12 May Prince’s Estate Planning Blunder, a Symbol of What NOT to Do – Part 1
By: Barry E. Haimo, Esq.
May 12, 2016
Prince’s Estate Planning Blunder, a Symbol of What NOT to Do – Part 1
Prince’s untimely death surprised everyone. It was terribly tragic and sad. In the weeks immediately following his death, his sister filed a petition for probate administration in Minnesota. His failure to plan reveals critical issues with his estate administration (often called “probate”) that are best exemplified by the quote below:
“Her petition said Prince had “substantial assets consisting of personal and real property that requires protection.” He “owned and controlled business interests that require ongoing management and supervision.” And he “has heirs whose identities and addresses need to be determined.” Cite
Based on the quote from his sister’s petition, Prince’s estate issues can be broken down into three areas: 1) assets, 2) business interests, and 3) family. This post addresses the consequences of Prince’s failure to plan. The next post will introduce solutions that would have enabled Prince to exercise control over his estate, minimize taxes, maximize his beneficiaries’ inheritance, and avoid leaving his family with an expensive and intrusive public mess.
- Background, Assets and his Estate
The artist formerly known as “Prince”, Mr. Prince Rogers Nelson, died at the young age of 57. He was a resident of Carver County, Minnesota. Prince is allegedly not survived by a spouse or any children. He is said to be survived by a sister and several half-siblings. His estate is estimated to be valued at $300 million dollars, consisting of real estate, cash, businesses, record labels and music. His most notable hits include When Doves Cry, Kiss, Let’s Go Crazy, Purple Rain, 1999 and my personal favorite, Little Red Corvette. In total, his musical collection consists of of 39 studio albums, 4 live albums, 13 EPs and 104 singles over the past four decades. It is common knowledge that Prince obviously had a thriving brand. However what many people did not know was that he possessed a private inventory of his own music to the tune of thousands of unreleased songs that are said to be stored in his vault at his Paisley Park property.
- Music and Business Interests
Prince died owning music, record labels and business interests, all of which represent complicated issues to address in probate. This is because they are going concerns and they lack a readily ascertainable value. These assets need to be identified, managed, divided and ultimately transferred to the appropriate beneficiaries in probate. For these reasons, you cannot simply transfer them to heirs like you can transfer a car, house or bank account,
- Family Issues
Prince’s death also introduces complications relating to his family. It is not publicly known whether Prince had any children. Instead, his sister and other half-siblings have emerged as beneficiaries. Even in small estates you can expect people claiming to be family members to come forward to try to collect from the estate. Therefore, given the high net worth of his estate, you can certainly expect some interesting claims to arise here. In fact, someone already has allegedly filed a claim to be a family member of Prince. Cite
Overview of the Probate Process
Estate Administration, or Probate, which is sometimes referred to as probate court, probate proceedings or just probate, is the legal process through which a deceased person’s affairs are formally settled. First, an attorney must be retained in order to open up a separate legal entity with the court, called an “estate”. A person is then appointed to administer the estate, who is called a Personal Representative or Executor. The Personal Representative works with the attorney and is responsible for overseeing the entire process, beginning with locating a validly executed will. The Personal Representative must then identify and gather all the deceased person’s assets, file an inventory with the court and notify the creditors of the pending estate. Next, assets are then pooled together and used to satisfy creditors’ claims. Finally, the balance of assets are ultimately distributed to the proper beneficiaries. It is important that you realize that your state designates your beneficiaries if you fail to decide. Dying with a will is referred to as dying “testate” and without a will as “intestate”. All of this happens over a long period of time, such as 12-18 months or longer, depending on complexities and complications that arise.
Advantages of Probate
There are only two advantages of probate:
- First, it is a court supervised process at every step. On rare occasions going through a long and expensive process is beneficial where you think there may be misconduct.
- Second, probate requires a short period – often 3 months – in which creditors of the deceased may file claims against the estate to be repaid or they are forever barred. This is beneficial because it places the burden to take affirmative action on creditors if they want to get paid. In Florida, there are two statutes that bar creditors’ claims against the deceased and his or her estate. Section 733.702, Florida Statutes creates a 3 month window for creditors to submit claims following notice by publication or a 30 day window following actual notice or creditors are barred from recovering against the estate. In addition, Section 733.710, Florida Statutes creates a strict 2 year statute of repose, which bars all creditors’ claims after 2 years after death of the deceased, unless rare exceptions apply.
Disadvantages of Probate
There are many disadvantages of probate:
- First, it is a court supervised process at every step, which means that every step is a process of its own.
- Second, probate is not private, which is how will will gain access to Prince’s intimate personal and business affairs.
- Third, probate is extremely time consuming and unpredictable, especially in complex cases such as this.
- Fourth, probate is very expensive, as it’s a long process requiring the hiring of an attorney and other professionals. In addition, the personal representative or executor is entitled to reasonable compensation.
- Lastly, probate is a very frustrating process because there are always surprises and setbacks, and so many parties are involved throughout the process (i.e. judges, lawyers, clerks, case managers, heirs and creditors).
Read more about probate here:
The Big Mistake
Prince did it right when it came to music, but where did he go so wrong as it relates to his estate and business planning? Here are a few ways:
- Tax – If the value of your estate exceeds the unified credit, you are responsible for paying estate taxes. In 2016, the unified credit increased per person to $5.45 million dollars. Cite. The top estate tax rate is 40%. Prince’s estate is valued at approximately $300 million dollars. Therefore, without planning ahead, his entire estate will be subject to estate tax. That equates to approximately $120 million dollars in estate tax liability. That’s 120 million reasons to sit down with an estate planning attorney who can help reduce his massive tax bill.
- Probate – Prince’s estate will go through estate administration to address the ABCs mentioned above; assets, beneficiaries, and creditors, all of which present complications here. This estate could end up being a reality tv show, and we’ll all know about it because it’s not private. It is important to note that probate represents an extraordinary hassle for his family. Okay, so you say “so what, his family’s not complaining. They stand to inherit tens of millions of dollars.” That’s true, but they could have inherited that money in a beautifully seamless and smooth manner instead of a gladiator-like battle over every detail that is subject to public scrutiny. As an example of how long this process can take, look no further than Michael Jackson’s estate. He died seven years ago and his estate is heating up, not cooling down. The government wants its money and there’s expensive litigation over the value of his likeness and image. Read more here. Prince’s estate may experience similar issues. While this dispute may have resulted anyway with proper planning, the venue would not have been the public venue of probate court.
- Family – Prince could have exercised his right to choose who would inherit his estate. He could have designated his family, friends, charities or a combination of them. Since he failed to exercise his wishes, it will take a long time to determine who is a rightful heir. Also keep in mind that Minnesota law entitles half-siblings to the same inheritance as full siblings. Consequently, we will never know whether Prince would be happy with his sister and step-siblings inheriting tens of millions and ultimately controlling the legacy of his music. More on that below.
- Businesses and Music – We will likely never know who Prince truly wanted to inherit his estate. Likewise, we will never know how he wanted his assets to be managed and protected, and whether he wanted them to be private or published. As it relates to his music in particular, it’s not clear that Prince ever wanted that music released.
On one hand, Prince said he wrote music to keep himself alive. He could live on through his music for decades. But if his vault full of music remains sealed, his fans will have to remember him from the many songs he released during his lifetime.
On the other hand, if he did NOT want his music released, there is neither clear direction nor legally binding instructions with respect to these assets. As a result, such a monumental decision will ultimately vest in his heirs, whomever that is determined to be — talk about the ultimate gamble. In this regard, think back to Tupac’s Shakur’s estate, which feuded with his record label, Death Row, for years. Tupac had no last will and testament, and his mother was eventually deemed his heir. She fought bitterly with Death Row over Tupac’s rights, and after winning, eventually formed her own label to release five posthumous albums. Incidentally, Tupac’s mother passed away two weeks ago. She allegedly took important steps to protect her music and her money. Read more here. In both cases, the heirs stand to profit considerably by the posthumous release of music. However, these works are their respective art that they dedicated their lives to creating, and they failed to exercise their rights as to whether these works can or should be exploited for monetary gain.
The bottom line here is that Prince’s death left a total mess. His estate will be divided nearly in half after estate taxes. His family will have to experience years of probate administration, which is generally time consuming, expensive, unpredictable, public and an overall emotional hassle. His businesses will be managed by people that he may have characterized as undesirable or may be unqualified, and his legacy may be subject to their control and exploited for monetary gain. It is for these reasons that the next time you hear a song by Prince, remember that he’s now a symbol of what NOT to do in estate and business planning. Think of this every time you hear Little Red Corvette from now on.
Most of this could have been avoided. Find out the solution in the follow-up post next week entitled, “Prince’s Death is a Symbol for Estate Planning Disaster Part 2 – the Solution”.
Barry E. Haimo, Esq.
Strategic Planning With Purpose
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