Proper estate planning allows for successful estate administration. When someone doesn’t think ahead, their executors are left scrambling to determine their wishes and follow them. The more assets that someone has, the more crucial proper estate planning is.
Bigger estates have tax liabilities, as well as the likelihood of beneficiaries challenging the estate in the hope of some kind of personal benefit. You can look to celebrity estates to see an exaggerated version of what might happen to your assets and family after you die.
Prince’s large estate has been fraught with all kinds of issues since the earliest days after the famous musical artist passed. Recently, a determination by the Internal Revenue Service (IRS) has reignited the controversy around the singer’s estate.
The executors didn’t properly value the estate
During a review of the financial records from the estate, the IRS determined that executors drastically undervalued assets. Specifically, they found that the estate was worth roughly double what executors initially claimed. The initial evaluation of the estate was $82.3 million, but the IRS says the value was actually $163.2 million.
That substantial discrepancy drastically alters the amount of taxes owed by the estate. There is currently an additional $32.4 million in federal taxes owed, which is about twice as much as the estate already paid. Additionally, the estate will have to pay $6.4 million in penalty fees because of the undervaluation of the assets involved.
Although there may be a legal challenge to the IRS’s claims, this finding of insufficient tax payment on the part of executors highlights how important careful planning really is. There will now likely be more contention as the estate struggles to find the funds to pay that tax debt.
Trusts help ensure quick transitions and reduce tax liability
Those who hold valuable assets worth millions of dollars could lose a lot of that value in the intergenerational transfer of wealth that occurs during estate administration. Holding available assets in a trust is one way to reduce the value of an estate and the amount of taxes that the estate will have to pay.
If you have valuable assets, even if they don’t compare to the value of Prince’s estate, exploring a comprehensive estate plan and whether a trust might help protect your legacy now will benefit the people you love later.