Importance of Having an Estate Plan:
Last Will and Testament
In the estate planning community there is an old maxim, “If you don’t have a Last Will and Testament, the Government makes one for you.” While this is not literally true per se, it is always a good idea to have a plan in place to protect your family and administer your personal effects in the event of your demise—instead of leaving it to the Government and laws of intestacy. One recent example of a famous pop singer who died without a will, will end up costing his estate at least $100,000,000 (you read that right) in estate taxes (not to mention attorneys’ fees!) as well as leaving his loved ones to deal with a lot of the uncertainty and stress that accompanies the intestacy and probate process. Contrary to what many people think, estate planning encompasses a lot more than just drafting a will and tax planning.
So who is this famous singer that I’m writing about?
You don’t have to own a little red Corvette for estate planning to be relevant and important for you and your loved ones—just ask Prince. If you haven’t already heard, Prince, the famous singer of songs such as “Purple Rain” and “Kiss” recently passed away at the age of 57 on April 21, 2016 with an estate worth approximately $250 million—that’s seven zeros.
A Minnesota judge recently declared that despite the singer’s estate being worth so much, he did not have a will in place to declare the distribution of his assets. Therefore, because the singer died intestate (without a will), it is likely that Prince’s estate will be split among his living heirs: one biological sister, three half-brothers and two half-sisters and possibly among anyone who can prove by blood test that they are a living heir to his estate.
What do the heirs get?
Not only will his heirs receive money and property from the estate, but they will receive royalties and future income from the recording artist’s work, if they are determined to be the rightful heirs and beneficiaries. On top of that, they will receive full control over Prince’s lengthy musical library—which includes his unreleased projects as well.
Sounds great. What’s the problem? Problems…
It does sound great—and there wouldn’t be a problem… if the singer had a will or some type of estate plan in place to protect and distribute his assets. With an estate so large, it would be very surprising if it did not get contested and probated in court. Especially with at least six siblings involved (who knows who else may come out of the woodwork), the probate will likely last a very long time—probably years—which means the beneficiaries involved will not receive anything until the matter is resolved. Not only is the estate going to be probated, but it will also be subject to a hefty estate tax. In Minnesota, the estate tax applies to any estate worth more than $1.6 million and, at the federal level, any estate worth more than $5.4 million—taxed at 40%. That means 40% of your non-exempt estate will not go to your loved ones, but to Uncle Sam. That doesn’t even include the legal fees for administering the estate…
Cool story, but does this really apply to me?
You might be thinking, “Sure, this is entertaining stuff to read, but how relevant is it to me? Most people don’t die with an estate worth more than $5.4 million—or $10.8 if you are married (adjusted annually for inflation). I could just download a will app online, fill one out, and be done, right?” Wrong. Even in the simplest cases, it is important to have a competent estate planning attorney advise you on all facets and nuances of the estate planning process.
Some pretty good reasons to have a will:
- You are in control of the distribution of your property—not the court. The number one rule judges use when interpreting wills is “give effect to the intent of the testator (You!).”
That means that, except under special circumstances, your Last Will and Testament will completely govern who your property is distributed to and under what conditions.
- If you have minor children, you decide who will take care of them. A will gives you the flexibility to make an informed decision about who will take care of your minor children in the event
that the unfortunate and unexpected occurs. Rather than have a state-appointed guardian, a will allows you to appoint a person you know and trust to raise your children—or even better, to make sure it is not someone you do not want to raise your children.
- Your loved ones will spend less time in (probate) court. Whether or not you have a will, all estates must go through the probate process. However, having a will speeds up the probate process
dramatically by informing the court how you would like your estate to be divided. If you die intestate (i.e., without a will), the court will administer your estate for you and divide your estate without your input. Depending on your estate, this can be a long, burdensome process for your loved ones—in some cases, probate has taken well over two years! There are ways to avoid probate entirely (e.g., by creating a trust) but that is beyond the scope of this article.
- Minimize the chances of fighting amongst your loved ones. Death is an emotionally-charged experience that can cause even the best of people to act in the worst of ways.
Having a will in place not only allows you to decide how you want your property divided, but also allows your loved ones to feel just that—loved. Your will likely will be the last document your family will have from you that communicates your love for them. Once you set out who you want your property to go to, you take out the guess work—which means that your family will likely spend less time fighting over the estate (which is quite common) and more time helping one another to grieve. However, disputes still arise, and there are techniques (such as adding a forfeiture clause) that a competent estate planning attorney can include to help minimize post-mortem fighting between loved ones.
- You can disinherit those who would otherwise have standing to inherit. Not only can you choose who you want your property to go to, but most people don’t realize you can also choose who you
DO NOT want your property to go to. If you do not have a will in place to outline how you would like your estate to be divided and distributed, it may end up in the wrong hands or someone you did not intend (e.g., an ex-spouse). There are some important things to keep in mind—such as community property considerations or elective shares in common law property states—which should be discussed with an attorney.
- Protect your loved ones. One especially-egregious case of an estate passing to someone the decedent would not have intended involved a wrongful death lawsuit where a son had died and
his estate was awarded over $1 million. After the son died, the proceeds from the estate did not go to the son’s close siblings and relatives—but to the father who had not been a part of the son’s life in over 32 years!
- Remain flexible. A will is not set in stone. It can be amended over the years as life changes, or even revoked completely and replaced with a new one while you’re still alive.
Life is always changing—from births, deaths, and divorce, there are many situations that might call for you to change your will. However, if you have a will in place, you are at least afforded the peace of mind of knowing your loved ones are protected and taken care of in the event of your demise.
- Tomorrow is not promised today. Some of the most common reasons people give for not having a will is procrastination and the uncomfortability of discussing death.
Unfortunately, death is an unavoidable part of life and can sometimes occur unexpectedly. It is important to plan before it is too late so that your loved ones can avoid the additional stress in an already emotional time.
- Minimize taxes. Less money to the government and more to your loved ones.
These reasons are only the tip of the iceberg. There are many more for why having a will is important. It is prudent and wise to have an estate planning attorney draft a basic estate plan, at the minimum, before it’s too late. Having an estate plan will not only allow you to govern the disposition of your assets after death, but it will reduce stress and give your family the extra comfort of knowing that your love for them didn’t stop once you are gone.
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