April 13, 2022 – In my years of advising clients on financial topics, there are two areas of utmost importance where many clients “drag their feet:” maintaining adequate life insurance and having an estate plan. Considering one’s mortality is difficult and unpleasant.
Another common reason for not having an estate plan in place is the (mistaken) belief that one is only needed if you have considerable assets. Following that logic, you might assume that anyone with substantial assets would have a well-thought-out plan in place. In reality, that is not always the case. Some very well-known and well-off celebrities have died and left behind estate planning disasters. The rest of us can learn some essential lessons from the heartache, conflict, and struggles their loved ones faced due to their estate planning mistakes.
- Failing to Fund a Trust – Michael Jackson
Michael Jackson’s death in June 2009 touched off a string of ongoing court battles over his estate, now worth $600 million. Among Jackson’s biggest estate planning mistakes was creating a trust, but failing to fund it. Absent a properly funded trust, Jackson’s beneficiaries have wound up, numerous times, in probate court, the estate is still open, and all things concerning it are subject to court approval.
TIP: A living trust can be a powerful yet simple method to avoid probate (and fees), keep your estate wishes confidential, and appoint someone you trust to help if you are incapacitated. A simple Pour-Over Will, which “pours over,” or transfers, all estate assets into a trust at death, could have prevented this disaster.
2. Failing to Execute a Will – Prince Rogers Nelson
The famous singer known simply as “Prince” died at the relatively young age of 57, in April of 2016. Along with being shocked at the “Purple Rain” singer’s death, people were also surprised that he had not executed even a basic Last Will and Testament before his death. Now a Minnesota judge is deciding how to distribute Prince’s estimated $300 million estate among six siblings. Other potential heirs have surfaced, including a federal inmate claiming to be Prince’s son.
TIP: We can trace the rules governing the transfer of assets back to the 15th century and the English feudal system. When someone dies without so much as a basic Will in place, the state intestate succession laws dictate how the estate is distributed. Prince may, or may not, have wanted his siblings to share his estate equally, but the state will decide. Executing a Will would have ensured that his wishes were honored.
3. Failing to Update a Will – Whitney Houston
Songstress Whitney Houston had a Will when she died in 2012, but it was executed a month before the 1993 birth of Houston’s only child, daughter Bobbi Kristina Brown. Houston never updated her Will. At the time of her death, her fortune had climbed to $20 million, and her daughter, Bobbi Kristina, was 18 years old. Under the terms of the old Will, Bobbi was to receive 10 percent of the estate – $2 million — when she turned 21 and the remainder at a later time. Unfortunately, failing to update her Will meant that Houston could not consider whether her daughter was mature enough to handle millions of dollars at the young age of 20. Sadly, Bobbi Kristina got the $2 million but never received the rest of her inheritance because she died in 2015 due to drowning and drug intoxication.
TIP: Congratulations if you have a will in place! BUT, estate documents are not “set it and forget it.” You should review your objectives for updates every five years and upon specific life events (birth, death, marriage, divorce, failing health, etc.) Also, consider whether your beneficiaries are capable of handling an inheritance. Had Houston taken the time to update her estate plan, she could have created a trust to help protect and manage Bobbi’s inheritance.
4. Inadvertently Omitting a Child – Heath Ledger
After actor Heath Ledger died in January 2008, reports surfaced that he had failed to update an old Will created before his daughter was born. As a result, Ledger’s entire $20 million estate went to his parents and three sisters. Fortunately for everyone involved, relatives revealed in late 2008 that all of Ledger’s money would go where he would have wanted — to daughter Matilda Ledger, whose mom is actress Michelle Williams. His daughter is fortunate because his beneficiaries are not legally obligated to do anything for his daughter.
TIP: A well-drafted Will should always have language that references any natural-born children, adopted or stepchildren, and any offspring you may have in the future. By including them even before they exist, you know they are accounted for from the moment they do exist.
5. Incomplete Planning Causing a Hefty Tax Liability – James Gandolfini & Phillip Seymour Hoffman
The Sopranos actor James Gandolfini was reportedly worth $70 million when he died of a heart attack, in June 2013, while on vacation in Rome. Before leaving for vacation, he executed a Will that provided for his widow, daughter, and two sisters; however, Gandolfini didn’t incorporate tax avoidance strategies and tools into a comprehensive estate plan. Consequently, the estate ended up paying federal and state estate taxes at a hefty rate of 55 percent.
Phillip Seymour Hoffman had an estate plan when he died; however, the estate plan failed to protect his estate from federal and state taxes. The taxes on Hoffman’s estate decreased the net value of his estate by roughly 40 percent. That was a substantial amount of money his family lost to the government because Hoffman failed to develop an estate plan that avoided estate taxes.
TIP: When it comes to taxes, no one should pay More Than Their Fair Share. Gandolfini and Seymour Hoffman could have taken a little extra time to include some tax avoidance strategies in their Wills. Saving their estates, and consequently their loved ones, a considerable amount of money that went to Uncle Sam instead.
6. DIY Planning – Chief Justice Warren Burger
You would think a Supreme Court Justice would know better than to trust a DIY estate plan; however, Justice Burger made a costly mistake. In 1995, at his time of death, Justice Burger’s estate was worth $1.8 million. You would expect a comprehensive estate plan with an estate of this size. However, Justice Burger wrote his own Will, which consisted of 176 words. Because he chose to write his own Will, Justice Burger failed to include important provisions that cost his family time and money.
TIP: We always advise clients to engage legal assistance in drafting their estate documents. The lesson to learn from this estate planning mistake — even judges need help with estate planning, if they are not estate planning lawyers.
7. Not Telling a Loved One Where to Locate Documents – Florence “FloJo” Griffith
Florence “FloJo” Griffith had a will; however, she did not tell her loved ones where to locate the Will upon her death. Because her husband could not find the original Will, the court stepped in to appoint a third party to administer her estate. It would help if you told your personal representative where to locate your original Will. Without the original Will, your estate will likely be subject to intestate laws.
TIP: It is customary that an estate attorney will offer to maintain originals of your Will in their secure vaults. Otherwise, keep your Will in a safe deposit box or a fire-protected box in your home. Not telling your executor or beneficiaries the location of the documents will cost your family time and money. Furthermore, intestate laws may distribute your estate to estranged family members contrary to your desires.
8. Appointing People Who Understand Your Wishes – Princess Diana
It would be best to have everything you desire in writing before your death. It is also crucial that the people you appoint to handle your estate understand your wishes and will honor them. Princess Diana executed a detailed will before her death, including a letter asking her executors to divide her personal belongings between her sons and her 17 godchildren. Because Princess Diana left this vital task up to the discretion of the executors, her godchildren did not receive the inheritance that she probably intended to leave them.
TIP: It is essential to understand the roles of the various representatives you have entrusted to carry out your estate wishes. Executors are responsible for gathering and distributing your assets according to your desires, as outlined in your Will. Being organized and willing to follow a lengthy process are essential traits for an executor. Trustees are responsible for administering assets held in trust. While they can usually hire investment help, they have some discretion in providing funds to beneficiaries. In this situation, you should appoint a trustee who understands your wishes and intentions. And of course, guardians, who you select to raise your minor children in your absence, should be chosen with the highest standard of care.
9. Doing Nothing – Jimi Hendrix
No one lives forever, and sometimes the good do die young. Jimi Hendrix was only 27 at the time of his death. Hendrix left a small liquid estate and a lot of valuable rights to his music, but had no will or other structure to manage his prolific body of work. More than 48 years after his death, his estate is worth an estimated $175 million and is perhaps the most litigated estate in entertainment history. Because Hendrix died without a will, and his mother predeceased him, his father, Al, was his sole intestate heir. Although Jimi’s brother Leon claims he was close to Hendrix, Hendrix did not make any provision for Leon in a will or trust. Al was left in charge of Hendrix’s estate by default, and Al’s adopted daughter Janie, rather than Hendrix’s brother Leon, inherited control of Hendrix’s estate from Al. It is impossible to know whether this is the result Hendrix wanted.
TIP: Regardless of your estate’s size or age, you need a will to carry out your wishes after your death. Doing nothing is not an option because the state will decide who gets your property. Just think of the additional heartache you might be leaving behind!