As financial advisors, we’re always keeping our eye on the news for tax or regulatory changes that might affect our clients. But we also draw useful information for our clients from a more unlikely source, the what-not-to-do lessons of the rich and famous. Celebrities and their estate plans often end up in the news, illustrating for us how important it is to get these things right.
One recent high-profile example is Britney Spears. She was placed under a conservatorship in 2008. Her father, Jamie Spears, was given control over her assets and, to some extent, her personal life. Britney sought to make changes to the arrangement for years, feeling she was being taken advantage of by her father and others. It wasn’t until November of 2021 that the conservatorship was terminated by the court. This was an especially volatile situation, but even a more run-of-the-mill conservatorship can be both inconvenient and uncomfortable for the conserved person. We advise our clients to have a solid Power of Attorney in place; this is a document that allows someone you trust to step into your shoes and handle your affairs without the necessity of a conservatorship. It’s also a good idea to execute a document designating the individual(s) you would choose to be your conservator, if one becomes necessary. This can help to make sure the court doesn’t give that responsibility to the wrong person.
Another common estate planning mistake came to light in the aftermath of Kobe Bryant’s death. He had a trust for the benefit of his children, but it was established before the birth of his youngest child. There was nothing in the trust agreement to include so-called after-born children as beneficiaries. His widow, Vanessa Bryant, was required to go to court to have the trust amended so that her youngest child would be sure to receive a share of the assets. She was successful in getting the change approved by the California court, but a petitioner in a different state, with a different judge, may not have gotten the same result. And the issue would have been entirely avoided if the trust had been drafted to include any children born to Vanessa and Kobe after the date of the trust.
Finally, there are two major lessons to be drawn from watching Prince’s estate play out. Prince had apparently done no estate planning at all before his death in 2016. Given the size of his estate, this lack of planning invited a lot of conflict, especially given his complicated family connections. It also invited it all to play out in a public forum. If he had done appropriate trust planning, he could have ensured a much greater level of privacy for his family. Also, no estate planning means no estate tax planning. It took until January of this year for the estate and the IRS to agree on a final valuation of his assets. Part of the reason for the delay was that the IRS believed the estate drastically under-valued Prince’s intangible assets, like his music catalogue. This year they settled on a total valuation of $156.4 million.. The federal estate tax rate is a flat 40% for everything over the exemption amount, which was $5.45 million in 2016. That puts the estate tax bill around $60 million. Estates with that kind of tax liability are, of course, very rare, but these issues can apply to smaller estates too. Proper planning can help to avoid disputes, preserve privacy, and reduce and fund estate taxes. Proper, well supported valuations can expedite things with the IRS and reduce legal fees.
It’s so easy, but so costly, to make these kinds of mistakes. Financial planning is how we spot them and find the best ways to address them.