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What do Aretha Franklin, Prince, Barry White, Heath Ledger, Florence Griffith-Joyner, Marlon Brando and Michael Jackson all have in common? They all died, often unexpectedly, without making proper plans for their estates and their legacies. Here's how you can avoid making those same mistakes!
Making sure your estate ends up with the right people is more complicated than just drawing up a will. IRAs and 401(k) accounts, for example, have their own named beneficiaries—and will automatically pass to the designated person, regardless of what's in your will. But many people fail to update the beneficiaries on these accounts. And a will isn't enough to protect your estate from court battles, taxes and probate—all of which can be time-consuming and expensive. But trusts, when used correctly, are a great tool to shield your assets from the probate process.
Anyone—from someone with a simple estate to someone with substantial net worth, numerous assets and a team of advisers at his or her disposal—can make planning missteps that have far-reaching consequences. Aretha Franklin, of whom I recently blogged, passed away in August 2018 without a will. Consider these six well-known people who made estate-planning mistakes that has adverse and unintended consequences for their intended heirs.
1. Having No Estate Plan at All
Shortly after Prince's 2016 death, we learned that the singer didn't have a will. If you die without a will—called dying intestate—the process of divvying up your assets is left to the state. In Prince's case, a Minnesota judge was tasked with distributing Prince's assets—estimated to be worth more than $200 million—among Prince's six siblings and half-siblings. A federal inmate who claimed to be the singer's son delayed the process. Two years after Prince's death, bankers, lawyers and consultants have earned millions, and so far, heirs haven't received anything.
Lesson: Dying without a plan in place means a total stranger will determine who should inherit your assets. And even if the courts pick the people you would have chosen, your estate could take years to sort out. Instead of letting the state call the shots, draw up a will. I offer very reasonable and competitive rates for estate plans ranging from a simple individual will to more complicated marital trust package. Call me and I'll be happy to answer any questions.
2. Failing to Remove Beneficiaries From Your Estate Plans
When singer Barry White died in 2003, he was separated, but not yet divorced, from his second wife, who inherited everything. His live-in girlfriend of several years and nine children received nothing. A legal battle ensued, with White's girlfriend, his daughter Denise and his son Darryl filing lawsuits.
Lesson: If you're in the process of getting divorced, the law considers you to be legally married until a judge signs the decree ending your marriage. During the divorce, your options for limiting your soon-to-be ex's inheritances are limited. For example, if your spouse is listed as the beneficiary of your 401(k) plan, federal law won't allow you to disinherit him or her without his or her signature. Other changes, while possible, can complicate divorce proceedings, so it's important to check with both your estate-planning attorney and your divorce attorney.
One thing you can do: Update your financial and your health care power of attorney to ensure that your soon-to-be ex won't be the person making financial or medical decisions on your behalf if you're unable to do so.
Updating the rest of your estate plans after the divorce is key. People tend to want a break and are sick of dealing with legal fees and put it off for a few months, but a few months can become a couple of years or, worse, they never got it done.
3. Failing to Add Beneficiaries to Your Estate Plans
When Heath Ledger died at age 28 in 2008, his will left everything to his parents and three sisters. The problem with that plan? Ledger's will had been written before his daughter, Matilda, was born, leaving the then 2-year-old and her mother, actress Michelle Williams, nothing. Ledger's family later gave all the money from the estate to Ledger's daughter.
Lesson: Use life-changing events as triggers to review and update your estate-planning documents and the beneficiaries who are named on your financial accounts. Working with an estate-planning lawyer can also help you avoid these pitfalls. Part of an estate-planning attorney's job is to project how your situation and the law may change in the years or decades to come. As a result, most estate-planning documents prepared by a professional are written to account for any future descendants.
4. Keeping the Whereabouts of Your Estate Plans a Secret
Even if your estate plans have the details covered, they'll be of little use if no one can find the original documents. Olympic sprinter Florence Griffith-Joyner—better known as FloJo—was believed to have a will when she died at age 38 in 1998, but her family couldn't locate the document. Years of legal battles followed as Joyner's husband and her mother couldn't agree on whether FloJo said her mother could continue to live rent-free in the couple's condominium for the rest of her life.
Lesson: I give my clients an electronic copy of your will or trust and keep it on file, but you should also keep the original documents in a safe, readily accessible place and tell at least two people where to find the documents if needed. You may also consider sharing a copy with the executor of your estate or a trusted family member.
5. Not Putting Promises in Writing
Promises made to your would-be heirs are only as good as the legal documents behind them. When Marlon Brando died in 2004, the actor left the bulk of his roughly $26 million estate to his producer and other associates. His longtime housekeeper claimed that Brando had promised her that she would inherit his home when he died—but Brando either never promised her the home or never took the time to put the promise in writing. She later sued Brando's estate for the value of the home, plus $2 million in damages. The case settled in 2007 for $125,000.
Lesson: Put each of your wishes in writing. Updating your estate-planning documents to include new promises or beneficiaries is your best bet. Or write down any new promises in a fresh document and have the document witnessed by someone who isn't involved in the transaction and, ideally, have it notarized by a notary public.
6. Failing to Fund a Trust
Michael Jackson's 2009 death set off a string of legal battles over his roughly $500 million estate. The biggest issue? To protect his estate, Jackson had created a revocable living trust designed to transfer his wealth to his children and his mother when he passed. But he never funded the trust.
Instead, his entire estate had been left outside the trust. The estate had to go through the probate process while Jackson's children and his mother lived off an allowance (of $8 million a year) managed by the estate's executor and a judge for years. During the probate process, the estate faced numerous legal challenges from creditors as well as Jackson's family.
Lesson: A trust can be a valuable tool to streamline the process of transferring assets to your heirs while avoiding probate and keeping the details of your estate private. But if you don't register your assets in the name of that trust, it's absolutely worthless. Real estate and business holdings should typically be registered to the trust immediately.
Additional Sources: https://www.kiplinger.com/slideshow/retirement/T021-S003-estate-planning-mistakes-celebrities-made/index.html