When rock superstar Prince died of a fentanyl overdose in 2016, he left behind valuable assets. He also left behind a long list of relatives but he had no will. In addition to his tangible assets, such as money in the bank and real property, Prince left music rights and the value inherent in his name and likeness. Comerica, the estate’s administrator valued it all at $82.3 million, but the IRS said it was worth twice that amount – $163.2 million – and asserted a tax claim for $39 million.
Kiplinger’s recent article entitled “Prince’s Estate Is a Royal Mess: 5 Ways You Can Do Better” said that it took six years and tens of millions of dollars in legal fees, but the heirs and the IRS finally came to an agreement in January. They agreed to a final valuation of $156.4 million. However, since his death, Prince’s half-brother passed away in 2019, leaving a will that opened the door for new, unrelated parties to assert claims against the estate. The process of distributing the vast estate will now finally start.
Although we may not have a fraction of Prince’s estate, we can all treat our heirs like royalty! There are a number of simple steps you can take now to prevent a nightmare like this one. Let’s look at five key lessons from the Prince estate mess.
- Draft a will. An up-to-date will was not a big priority for Prince. A will directs your executor regarding how you want to your property distributed. If you have minor children, your will allows you to name a guardian if you are not around. If you do not have a will, a court will make those decisions for you. Ask an experienced estate planning attorney to create your last will and testament.
- Inventory your asserts. Begin your inventory with larger and more valuable items. Add in your sentimental items. You can create a spreadsheet and have a column that shows to whom you intend to pass the asset. You can refer to this in your will.
- Know the value of your unique assets. The IRS and Comerica settled last year on the real estate component of Prince’s estate. However, it took another 18 months to settle on a valuation for intangible assets, like the rights to Prince’s music. The IRS ultimately dropped a $6.4 million “accuracy-related penalty” it had levied on Prince’s estate, and the Minnesota Department of Revenue also dropped a penalty. However, the battle over value resulted in a large tax bill that will likely force Prince’s heirs to sell their interests in his catalog, rather than reaping its long-term benefits.
Protect your family by enlisting the services of an expert to value jewelry, artwork, and other items of unique value. You should also make certain to keep all your documentation in a safe place. Although valuations change over time, you should have a pretty good idea of an asset’s value when making estate plans. This can spare your heirs severe tax consequences down the road.
Reference: Kiplinger (Feb. 5, 2022) “Prince’s Estate Is a Royal Mess: 5 Ways You Can Do Better”