What do the death of Prince and a divorce have in common? At first blush nothing, but let’s dig a little deeper.
Prince tragically died without any will or estate plan. His estate is worth over $100 million, if not several times more. There are estimates at over $300 million. His music will bring in many more millions of dollars. The estate of Elvis Presley brought in over $50 million in 2015 alone.
The fact that Prince did not have any will is going to cost his heirs many millions of dollars in estate taxes that could have been avoided with careful planning while Prince was still alive. Heirs should have been specified, and there will be litigation with long lost relatives coming out of the woodwork to make claims on the many millions of dollars involved. Trusts could have been set up for his heirs. He could have made specific requests and instructions as to what he wanted done with his estate, his music, and all of his other property — including future royalties and unpublished songs — so that everything could have been handled in an orderly and cost-effective fashion.
In addition, many people of means will set up charitable trusts for the benefit of favorite causes, charities, or religious institutions. This is where careful planning is so crucial.
Death is a tragedy and so is a divorce. In a divorce, the judgment generally states that your spouse is no longer the beneficiary of your assets, including any pensions, retirement accounts, life insurance, or other belongings. The goal is to end all ties between two former spouses except where agreed to by the parties.
Careful divorce and estate planning is critical. The finalization of a divorce is a time to review your important papers. It is a time to revise your will or estate plan. It is a time to review all insurance policies, including medical, homeowners, auto, and disability.
A carefully structured divorce settlement can save the parties who are going through a life-altering event substantial sums of money.
If spousal support/alimony and property division are properly handled in a divorce, there can be tax savings for both parties. There will be tax write-offs. The person paying spousal support can deduct the payments and the recipient will pay taxes on the earned income, but often at a lower rate.
After a divorce, who do you want to be in charge of your estate? Who do you want to handle your children’s inheritance if they are still young? Who do you want as guardian in case something happens to both you and your former spouse?
Considerations during and after a divorce include dealing with your home, other real estate, your personal property, and investments as well as a business or professional practice.
Whether you are a rock star or an average American without a lot of disposable income, careful planning is very important. While you cannot predict the future, it is imperative to plan ahead so that your family and heirs will not be in the same situation as Prince’s family and heirs. They will be spending millions of dollars resolving his complicated estate and suffering tax consequences which could have been avoided with pre-planning. They will also be dealing with long lost relatives who will be making claims that could have been eliminated with a will and careful estate planning. Prince was a musical genius, but he overlooked this major issue: what happens when he passes away? His music will live forever, but a little planning could have saved his heirs a fortune.
Whether your estate is large or small, whether you are going through a divorce or worrying about your own mortality, planning for the future is critical.
These are some of my thoughts. What are yours?