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Prince’s apparent lack of estate planning may cost his estate

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Prince's apparent lack of estate planning may cost his estate - Anderson LeBlanc Upland Attorneys

Prince’s apparent lack of estate planning may cost his estate

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Story By Kelley Holland | @KKelleyHolland | CNBC

As an artist, Prince was fiercely protective of his music.

“If you don’t own your masters, your master owns you,” he said in a 1996 interview with Rolling Stone.

Prince, however, demonstrated a lot less clarity in terms of estate planning.

His sister, Tyka Nelson, filed court documents Tuesday asking for a special administrator for the artist’s estate, stating that she had no knowledge of a will and had no reason to believe Prince created one.

If that is the case, whoever inherits the estate may find themselves with the autonomy to do as they please with the late artist’s assets. So control over Prince’s music, including a rumored trove of unpublished material, could die with him.

“Any intent that he may have had to control his publicity and likeness is moot if he didn’t document that in a legal estate planning forum,” said Richard Behrendt, director of estate planning at Annex Wealth Management and a former estate tax attorney with the IRS.

“That’s the ultimate irony,” he added.

Losing control of his music is just the start, however. If Prince did not have a will, he is unlikely to have done much in the way of estate planning, said Michael Kosnitzky, head of the tax practice at Boies, Schiller & Flexner.

That means his estate will owe taxes on whatever the IRS and the administrators agree on as its value. Various estimates place that figure around $300 million, not including the unpublished music. And with a federal estate tax rate of 40 percent and a Minnesota tax rate of 16 percent, roughly half the estate could go to the government. (State taxes would be deductible against the federal tax bill.)

With forethought, there are steps Prince could have taken to reduce that enormous tax bite, Kosnitzky said. For example, if Prince had placed his unreleased music in a dynasty trust, he would have paid a gift tax on the value of the music at the time of the transfer. But after that, the value could increase with no tax implications, and the trust assets would not count as part of his estate upon his death.

“If you have assets with value that will accrue substantially after your death, you should be engaged in estate planning strategies that take that into account now, especially for someone who is not married,” he said.

An absence of good estate planning also means Prince’s estate could be embroiled in legal disputes for years to come. (In Tyka Nelson’s filing, she named five other siblings or half siblings as heirs, in addition to herself.)

Michael Jackson left a will when he died in 2009, and even so, the wrangling over his estate is continuing even now.

The court case on Jackson’s estate is on the docket for early 2017 and the parties are far apart: Jackson’s heirs are valuing his likeness at just over $2,000, but the IRS argues that the figure is more like $430 million.

Without a will, the fight over Prince’s estate could also be a doozy. “His situation is just going to be a hot mess of litigation and legal fees,” Behrendt said.

Behrendt used to work as an estate tax attorney for the IRS, and he said the agency has been surprised in the past when the value of an artist’s work shot up past where it was valued. As a result, they are loathe to leave money on the table again, he said.

The key takeaway, experts said, is that (with apologies to Prince) you don’t have to be rich to do a better job of estate planning.

Step one is a will, said David Mendels, director of planning at Creative Financial Concepts.

“I will go ballistic on clients and even fire clients if they have children and won’t do that,” Mendels said.

A will is the only way to name a guardian for young children, he explained.

You can also consider creating a revocable trust for your assets. If you go that route, it can work like a will but your estate will not be probated, Behrendt said.

If you do have assets that are hard to value, consider putting them in a trust or earmarking them for charity. Nothing you leave to a charity is subject to estate tax when you die, said Suzanne Walsh, a partner at Murtha Cullina.

On the non-financial side, she also recommends planning for what will happen to your online accounts.

Making wills and planning for your death is hardly pleasant. But it is your best shot at caring for the people and causes you care about, and the only chance you have of ruling your world after you go.

Read the original post at CNBC

ABOUT THE AUTHOR
Story By Kelley Holland | @KKelleyHolland | CNBC

Kelley Holland is a special contributor covering personal finance for CNBC.
Before joining CNBC, Holland created and wrote a monthly management column, “Under New Management,” for The New York Times after serving as a business editor there. Earlier, she was an editor at BusinessWeek, where one of her cover stories helped the magazine win a National Magazine Award for general excellence.

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