If you die without a will, your property will pass to your heirs based on your state’s laws of intestacy.
In most states, that means your closest relatives will split your legacy.
In Prince's case, under Minnesota law, if a person dies without a will and with no surviving parents, children, or grandchildren, surviving siblings, including half-siblings, would share the estate in equal parts. If any siblings died before him, their children would split their parent's share, says Jeffrey Molever, a tax and estate-planning attorney at the JUX Law Firm in Minneapolis. The court documents list one half-sister who died before Prince, but she had no children, according to the document.
Estates of people who die without a will must go through probate court to determine exactly how assets will be distributed. Heirs of small estates can avoid probate by providing affidavits and death certificates to financial institutions to collect their inheritances.
In Minnesota, where Prince died, intestate estates of more than $50,000 must go through a probate process, unless a beneficiary has been designated for certain holdings such as 401(k)s and life insurance policies.
Probate Is Time Consuming
Prince’s significant assets—including royalties, unpublished music, and real estate—are likely to be subject to probate for a long time, says Jeffrey P. Scott, an estate attorney in St. Paul, Minn.
According to Scott, big estates can be in probate for years. How long it takes depends on how many arguments there are around the property, and the number of claimants, contestants and litigants. For smaller estates, probate can take about a year, says Scott.
Prince’s businesses may in fact have operating agreements that provide for the succession of those assets, Scott added. If so, those transactions could take place in private, outside of the probate court.
Even when everything is decided, Prince’s heirs won’t get all of his assets. The estate must pay special administrator’s fees, as well as state and federal estate taxes, Molever said. Minnesota’s top estate tax rate is 16 percent; the top federal tax rate is 40 percent.
A Common Mistake
Scott says he's surprised that Prince, known to be a shrewd businessman, died without a will. Usually, he says, the wealthier someone is, the more likely the person is to have an estate plan.
But many people don't have a plan. "So many people in their 50s and 60s come into my office with no estate plan that I’ve become numb to it," says Scott.
The situation highlights the importance of drafting and updating estate-planning documents. In addition to a will, various trusts can require that property passes to your preferred beneficiaries outside of probate. Granting someone power of attorney ensures that the proper financial decisions are made for you if you become incapacitated. A health-care proxy does the same in medical situations.
A will is also the only legal document in which you can name the guardians of your children who are minors. Otherwise, the court decides.
“In a lot of cases if you don’t have a will, the guardians won’t be the relatives you would have chosen, and your assets will go to people you wouldn’t have chosen,” Scott says.
Prince died without children, so guardianship is not at issue. But considering his celebrity and the estimated worth of his holdings, certain aspects of his estate could be challenged.
“I would not be surprised if people who are not known relatives come forward to make a claim,” Scott says.
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