When rock superstar Prince died in April 2016, he left behind seven Grammy Awards, scores of grieving fans, and an estate estimated to be worth $200 million. What he didn’t leave behind was a will.
The lack of a will, or any kind of estate plan, opened the door to some 45 people claiming to be heirs to the fortune. And his estate faced a hefty tax bill, with as much as 50% of that $200 million earmarked for Uncle Sam.
After a tumultuous year in probate, a judge ruled that Prince’s sister and five half-siblings are the rightful heirs to the money—after taxes are settled.
A lesson for rock stars and regular folks
“Experts say Prince could have set up an estate plan with trusts to benefit any relatives and charities he chose — while leaving little if anything to be taxed,” Billboard reported.
While relatively few of us are sitting on estates worth hundreds of millions of dollars, an estate plan is nevertheless important for protecting what you’ve worked hard to create during your lifetime. If you own a home, have children, or contribute to a retirement account, it’s something to think about.
Understandably the estate planning process can become increasingly complicated depending on your circumstances. There are, however, some basic steps to consider. The Motley Fool outlines six actions to take.
Start with a will
Decide who you’d like to receive your possessions and write it down. And if you have children, directing who you’d want to care for them in your absence is a good idea. Online tools can help you create a basic will. For more complex circumstances, seek counsel from a certified legal professional.
Establish a trust
A basic will can have limitations and still lead to lengthy probate proceedings. By establishing a trust, your assets may get to your heirs sooner. A financial professional can help you determine the right course to take based on your needs.
Prepare for incapacity
An estate plan isn’t just about preparing for your death. If you become incapacitated for any reason, who’ll help manage your affairs and make important decisions on your behalf? Talk with a lawyer or a financial professional to learn more about powers of attorney and advance medical directives.
Designate beneficiaries – regularly
If you contribute to any retirement accounts, you’ve likely already designated your beneficiaries. Just remember to keep the information up to date as your personal circumstances change over time. Note: Beneficiary designations supersede a will, so this is an important step to take. Transamerica’s Advanced Markets Group compiled a useful beneficiary worksheet with points to consider.
Keep your estate plan current
As you progress through various life stages, your estate plan may need to evolve. Marriage, divorce, birth of children, and other events can impact your strategy. Make regular reviews part of your overall financial strategy.
The process of creating an estate plan may seem daunting. And, for that reason, you may have put off the task. But the effort it takes now could reduce (or eliminate) a headache faced by heirs in the future. Here’s more on the matter (link to Knowledge Place article). And for a more thorough look at the topic, check out the Advance Market Group’s Guide to Estate Planning.
Do you have an estate plan in place? If it’s something that’s been on the to-do list, what are the obstacles standing in your way? Cost? Effort? Don’t feel it’s necessary? Share in the conversation.
Neither Transamerica nor its agents or representatives may provide tax, investment or legal advice. Anyone to whom this material is promoted, marketed, or recommended should consult with and rely on their own independent tax and legal advisors and financial professional regarding their particular situation and the concepts presented herein.
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