by
Wealth Planning Strategist
by
Senior Wealth Planner

In this Wealth Planning Update:

  • A well-thought out estate plan provides control of how your assets are distributed at death
  • Consider alternatives now to potentially lower the impact of taxes on your estate
  • Estate liquidity issues, business assets and intellectual property require special attention
  • Your estate plan not only determines who gets your assets and when, but also allows you to create vehicles to protect assets from creditors and predators
  • Periodic review of your existing plan will enable you to make necessary adjustments as your situation changes and to comply with any new state and federal legislation
  • Although not an easy topic to discuss, these are important conversations that shouldn’t be delayed

The recent passing of pop icon Prince and his reported lack of a will serves as a reminder of the importance of planning.

Many stories have been shared about him beyond the music he created: the control he exerted over his likeness and his recordings, how he guarded his privacy, and his previously unknown philanthropic endeavors. But, without an estate plan, his control ended with his passing. 

While you may not have a vault full of pop culture treasures about which the public may be curious, or royalties to be earned off intellectual property, you do have your own assets and legacy to consider.  Maybe you have done some estate planning, or maybe you intend to work on it once life slows down. But an untimely passing can serve as a reminder that death does not wait for orderly documents to be filed. A lack of planning may result in negative consequences, including the loss of assets, a public probate process, and unnecessary delays.

In this Wealth Planning Update, we outline four benefits of creating a well-thought-out estate plan.

Maintaining control

It’s easy to get lost in the daily grind of life and neglect developing a long-term plan. You work hard to support your family, your career, and the community. What happens to all that you’ve built if you don’t plan ahead?

One risk is that a large portion of an estate can go to paying federal and state estate taxes as well as probate administrative expenses. It is possible to limit such tax exposure by analyzing your goals and developing a coordinated wealth transfer plan. Perhaps you are looking at significant estate tax exposure, or you have certain people you would like to receive specific properties or items at your death. Examples of strategies to consider would be establishing trusts or gifting assets now. Another solution to consider is life insurance that may provide additional estate liquidity to cover potential estate tax liabilities. Having an estate plan is important because it allows you to express your wishes and concerns regarding those most important to you after you pass and allows you to consider alternatives that may result in a lower estate tax.

Action: Understanding your current situation is key to developing strategies and alternatives that may positively impact your particular situation. Your wealth planner and estate planning attorney can help you start this process allowing you to control the decision-making process as opposed to relying on the state’s intestacy plan for you.

Planning for business owners and intellectual property rights

Prince had an entire business empire to manage. According to various news reports, many of his assets were illiquid. So what does this mean?

Lack of cash or cash alternative assets means that some of his business assets may have to be sold quickly for less than their fair market value to cover the estimated 60 percent plus combined probate and estate tax liabilities. The “fire sale” of assets likely will mean less cash today and in the future for his heirs. What could you do to avoid a potential “fire sale” of your assets if you are a business owner or own illiquid assets? Freezing the value of your current estate and moving any asset appreciation outside of your estate can potentially make a tremendous difference. Planning strategies like this need to be considered early, more than a few years prior to death, to achieve the maximum benefit.

In the new age of technology, intellectual property is also an important asset to consider; it could be one of Prince’s largest estate assets. Recent examples of how complicated intellectual property rights can become can be seen in the issues surrounding the valuing of Michael Jackson’s likeness that are still being debated in court years after his death.

Action: Estate planning for non-personal assets on your balance sheet, such as business ownership and intellectual property rights, takes special expertise around valuation which can raise liquidity concerns. Planning early and revisiting it often can set you up to achieve the maximum benefits.

Distribution of your estate

News reports have provided information about Prince’s previously unknown philanthropic endeavors. It is questionable how much of his estate will go to his foundation or other initiatives he supported. If part of the estate had been left to his foundation there would have been a reduction in the overall estate tax bill. Under Minnesota law, with no spouse, children or parents surviving him, his estate will be divided amongst his sibling and half siblings regardless of the relationship he had with them or his desired intentions.

An estate plan will allow you to choose which heirs and charitable beneficiaries receive the proceeds from your estate, how much everyone receives, how and when the distributions are made, and who carries out your wishes. If your documents do not state when assets can be distributed to heirs (or again, if no will exists), minors will potentially receive their inheritance at age 18. Parents reading this may cringe at the idea of their child receiving the inheritance without stipulations and financial guidance. Through an estate plan you can provide asset protection for your heirs in ways that they cannot provide for themselves. If you place assets in trust, you may provide protection from creditors and predators.

It is also worth noting that if your heirs have special needs, the assets they inherit could disqualify them from various government benefits and programs they are currently receiving. Protecting the beneficiaries of your estate can be as important as what you’re leaving them. Identifying the right person or institution to oversee your trust and estate also is important. If your estate planning needs are complex, consider naming executors and trustees with the experience and resources to take care of the various administrative and legal tasks required. These are critical jobs and often a burden to family members.

Action: It is important that even fully developed estate documents are reviewed and updated at least once every five years or as major life events occur. Additionally federal or state law changes can impact your documents resulting in unintended consequences for what was once a well-developed plan.

Privacy

Prince was an extremely private person. Without a well-executed estate plan, every piece of an estate can be public information. Even with a will in place, your estate will need to go through probate and therefore be considered public information. Heirs could become targets for predators through the probate process. However a revocable trust affords privacy and allows you complete control of your assets during your life and becomes irrevocable at your death. Another advantage of a revocable trust is if you own assets in multiple states, you could potentially avoid going through probate in each state, which would be required if your will directed those assets.

What this means for you

Failing to write an estate plan, implement that plan or revisit that plan over time are pitfalls that can and should be avoided. Thinking about and acting on all of these issues may seem overwhelming, but your relationship manager and wealth planner can help you think about these next steps.

A resource that puts these issues into focus is The Private Bank’s Wealth Planning Essentials, a digital book addressing much of the information that we’ve discussed in this Wealth Planning Update as well as some additional actions to consider. Talk to your relationship manager to discuss your plan so that you don’t encounter any pitfalls and can maintain control of your assets and legacy.