Spring

When pop superstar Prince died of a fentanyl overdose in 2016, he left behind significant assets, many relatives … and no will. It was a recipe for disaster. In addition to tangible assets – money in the bank, real property – Prince left music rights and the value inherent in his name and likeness. Comerica, the estate’s administrator valued it all at $82.3 million; the IRS said it was worth twice that amount – a whopping $163.2 million – and asserted a tax claim for $39 million.

It took six years and tens of millions of dollars in legal fees, but the heirs and the IRS finally came to terms in January, agreeing on a final valuation of $156.4 million. In the interim, there were changes. Prince’s half-brother passed away in 2019, leaving a will that opened the door for new, unrelated parties to assert claims against the estate. Now the process of distributing the vast estate finally begins.

• SEE MORE What Assets Should Be Included in Your Trust?

We may not possess a fraction of Prince’s estate, but we can all treat our heirs like royalty. Simple steps now can prevent a nightmare like the one his family experienced. These are five key lessons from the Prince estate debacle.

1. Make a will

It sounds obvious, but an up-to-date will was clearly not on Prince’s priority list. Your will tells the court how you want to distribute your property, and it ensures that minor children will be placed in the care of someone you trust. Without a will, the court will make those decisions on your behalf.

To be valid and binding, a will must be signed by someone of sound mind; unrelated witnesses may also be required in your state.

Although a DIY will may sound enticing, don’t do it. A mistake can send an otherwise simple will to litigation, where any money saved is quickly eaten up by legal costs. Have a legal professional create your last will and testament.

2. Know what you have

Start your inventory with big-ticket items, such as real estate and savings accounts – trusts and life insurance policies will bypass probate if beneficiaries have been named – and work your way down. Your grandmother’s recipe book and your father’s tie clip may not have monetary value, but they mean something to somebody. Put them on a spreadsheet so they don’t fall through the cracks when you’re no longer here. It may also be helpful to add a column to the spreadsheet showing to whom you intend to pass the asset, so you can refer to it as you draft your will.

3. Know what it’s worth

The IRS and Comerica settled last spring on the real estate portion of Prince’s estate, but it took another year and a half to arrive at a valuation for intangible assets, such as rights to Prince’s music. The IRS ultimately dropped a $6.4 million “accuracy-related penalty” it had levied on Prince’s estate, and the Minnesota Department of Revenue also dropped an accuracy penalty. However, the fight over value resulted in a huge tax bill that will likely force Prince’s heirs to sell their interests in his catalog, rather than reaping its long-term benefits.

• SEE MORE Uncomfortable Lessons I Have Learned in Estate Planning

Protect your heirs by enlisting the services of a reputable expert to value jewelry, artwork and other items of unique value, and be sure to keep all documentation in a safe place. Although valuations change over time, having a general idea of an asset’s value when making estate plans can spare your heirs severe tax consequences down the road.

Include a valuation column on your asset spreadsheet in which you insert the best information you have for each item and the basis for that valuation. If you’ve received a professional appraisal, indicate the source and the location of any supporting documentation; if it’s a best guess, state as much. Save your beneficiaries a fight over valuation by assigning a value or a process for determining values if one beneficiary wants to buy out others or receives a specific property.

4. Anticipate family dynamics

Even the best of families can morph into dysfunction when a loved one dies. How sad to think that your death could create a permanent divide between your relatives. Make things simple by creating a clear plan that leaves nothing to chance. Just because you’ve told a close relative that you want them to have your silverware, don’t assume that everyone knows this or will be happy about it.

In Prince’s case, the court was left to divide his extensive estate – including his Paisley Park studios-turned-museum, real estate and music rights – equally among six blood relatives. Had Prince simply spelled out his wishes prior to death, his heirs may not have been happy but they would have received their inheritance intact and in a reasonable time. Instead, they had to watch and wait as the estate doled out tens of millions of dollars to lawyers and consultants and valuable assets to pay those fees.

A letter that clearly explains to your heirs the reasons for your decisions can head off hurt feelings, acrimony and possible legal challenges. When the only decisions your relatives have to make are what to wear to the service and what kind of food to order afterwards, you’ve given them a precious gift.

5. Name an executor

Designate a trusted individual to carry out your will’s instructions and manage the affairs and wishes of your estate. Don’t make it a surprise. The more prepared and informed your executor is, the smoother the process will be. Your designee should understand what he or she will be required to do. If you sense any hesitation or concern, talk through those concerns. If it still doesn’t feel right to one or both of you, identify another person to serve in this important capacity, someone who will truly have your heirs’ best interests at heart.

The largest beneficiary of Prince’s estate was the IRS, followed by the administrators and attorneys. A close family member or friend may be willing to waive compensation and should work to keep fees down so that the bulk of your estate passes to your loved ones.

Prince probably thought — like most of us do — that he had plenty of time to get his affairs in order, or he may have concluded that whatever happened after he was gone was none of his concern. Creating an estate plan is an extremely personal decision, but it has huge consequences. It is perhaps the strongest expression of love that the law recognizes.

• SEE MORE TOD Accounts Versus Revocable Trusts – Which Is Better?