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Famous Estate Blunders and How to Avoid Them, Raymond James

Famous Estate Blunders and How to Avoid Them

  • 03.07.17
  • Planning and Retirement
  • Article

These celebrities' tales are a strong reminder to review your estate plan before it’s too late.

 
 
There’s a calm comfort that comes with estate planning: a sense that your family will be taken care of after you pass away (hopefully at a ripe old age). Sadly, it doesn’t always happen that way. Skipping regular estate plan reviews can lead to forgotten details, and these can create confusion and havoc for your family – or suck them into a time-consuming court case to iron everything out. Unfortunately, that was the case for these high-profile individuals and their loved ones. 

I Got You Babe (And Babe)

Back in 1998, after Sonny Bono’s untimely death in a skiing accident, we learned he never wrote a will. And a man claiming to be an illegitimate son attempted to get part of the Bono estate, as did ex-wife Cher, with whom he shared royalties on music they made together. His blended family became a public spectacle at a time of grief and uncertainty.

Avoiding the Oops: Resolve to write a will as soon as possible, and keep your beneficiaries updated. Everyone over 18 needs an estate plan that includes a comprehensive will (at the very least) and properly documents your wishes. Remember, life can be unpredictable, especially if you have a complex professional or personal life.

The Girl Without a Ring

Stieg Larsson, author of The Girl with the Dragon Tattoo, was devoted to his girlfriend of 32 years. When the Swedish author died without a will, his entire estate was divided between his father and brother in accordance with Swedish law. His beloved was left out, legally speaking.

Avoiding the Oops: Resolve to learn how estate laws affect nontraditional relationships. Learn and understand the laws that govern transfer of property in your chosen state or country, so you can protect the interests of those you love. And don’t presume others will honor your wishes without a written directive. Beyond writing a will, asset titling is especially important when you’re in a “nontraditional” relationship. Legally, your partner may not have the same rights a spouse would.

The Injustice of It All

Former Supreme Court Justice Warren Burger presided over his own will, penning a brief 176-word declaration. But the poorly-executed document left his family with more than $450,000 in estate taxes and court fees that could have been avoided.

Avoiding the Oops: Trust a qualified estate planning professional to help you write your will and other estate planning documents. To find one, ask for a referral or visit the American Academy of Estate Planning Attorneys or the National Network of Estate Planning Attorneys. Most of us have limited expertise when it comes to complicated tax and estate planning, and even though dedicated software can help you create the necessary documents, it’s still a good idea to have an estate planning attorney review what you have.

No Laughing Matter

Dark Knight actor Heath Ledger drafted a will naming his sibling and his parents as beneficiaries. Sadly, he didn’t update it after the birth of his daughter, Matilda. When he passed away unexpectedly, there was great confusion about who were the rightful heirs of his estate, and the difficulties played out publicly.

Avoiding the Oops: Resolve to review your plan any time your life changes. Remember that every life event – births, adoptions, disability, deaths, marriages, divorces, even moving – should trigger a review and update of your estate documents. If any of these events occur in the life of a beloved beneficiary, take note! That requires another look, too.

Empty Trust

Michael Jackson created a trust, but it seems the king of pop may not have fully funded it. As a result, members of his famous family fought in probate court – and in the media – before settling the estate.

Avoiding the Oops: Resolve to retitle assets in a trust’s name. Work with your financial team to name your trust as the owner of the assets you want it to control. For example, changing the title on your house from “Sarah and Mark Jennings, Joint Tenants with Rights of Survivorship” to “Sarah and Mark Jennings, Trustees of the Jennings Revocable Trust dated January 4, 2014” means that the trust is now funded with your primary residence. Without this retitling, the trust is an empty shell, and you’ve likely wasted time and money setting it up in the first place. To find out if a trust makes sense for your family, consult knowledgeable estate planning professionals to learn more about the various types.

A Complicated Man

When he died a few years ago, actor Philip Seymour Hoffman left his entire estate to his long-term girlfriend, bypassing his three young children because he didn’t want them to become entitled trust-fund babies. But their non-married status meant that she didn’t qualify for the marriage exemption on inherited assets, according to Forbes. So approximately $30 million of the $35 million estate ($5.34 million is excluded because of the federal lifetime exclusion; $10.68 million for couples), which could have been passed tax-free, was fully taxable at up to a 40% rate. On top of that, New York state has its own 16% estate tax for non-spouses on any amount over its $1 million exemption. Forbes estimated that the Oscar winner’s loved ones lost at least $15 million to the IRS and the state.

Avoiding the Oops: Resolve to research estate-planning strategies that align with your wishes. Remember to review and revise your estate plan any time your life changes. Also, don’t let principles cloud your judgment: your professional advisors may be able to keep the IRS at bay and protect your legacy while still respecting a stance against the institution of marriage or an unwillingness to bequeath significant wealth to your children. For example, Hoffman could have provided for his minor children’s future education without making them millionaires overnight. There are also several insurance policies and other types of accounts that could have offered them basic financial protection.

Papa Didn’t Know Best

Like the Hoffman family, Sopranos actor James Gandolfini’s family ended up owing $30 million in taxes on his $70 million estate. While he had a plan that included his wife, children (some from a previous relationship) and sisters, he neglected to implement some well-known techniques that could have minimized that tax burden. For example, he left 20% of his assets to his wife, which didn’t take advantage of the unlimited marital deduction that allows tax-free transfers between spouses, in most cases. Instead, 80% of his wealth was subject to federal estate taxes and New York’s 16% estate tax. While he may not have wanted his current wife to inherit all his wealth, he could have implemented different provisions to protect the financial security of individuals within his blended family, while softening the tax blow.

Avoiding the Oops: Resolve to take advantage of all available estate-planning techniques, and make sure your will accurately reflects your existing family structure. Don’t forget to talk to professionals about estate planning techniques that take advantage of all the tax exemptions currently available. Doing so could ease the transfer of assets and keep more of your hard-earned wealth within the family, not in Uncle Sam’s coffers. For example, Gandolfini could have set up what’s known as a bypass trust or credit shelter trust with his wife as the lifetime beneficiary and his children as the remainder beneficiaries. The assets in the trust would have passed free from estate tax upon his death and free of estate tax when his wife passes. That way, he could have protected his full estate tax exemption amount from federal estate taxes.

Learning from these celebrities' experiences can help you avoid estate blunders of your own. Resolve to review your documents regularly and put new ones in place when appropriate. Don’t forget to take into account any changes that could impact your plan, including changes in family, personal interests, wealth and tax law. And talk to your financial and estate planning professionals – you may not recognize a change, but your advisors might.

Changes in tax laws may occur at any time and could have a substantial impact upon each person's situation. Investors should consult a tax professional for tax advice specific to their situation.

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