Like Amy Winehouse, Jimi Hendrix and Bob Marley before him, Prince was an enormously talented musician who died way too young. And they all have one other thing in common: They left no will.
Prince joins the rank of celebrities who departed this world without directions on how to divide up his possessions, according to court documents filed this week by his sister. That leaves in question how his reportedly $300 million fortune will be divvied up among his family.
“It is unfortunate that his estate will be administered without his direction,” says Patricia Kane, a certified financial planner in East Hartland, Connecticut. “Think of all the people who may have benefitted from charitable gifts and instead a large amount of taxes will likely be paid.”
The artist, though, is not unlike many regular folks. Nearly two-thirds of Americans don’t have a will, according to a 2014 survey from Rocket Lawyer, including 55 percent of parents. The majority of people said they hadn’t gotten around to drafting one, while 22 percent said it wasn’t urgent and 17 percent didn’t think they needed one, despite what financial planners say.
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“A will is important because it allows you to exercise control over your assets and in some instances family members, from the grave,” says Howard Pressman, a financial planner with Egan, Berger & Weiner in Vienna, Va. “If you don't have a will, the state has one for you. Property will eventually be divided, but it may take a long time, be a contentious and expensive process that may tear your family apart and in the end, most likely not be done the way you would have wanted it.”
But when you do write a will, you have to be careful to get it right. Here are three celebrities who wrote wills but made some unfortunate mistakes.
Tony Soprano’s avoidable tax bill
When the “The Sopranos” star James Gandolfini died unexpectedly in 2013, his will became public and raised some eyebrows among tax experts. His will didn’t fully take advantage of federal tax laws that allow unlimited tax-free transfers to spouses. Instead, he passed only 20 percent of his $70 million estate to his wife—the rest went to his sisters and daughters. Any bequests over $5.25 million to anyone but his wife were taxed.
In the end, about 80 percent of Gandolfini’s assets covered in the will were subject to federal and state taxes, according to Margaret Muldoon, assistant vice president of advanced sales at Penn Mutual Life Insurance Co.
“He underutilized the marital deduction,” she says.
That wasn’t his only misstep, according to Muldoon. His will left his house in Italy to his teenage son and infant daughter, but it didn’t provide any money in a trust for the property’s upkeep.
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Jackie O’s failed philanthropic wishes
The former First Lady’s will stipulated that any leftover assets in her estate disclaimed by her children, Caroline and John, would fund a charitable lead trust. The trust would last for 24 years, distributing money to charities each year. After 24 years, what was left in the trust would be passed on to her grandchildren with no transfer tax consequences. But her children, who as co-executors controlled how the estate was distributed, never funded the trust.
“It increased the taxes due and short-circuited any philanthropic goals Jackie might have had,” says Muldoon. However, other reports said Jackie O’s estate was worth far less than originally thought and the children owed more in taxes than what remained of her estate. That’s why they couldn’t fund the charitable trust.
Philip Seymour Hoffman’s procrastination
While the Oscar-winning actor had a will in place, it was woefully out of date by the time of his death in 2014 from a drug overdose. He first wrote the will in 2004 after his son was born but never updated it, leaving out his two daughters who were born after that. The will left some assets to his life partner, Mimi O’Donnell, and some to a trust exclusively for his son.
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Further complicating matters is that O’Donnell, who wasn’t his spouse, did not qualify for the marital tax estate breaks, so a good chunk of the estate was lost to taxes “off the bat,” says Muldoon. Because Hoffman didn’t have life insurance, the estate had to be settled quickly, so funds were available for O’Donnell and their children.
Muldoon recommends that when including a trust for a child in a will, add the stipulation that the will also covers any children born thereafter. As for Hoffman’s daughters, fortunately most state laws protect children from not getting an inheritance if a parent forgets to update a will.
“Most likely some kind of court involvement and assets were appropriated for daughters as well,” Muldoon said.
What you can learn
First, put a will and a comprehensive estate plan together. Depending on how many asset you have, you may need to seek out an attorney or financial planner. For simpler estates, you can probably do it on your own using free online forms.
Revisit your will and estate plan every year to make sure it considers recent major life events such as births, divorces, remarriages, children turning 18 and deaths. Update any beneficiaries of 401(k)s, IRAs and life insurance policies to reflect these changes.
Know how all your assets will pass—either by will, contract or operation of law. Understand what is subject to estate taxes. Make sure your durable power of attorney and healthcare proxy is up to date. And make sure you have picked a guardian for minor children. Accuracy is just as important as doing a will in the first place.
“It is serious business and you don’t get any do-overs,” says David Schneider of Schneider Wealth Strategies in New York. “If you make a mistake, you can't come back from the dead to correct it.”