Every year there is at least one wealthy celebrity who passes away leaving a dysfunctional estate. You’d expect that someone with significant assets would have at least a minimal (or possibly a sophisticated) estate plan in place. However, this is rare. This past month legendary singer Aretha Franklin, the Queen of Soul, passed away at age 75. Although she has an estimated net worth of $60-80 million (plus all kinds of income from music catalogs and royalties), she didn’t even have a basic Will. This is the worst possible situation for heirs:
- Fake creditors, fake relatives, and fake friends can now come out of the woodwork to contest and potentially grab a payout.
- Her entire financial situation will become public information.
- The Probate Judge must follow the state guidelines and percentages to make any distributions, no matter what her wishes may have been.
- Full taxes will be applied at the city, state, and federal levels, plus transfer taxes.
- The lawyers and liquidators will raid the estate leaving crumbs for the heirs.
- Probate battles over significant amounts of money can last several years; all the while the estate dwindles, depreciates, and is likely to be mismanaged.
Whenever there is a significant event in your life (marital status, children, deaths, change in personal values), then it is best to immediately reflect that into your estate plan. Some of the goals of an estate plan:
- A thorough audit to locate all of the assets
- Confirm that financial account beneficiaries are current
- Avoid probate for privacy, speed, and needless expenses
- Holding assets in trust for a simpler distribution
- Protect and manage assets
- Guardian selection for minor children
- Ensure financial security for spouse and children
- Minimize or eliminate all the different types of taxes for the estate
- A flexible plan to adapt to changing life circumstances
- Avoid opportunistic parties attempting to steal some of the estate
Although each state handles probate differently, many people are unaware that if they fail to avoid probate, 3-10% of the estate will be consumed by a long list of fees right off-the-top. The cost to handle an estate held in a Living Trust averages around 1-2% of the estate value. The longer Probate takes, the more charges are incurred. For example, the average Probate in California takes a ridiculous 8 months. If there is a probate dispute (in any state), it can last years and sometimes destroy 100% of the estate – leaving nothing for any heirs.
To create a customized estate plan, it may cost $1,500 to $3,000 for one that is free to update, but prices and quality vary greatly. However, this is a small amount compared to the cost, effort, and drama for passing away without an estate plan in place.