As the world continues to reel from the death of Prince, surprising news recently emerged that he died without leaving a will, opening the question: What will happen to the music legend’s massive estate?
When someone dies intestate—that is, without a will—the manner in which his or her estate is handled is determined by the laws of the state in which the deceased resided. And while each state has its own laws, general steps do apply, according to tax attorney Andrew Goldberg, whose firm has been advising entrepreneurs for more than 25 years.
A probate estate must be opened
“Opening a probate estate is done by a person applying to be appointed the personal representative (aka executor or PR) of the estate, such as the spouse or a child,” explains Goldberg. Prince had neither a wife nor children. He married backup singer Mayte Garcia in 1996. They had a son who died shortly after birth, and the couple divorced in 1999. In 2001, Prince married Manuela Testolini, but that marriage ended in 2006.
“All ‘interested parties’ — typically, the children and spouse of the deceased who did not apply to be the PR — have the right to challenge the appointment,” says Goldberg. “All interested parties are required to be given copies of all documents filed with the court, and they also have an opportunity to appear at all court hearings.”
The PR position is not without risk. He or she can be held personally liable for wrongdoing and malfeasance (even if unintentional). The PR may be required to post a bond… just in case.
Tyka Nelson, Prince’s only full sibling, has asked a court in Minnesota, where Prince resided, to appoint Bremer Trust as a special administrator to handle her brother’s estate. According to the court documents she filed, Prince did business with Bremer Bank for many years.
The assets of the deceased are identified
“Once a PR is appointed, he or she is required to take a complete inventory of all assets and obtain valuation of the assets,” says Goldberg. “This includes reviewing bank statements, brokerage statements, getting real estate appraisals, getting valuation of intangible assets (such as music recordings and business interests), and making claims for life insurance benefits. This information is filed with the court and all interested parties.”
Forbes estimates Prince’s net worth to be in excess of $150 million (and upwards to as much as $300 million). What’s difficult to estimate, however, is the value of the singer’s “right of publicity.” Mark Roesler is the CEO of CMG Worldwide, a licensing house for dead personalities, predicts it’s a lot. Years after their deaths, celebrities such as Marilyn Monroe, Elvis Presley, James Dean, and Michael Jackson are still bringing in hundreds of millions of dollars. Prince will be among them, according to Roesler, who says the singer was “as big as they get.”
Another unknown is the value of Prince’s unpublished music. The artist is reputed to have a vault—yes, an actual vault—filled with unpublished music and unreleased recordings, which could be worth many millions.
The liabilities of the decease are identified
“The PR must make sure that all final bills, funeral expenses, taxes, and creditors of the deceased are paid,” says Goldberg. “During the probate administration process, the PR must also file tax returns and pays taxes, deal with the Social Security Administration, collect mail, ensure there is no identity theft, and make sure proper insurance coverage is in place for all the assets.”
In most states, the estate must remain open for four to six months so other creditors can make claims. Creditors who fail to do so during this time period means are forever barred from making future claims. According to a report on Time.com, the AP did not find liens or mortgages on any of Prince’s properties, which are extensive.
The assets of the estate are distributed
“Once the time period has elapsed by which a creditor can make a claim, the assets are distributed to the beneficiaries designated under state law (i.e., the automatic beneficiaries),” says Goldberg. “In most cases state laws give priority to spouse and children. If neither are living, the assets might go to parents or siblings of the deceased, and then further down the line to nieces and nephews of the deceased.”
In Prince’s home state of Minnesota, the law states that if a person dies intestate and has no surviving parents, children, or grandchildren, his or her estate is shared by surviving siblings, including half-siblings. Prince’s father died in 2001, his mother in 2002. The singer is survived by Nelson and five half-siblings.
The cost of failing to plan
While Prince’s siblings are likely to inherit sizeable amounts, the deceased’s lack of planning might leave them less wealthy than they would have been. The absence of a will indicates Prince did little or no estate planning, which means that his assets—including the value of his likeness and his unpublished music—can be hit with estate taxes. Some of these assets could have been placed in trusts that would have protected them from the federal estate tax bite—a whopping 40 per cent on estates with assets exceeding $5,450,000—and the Minnesota estate tax of 16 percent on estates assets in excess of $1,600,000.
While it’s possible that Prince established an inter-vivos plan, commonly known as a living trust, intended to mitigate these estate taxes, the fact that he lacked the most basic estate planning document—a will—strongly suggests otherwise. Compare Prince’s apparent lack of estate planning to the careful and creative estate plan that the late David Bowie had in place.
Prince isn’t alone in failing to plan for the inevitable. According to Avvo Consumer Research, only 9% of Americans expect to get a will or otherwise engage in estate planning in the next year; over half of those are over 55 years old (Prince was 57).
Still, the immensity of Prince’s wealth has left his would-be heirs in a bind. “There’s really no excuse for anyone with an estate the size of Prince’s to have not done estate planning,” says Justin Alt, an estate and tax attorney with Davis Wright Tremaine in Seattle. “Anyone with an estate worth more than $50,000 should have a will and an estate plan.”
Image courtesy of kqed.org