Celebrity Estate Planning Bloopers
We all have a tendency to elevate celebrities to a position far above the “common man” to a point where it seems they can do no wrong. But as the supermarket tabloids, late night talk shows, and other media outlets frequently tend to show, celebrities make mistakes just as we do (but on a far bigger stage). These mistakes don’t end at messy domestic disputes, late night altercations, or substance abuse issues. Celebrities have also been known to make costly errors when it comes to planning for the transfer of their massive wealth to the next generation. As the following celebrity estate planning blunders show, no one is immune from the consequences of inadequate planning.
Prince: No Estate Plan
Prince Rogers Nelson, the singer-songwriter who brought us “Purple Rain”, passed away in April 2016. His death was not only shocking due to his young age (57), but also due to the fact that he had failed to set up any semblance of an estate plan prior to his death (i.e. he died “intestate”). As a result, Prince left no documented evidence of how he desired his multi-million dollar estate to be distributed among family members and friends. Instead, a Minnesota judge is in the process of deciding how to distribute Prince’s estimated $300 million estate among six siblings, according to Minnesota state law. This process, known as probate, will take years to go through due to the size and complexity of Prince’s estate, and the fact that other potential heirs have surfaced, including a federal inmate claiming to be Prince’s son. Throughout this time-consuming process, the estate will pay thousands of dollars in court costs and attorney’s fees. Furthermore, due to Prince’s lack of tax planning, his entire estate will be subject to the 40% estate tax rate, nearly cutting in half the amount of money his heirs will receive once the estate is finally distributed.
Lesson: Not preparing at least a basic estate plan is a serious mistake. Failing to leave any evidence of your wishes regarding how you want your property distributed following death leaves your family members in a difficult position, and allows a court to determine who receives your property according to state law. Additionally, court battles over who should manage your estate, and who should care for minor or disabled children will frequently ensue, needlessly tearing apart families. Unfortunately, it’s estimated that 60-70% of adults in the U.S. don’t have any estate planning documents in place. Don’t leave your family in this difficult position. Creating a basic estate plan is an easy solution, and makes life easier for those you leave behind during an already difficult time.
James Gandolfini: Poor Planning for Estate Taxes
Sopranos actor James Gandolfini, best known for his alter ego Tony Soprano, was reportedly worth $70 million when he died in June 2013 of a heart attack in Rome. He had the foresight to at least execute a Last Will and Testament which sufficiently provided for his wife, daughter and two sisters. However, Gandolfini failed to implement proper tax planning in his estate plan. As a result, his entire estate was subject to the 40% estate tax rate, in addition to the 15% estate tax rate imposed by the State of New York. Therefore, the majority of Gandolfini’s estate will be consumed by taxes, a result that is undoubtedly contrary from his (or his family’s) wishes.
Lesson: For many people, a simple Will isn’t enough, and this is especially the case for those (like celebrities) with significant wealth. Currently, an individual can pass away with approximately $11.2 million in assets ($22.4 million for married couples) and not have to worry about federal estate taxes. However, anything above this amount will be subject to the 40% federal estate tax rate. If you are near or above this threshold, there are several options you need to consider to avoid a large chunk of your estate being consumed by taxes, including, among other strategies, irrevocable life insurance trusts, charitable remainder trusts, and lifetime gifting strategies.
Whitney Houston: Will Out of Date
Pop star Whitney Houston had executed a Last Will and Testament prior to her death in February 2012, but unfortunately had not updated it since 1993, even as the value of the singer’s estate climbed to $20 million. Under the terms of the Will, Houston’s only child, Bobbi Kristina Brown, who was 18 when her mother died, was to receive 10 percent of the estate ($2 million) when she turned 21, and the rest at later ages. By not updating her will, Houston failed to consider whether her daughter was mature enough to handle millions of dollars outright at a young age, instead of keeping such a large amount of money in a continuing trust for Bobbi Kristina’s benefit (thus protecting the inheritance from creditors and potential poor decisions). Bobbi Kristina passed away in 2015 of a drug overdose, and it is safe to say her inheritance was not used as wisely as it could have been.
Additionally, Houston was relying on a Will that was created when she was married to Bobby Brown (she and Brown divorced in 2007), with Brown still named as the suggested guardian for her daughter. The Will also provided that if Houston had no living children at the time of her death, her fortune would be split between Bobby Brown and several family members. While many of these provisions fortunately never became applicable, the chaos that could have ensued as a result of such an outdated estate plan would undeniably have made for bizarre and unwanted headlines for Houston’s family and friends, and unnecessary heartache during a period of mourning.
Lesson: Once you’ve executed an estate plan, it may be tempting to sit back and pat yourself on the back for checking an item off your to-do list. However, as appealing as it may be to throw your estate plan in a safety deposit box and move on with your life, failing to periodically update your plan, especially after important life events, can be detrimental to your wishes regarding how your estate should be handled and distributed, and can lead to needless difficulties for those you leave behind.
Michael Jackson: Trust Unfunded
Michael Jackson’s death in June 2009 touched off a string of ongoing court battles over his $600 million estate. One of the biggest estate planning missteps committed by the King of Pop was creating a Trust — and then failing to fund it. In other words, Jackson neglected to re-title his property in the Trust’s name, instead leaving such property in his individual name, and forcing application of the probate process. As a result, Jackson’s estate remains open, the named beneficiaries of Jackson’s Trust have found themselves numerous times in probate court attempting to determine how to distribute his erroneously titled property, and every action taken with regard to the estate is subject to costly and burdensome court approval.
Lesson: It is vital to understand that creating a Trust Agreement is not the end of the process. Unless you re-title your property in the Trust’s name (i.e. fund the trust), the Trust is merely an empty shell with no impact on how your estate should be managed and ultimately distributed. Only property owned by the Trust itself will pass subject to its terms. This trust funding step may include deeding real property from individuals to the Trustee of your Trust, updating beneficiary designations on life insurance or retirement accounts to name the Trust, and ensuring that transfer-on-death or payable-on-death designations reflect the Trust as well. If this important step is ignored, all of the time and money spent in setting up a carefully crafted estate plan will have been for naught.
James Brown: Vague and Poorly Drafted Will
The Godfather of Soul passed away in 2006, and twelve years later, not a penny of his multi-million dollar estate has been distributed to any of the beneficiaries of his Last Will and Testament, including the “I Feel Good Trust” benefitting underprivileged children to whom Mr. Brown sought to donate millions of dollars. This delay is due to the filing of more than a dozen lawsuits related to the estate since his death. These suits include contests to the validity of the Will, assertions by individuals that they are rightful heirs of the estate, and an action against the estate’s executor (and Brown’s widow) asserting “illegal back-room agreements” with the estate involving copyrighted materials. Of course, Mr. Brown’s life was a bit messy too, marked by divorce, estrangement from some of his children, and multiple arrests. This instability fed the first effort to overturn the will, in which several of his descendants said his drug problems had prevented him from making sound decisions about his estate.
Lesson: There are many lessons to be learned from James Brown’s estate. For one, in complicated family situations where it is likely that family members will not get along, it is wise to name a corporate Trustee to manage and distribute your estate, rather than a family member. This helps to avoid any conflicts of interest between the Trustee and the beneficiaries, and ensures impartiality during administration. It is also much easier for a corporate Trustee, with a large staff on hand, to handle the details of administration, both financial and otherwise, which can be very time-consuming. Additionally, if there is any possibility that a beneficiary may attack the validity of your estate plan, be sure to include a “no contest” or “in terrorem” clause in your Will or Trust which states that the beneficiary will be disinherited if such a suit is brought. Finally, in situations of mixed families and prior marriages, especially those involving estranged children, take extra care to express your wishes to disinherit a child who would otherwise inherit part of your estate under state law.
Heath Ledger: Inadvertent Omission of a Child
After actor Heath Ledger died in January 2008, it was discovered that he had failed to update a Will created prior to the birth of his daughter, Matilda, who remained unnamed as a beneficiary in the document. As a result, Ledger’s entire $20 million estate was distributed to his parents and three sisters, completely disinheriting his daughter, a result that Ledger could hardly have desired. Ledger’s parents quickly pledged to donate their inheritance to Matilda anyway, but had they not been such understanding people, Matilda would have been out of luck.
Lesson: As easy as it may be to forget about your newly created estate plan and move on with your life, there are times that you need to reevaluate it in order to accurately reflect the changes of life. This is especially true after marriage or divorce, and after the birth of a child. If you allow your estate plan to remain unchanged for many years, your estate may be distributed in ways that you neither desired nor expected.
Florence Griffith Joyner: Keeping Will Location Secret
Olympian sprinter Florence (Flo Jo) Griffith Joyner was considered to be the fastest woman of all time, having broken several records in the 1988 Olympics. Sadly, she died ten years later from an epileptic seizure at 38 years old. Although she had created a Last Will and Testament, the document could never be located. As a result, Joyner was considered to have died intestate (without a Will). Therefore, it took a probate court four years to complete the administration of her estate, and her property was distributed according to state law, rather than as outlined in her missing Will. In the end, this process resulted in years of litigation and difficulty for her family.
Lesson: Without a Will to instruct a probate court as to your final intentions, there is no way to adequately provide for and protect your loved ones. Unfortunately, a missing Will is the same as having no Will whatsoever. It is therefore vitally important that you advise the trusted individuals who you have appointed as Executor, Personal Representative, or Trustee of your estate as to the location of your final estate planning documents, or at the very least, maintain copies. A safety deposit box, safe, or the office of your drafting attorney are all safe locations to keep your estate planning documents.
Don’t Repeat These Mistakes!
As these celebrity case studies show, there are a multitude of mistakes that can be made when it comes to one’s estate plan, all of which can result in your wealth being transferred in ways you neither imagined nor desired. The bright side? All of these mistakes can be easily avoided through the implementation of careful and capable planning. Don’t make the error of thinking that, because your estate may not be as large and complex as these superstars, you can skate by without a properly prepared, and regularly updated, estate plan. Everyone needs to have an estate plan in place, and the size of your wealth only matters in the type of documents required. Make an effort to sit down with a trusted estate planning attorney and check this necessity off your list. You’re sure to achieve celebrity status in the eyes of your loved ones if you do.