Rich, Famous … and Without a Will

Tab 1

July 15, 2016


When the musician Prince died unexpectedly in April, he left behind an estate estimated at $150 million to $300 million — and no apparent will to define what should happen to it. Now, a Minnesota state court may spend years determining his rightful heirs, how his assets should be divided and what taxes his estate will owe.

 

One of the trickiest questions will be how to place a value on Prince’s name, image and likeness. These entities could continue to reap profits for years to come, if, for instance, a biographical film about his life is produced or his home at Paisley Park is turned into a tourist attraction. There is scant precedent for estimating the potential earnings.

 

“You’re really talking about what we generally call goodwill — the fame,” says Mooi Lien Wong, Senior Vice President and Regional Trust Manager for U.S. Bank Wealth Management Fiduciary Services.

 

“It’s a very difficult evaluation, because there’s a wide range of factors that could potentially come into play. And in our society, sometimes people are worth more after they’re dead than when they’re alive.”

Photo by Ben Harding

One possible consideration in determining the value of Prince’s legacy is the case of Michael Jackson, who died in 2009 and whose estate-tax case is scheduled to begin trial in U.S. Tax Court in February. Jackson’s estate originally valued the pop star’s image and likeness at $2,105 — but the IRS says it is worth $434 million.

 

When celebrities fail to plan properly for their deaths, their private lives become a source of public gossip. When the actor James Gandolfini, who played Tony Soprano on HBO’s “The Sopranos,” died suddenly in 2013, his loosely drafted will and failure to establish a trust for heirs drew harsh criticism.

Tab 2

July 15, 2016


Famous or not, everyone with assets to pass on needs a plan to ensure they avoid unclear intentions that could lead to family strife and a prolonged court battle.

 

“Every person has an estate plan — it’s either going to be the plan you dictated yourself or the one the government puts in place for you,” says David Kopischke, Senior Product Manager, Advisory Consulting Services at U.S. Bancorp Investments.

 

Kopischke recommends that everyone take the time to assemble a will and review it every five years, or after major life events such as marriage, births or deaths in the family.

He also suggests creating a living will or medical directive detailing what should happen if you become incapacitated. In addition, Kopischke says it’s important to designate those who should have power of attorney for financial and medical decisions.

 

Many people with substantial assets choose to create a revocable trust, says Bradley Klein, Senior Vice President and Regional Trust Manager for U.S. Bank Wealth Management Fiduciary Services. While alive, they may transfer assets into the trust and also amend its terms.

 

Such a trust is typically coupled with a “pour-over will” that, after death, transfers any remaining assets into the existing trust. By using this trust, the individual can avoid a public filing of his or her assets or will.

Tab 3

July 15, 2016


For those who expect their estate to owe substantial taxes, particularly if large portions of their assets are tied up in real estate or other illiquid holdings, Klein says it may also be a good idea to establish an irrevocable life insurance trust. That arrangement allows you to designate the proceeds from a life insurance policy to cover estate taxes.

 

However, Klein acknowledges that clients sometimes can be overwhelmed by estate planning, leading to paralysis. He suggests that people start by drafting a will and medical directive, and then adding more sophisticated planning steps as they become more comfortable with the process.

 

“A lot of us in the business looked at the Prince situation with dismay,” Klein says. “You have to assume the attorneys around him were all advising him of the need to do these things.

For whatever reason, he didn’t. It feeds the public feeding frenzy over these kinds of situations, and it didn’t have to happen.”

 

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