Why Having an Estate Plan is So Important
Every once in awhile, a major figure in the public eye passes away without a living trust or will. Recently, this was the case with the world famous pop singer, Prince. Although this case made front page news because of his fame, this occurs more often than you would think to ordinary people every day.
Not only is it important for everyone to have an estate plan, but it’s equally important to keep that plan up-to-date with the latest estate tax laws in mind. You may also want to revisit your estate plan after key life events, such as a marriage, divorce, death of a spouse, birth of a child, move to a different state, or a change in your guardian, executor or trustee’s ability to carry out your living trust or will. Keeping your will updated to reflect changes within your family dynamics, tax codes, and state and federal laws is crucial to ensuring your intended wishes are carried out.
Here are a few reasons why having a comprehensive estate plan is so important:
First and foremost, a will makes sure that your final requests are granted when you no longer have a say. This is important because without a thoroughly documented estate plan, the state courts get to determine the value of your estate and decide on where your assets go. Depending on the judge assigned to the case and the local political climate, the courts can get quite creative in protecting their – the state’s – best interest, which is to squeeze the greatest amount of taxes out of your estate by valuing it at its maximum dollar amount.
In the case of Prince’s estate, this is exactly what is happening now. As Michael Kosnitzky, head of the tax practice at Boies, Schiller & Flexner states, “… 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 Various estimates place that figure around $300 million, not including the unpublished music.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.”
A well-documented estate plan should include safeguards that shield against this enormous tax liability. There are a number of options available, including establishing private trusts, gifting assets, and making charitable contributions that ensure your assets are distributed as you wish. Speak with your financial advisor, estate attorney, and tax professional to see what options make the most sense for you.
Second, without a living trust or will, heirs have to deal with the burden of fighting the government to value the deceased’s estate. This can be a long, arduous and stressful process for those involved.
“[Prince’s] situation is just going to be a hot mess of litigation and legal fees,” says Richard Behrendt, director of estate planning at Annex Wealth Management and a former estate tax attorney with the IRS, saying the litigation could drag on for years.
Finally, without a clearly documented plan, people other than your intended beneficiaries may come out of the woodwork to stake a claim on your estate. This also leaves your heirs with the additional hassle and stress of dealing with these claims to parse out the true from the false.
Unfortunate cases like Prince’s provide us some insight into why it is extremely important to plan your estate. Tragedies occur every day, and lives can be swept away unexpectedly. Sadly, without a living trust will, you have no control over what happens to your hard-earned assets after your death, leaving your loved ones to pick up the pieces and deal with the enormous burden of fighting for your estate.
A beloved family member’s passing is heartbreaking enough without also having to watch half of their estate get taken away in taxes or deal with family members squabbling over your intentions. Don’t put yourself – or your loved ones – in that position. If you don’t have an estate plan or haven’t revisited yours in a while, contact your estate attorney and financial advisor to see what options are available to you.