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7 Lessons Prince’s Death Teaches Us about Estate Planning

Jan 7, 2021

Paul S. Labiner

Paul Labiner

Managing
Partner

Prince was a music legend. He wrote chart-topping songs for decades that redefined music. He also died relatively young, at the age of 57, from a fentanyl overdose.

The immediate impact of Prince’s death in 2016 was to reminder us that America’s opioid epidemic can affect anyone, rich or poor. But what has happened since his death reveals a separate and fairly pedestrian lesson: Dying without a valid will creates confusion and leaves your estate vulnerable.

While nearly everybody knows of his death, far fewer people know that Prince died without a will (i.e. intestate), leaving behind a massive estate with no direct descendants or inheritance plans.

As such, Minnesota’s intestacy laws became the arbiter of who will inherit his sizeable and complex estate, a situation that launched one of the most protracted and complicated probate court processes Minnesota has seen.

Although most individual’s estates won’t be as large or as complicated as Prince’s, we can draw many relevant lessons from the costly court battles that have plagued the administration of the Prince estate.

What’s at Stake?

When Prince passed away in April 2016 in his Minneapolis home, he left behind a massive estate with an estimated worth between $100 million and $300 million. (The valuation eventually submitted to the IRS was $82.3 million—more on this below!).

Some of his assets, as listed in the probate court documents (publicly available online!), include:

  • over $18M in cash,
  • several multi-million-dollar properties,
  • various luxury automobiles,
  • ownership shares in numerous companies, and
  • the intellectual property associated with Prince’s music library (by far the most valuable asset).
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Lesson #1

Remember, the probate process is public. So, not only can anyone see the asset lists, but all of the legal activity for the past 4+ years is publicly available for anyone to view (see the entire docket). If you are concerned about your family’s privacy, proactive estate planning could help avoid all of your estate’s details becoming public record.

Who Gets What?

When the estate went into probate, Minnesota’s intestacy laws took over. Because Prince was unmarried and had no (known) children, the probate court had two immediate tasks:

  • assign a personal representative to administer the estate, and
  • determine who counted as lawful heirs to the estate.

Special Administrator and Personal Representative

Because no will existed to designate a personal representative, the probate court had to appoint a special administrator until one could be found. A fierce legal battle has ensued over who should fill these positions, with multiple institutions taking over and various objections being filed.

Initially, Bremer Trust was appointed as the special administrator of the estate. Then, in January 2017, Comerica Bank & Trust took over as the personal representative. Petitions to remove Comerica were filed in October 2017, but ultimately denied.

Who Gets What?

Like most state’s intestacy laws, Minnesota’s intestacy statutes determine heirs based on familial relationship (i.e. parentage).

In this case, the court received upwards of 45 applications claiming to be spouses, siblings, children, or other relatives, which they had to review and asses. The court ultimately selected (over a year later) 6 siblings to appoint as heirs: one full sibling, a sister Tyka Nelson, and 5 other so-called half siblings.

To reiterate, this decision was based solely on parentage, and we have no way of knowing what Prince’s relationship was to any of them. Even if he never met, knew about, or had any relationship whatsoever with any of them, each of these 6 heirs now stands to inherit upwards of $13 million.

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Lesson #2

If you fail to draft a will, the same thing could happen to you and your estate. At best, you lose control over who gets your assets and who will oversee the distribution. At worst, an unknown sibling or long-forgotten ex-girlfriend could turn up suddenly after your death and make a claim on your estate.

Sucking the Estate Dry

As of January 2021, almost 5 years later, the probate process is still ongoing, and no assets have been distributed to the 6 heirs. What has happened, though, is a systematic depletion of the estate’s value.

The probate court expense reports show that since April 2016 the estate has shelled out tens of millions of dollars to estate administrators, lawyers, and consultants.

  • Comerica Bank & Trust has raked in $110,000 per month (or $1.32M per year) in administration fees since its appointment in December 2016. Tens of thousands of dollars in costs are tacked on also.
  • Fredrikson & Byron and Boyarski Fritz, two law firms who work for Comerica, billed $1.17M in the first six months of 2019 and may have taken in $3.8M in 2018.
  • An entertainment consultant for Comerica took in was paid $2M in 2018. Other consultants hired by law firms or individual heirs have also sought large consulting fees.
  • Attorneys for the individual heirs sought over $1.2M in 2017 In 2019, the estate paid $340k in attorneys’ fees for the heirs. Several attorneys have placed liens on the estate totaling well over $2M.
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Lesson #3

Adjudicating complex estates in probate court takes time and effort, especially if the parties disagree over critical issues. The longer the process takes and the more parties who get involved, the higher the costs will be to the estate and the less benefit your heirs will ultimately receive.

Ongoing Heir Disputes

Prince’s heirs can’t get their money until his estate is settled. But on many important topics, the heirs haven’t been able to agree, which has further drawn out the administration process.

A couple heirs have cut deals with a third-party entertainment company, Primary Wave, in hopes of getting funds up front. For example, Alfred Jackson, a half sibling, sold 90% of his rights in 2019, although the terms of the deal haven’t been made public.

To make matters worse, Alfred unexpectedly died very soon after signing the deal with Primary Wave, and, in his will, he decided to leave his assets to a friend rather than his siblings.

Not only are Prince’s heirs challenging Primary Wave’s agreement with Alfred, but one of Alfred’s siblings formally disputed the terms of his will in December 2019. The problem is that Alfred died in Jackson County, Missouri, so his death launched another dispute in a separate location, by a sibling who is not one of the 6 heirs.

In the end, roughly one-third of Prince’s assets could end up in the hands of parties not related to him, which is further complicating the difficult task of settling Prince’s estate.

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Lesson #4

You cannot know or control how your heirs will behave. Disputes flare up in heightened emotional situations, especially when large sums of money are involved. A well-written will forestalls such disputes and ensures your assets don’t end up owned by someone else, thus dissipating your family’s wealth.

IRS Determines Estate Was Undervalued

In yet a further speed bump that’s sure to drag out the administration process well into 2021 and generate even more legal fees, the IRS declared that Comerica’s initial $82.3-million valuation of Prince’s estate undervalued the assets by roughly $80 million.

The areas found most deficient center on Prince’s intellectual property assets and business assets. The IRS stated that:

  • Value of various personal and business properties were off by $36 million.
  • Prince’s stake in NPG Music Publishing should be valued at $36.9 million (up from $21 million).
  • His ownership in NPG Records should be valued at $46.5 million (up from $19.5 million).
  • The intellectual property rights to his music were undervalued by $11 million.

The IRS valuation of $163.2 million would tack on an additional $32.4 million in taxes. The IRS also hit Comerica with a $6.4-million penalty for its substantial undervaluing of the estate. In response, Comerica sued the IRS in U.S. Tax Court in mid-2020, claiming its valuation was correct.

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Lesson #5 and #6

The number and types of assets that you own can significantly impact the difficulty of valuing and administering your estate. Some assets may be easier to value (e.g. real estate), and others may require experts to weigh in (e.g. IP rights). Incorrect valuations can bring unwanted scrutiny by state and federal agencies. Moreover, probate is a very inefficient method of avoiding high estate taxes. The use of trusts and other tax mitigation strategies are vital components of your estate plan and can literally save you millions of dollars.

7 Big Lessons from Prince’s Estate Administration Blunders

We won’t know how everything will shake out with Prince’s estate for a while, but the lessons from the process thus far are still worth considering. Let’s recap our 6 lessons:

  1. Lesson 1: The probate process is public and court documents will be accessible to anyone. If you care about maintaining privacy for your heirs and beneficiaries, you should take steps to avoid a protracted probate process.
  2. Lesson 2: Without a will, you lose personal control over who inherits your assets. State intestacy laws will direct your assets, regardless of your personal relationship (or lack thereof) with the person.
  3. Lesson 3: Significant sums of money tend to breed disagreements. But disputes among heirs greatly drag out the estate administration process, and with every additional wrinkle your estate incurs higher court costs and attorneys’ fees.
  4. Lesson 4: The administrative confusion caused by dying without a will can lead to disputes. A properly drafted will allows you to decide what goes where, but more importantly you can avert potential disputes and wealth dissipation by being precise and clear with your wishes.
  5. Lesson 5: The makeup of the asset portfolio is a critical part of any estate. The number of substantive assets in an estate and the types of those assets impact the complexity of administration. Some asset classes are simply more difficult to value or transfer than others.
  6. Lesson 6: Accurate asset valuations are important to assess the tax implications on your heirs, and the IRS may impose additional taxes for improperly valued assets. More importantly, proactive trust planning and tax mitigation strategies can reduce the tax burden levied on your estate.

The seventh and final lesson brings all the previous points together. When you pass away, your family will be grieving. There is no good reason to leave them with additional logistical and legal burdens that will only further their grief.

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Lesson #7

Everyone should have a will. It’s not a question of the size of your estate; it’s a question of caring about your family’s wellbeing. Dying intestate creates a number of unnecessary hurdles that your grieving family will have to overcome in order to administer your estate. A small amount of planning on your part can relieve an enormous amount of stress on your family.

Start Your Estate Planning Now

We urge you to take the necessary steps to protect yourself, your family, and your hard-earned assets and wealth. Whether you need to develop your first estate plan or update your existing plan, we can help take the fear and frustration out of the estate planning process.

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