Are you thinking of setting up an estate plan? Potential pitfalls and lessons on effective estate planning can be gleaned from the ultra rich and famous. Specifically, Hugh Hefner and Prince Rogers Nelson better known as “Prince” are perfect examples of what to do and what not to do when it comes to estate planning.
Prince died unexpectedly on April 21, 2016 due to an accidental painkiller overdose but Minnesota’s probate court struggled to settle his $300 million estate for over a year after his death.
Prince left no known Last Will & Testament (“Will”) and apparently did nothing to protect his assets from the tax collectors. So, federal and state taxes will claim roughly half of it, said Mark Bakko, leader of the tax practice in the Minneapolis office of the accounting firm Baker Tilly. The value of Prince’s estate when he died is subject to a federal tax of 40 percent plus Minnesota’s tax of 16 percent. With exclusions and deductions, the total chunk will be closer to 50 percent.
Experts say Prince could have set up an estate plan with trusts to benefit any relatives and charities he chose—while leaving little to be taxed. “The reality is there are only three options,” said Robert Strauss of the Los Angeles estate law firm Weinstock Mansion. “There’s family and friends, there’s charity, and there’s Uncle Sam. And most clients would rather that Uncle Sam got less.”
Negative tax consequences were just one of the many issues that arose in the Minnesota probate court. Judge Kevin W. Eide had his hands full with dozens of people who claimed to be Prince’s blood relatives, including a Colorado inmate alleging to be his love child; someone who filed a billion dollar claim thanks to an “implied agreement”; and a secret wife who claimed to be in a C.I.A cover up. Judge Eide dismissed 29 of those cases and ordered DNA testing for the remaining 6 claimants including Prince’s sister and his five half-siblings. Another local judge called the prince case “personal and corporate mayhem”.
Hugh Hefner a role model? When it comes to estate and financial planning he was certainly someone to look up to. After all, Hefner started a unique business with $8,000.00 in 1953 and expanded it into a huge global enterprise. Hefner used the resulting wealth to plan for his retirement and beyond.
In 2011, Hefner’s net worth was roughly $207 million. Hefner had the foresight to protect his assets through a prenuptial agreement with his third wife, Crystal Harris, who he married in 2012.
Hefner’s careful planning makes it unlikely that an inheritance fight will occur. According to multiple reports, including a statement from ex-girlfriend Holly Madison who read his estate planning documents, Hefner devised about half of his wealth to his four children, with the other half earmarked for charity. He left Harris enough to be comfortable, without risking his children’s inheritance. Given his careful planning it is presumed that Hefner used a Trust, so that the assets will pass directly to his intended beneficiaries, outside of probate. Also by giving to charity, this allows the Hefner family to minimize estate taxes.
While creating an ironclad estate plan is not always guaranteed to ward off conflict between beneficiaries, it can certainly help mitigate that conflict should it occur. In other instances, careful estate planning can provide comfort and financial support for your loved ones for many years without conflict. Such is the case for the Hefner family. Contact OC Estate and Elder Law at (954) 251-0332 or firstname.lastname@example.org to learn more about crafting an estate plan that works for you and your family.