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Victoria, TX 77901

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No Estate Plan Results In A Princely Price

When the musician Prince died in April he left an estate worth $250 million and no one can find his will.

Prince’s heirs are now stuck with a difficult position. Minnesota’s probate laws will determine how the singer’s estate is divided if the will is not found. Worse, 40% of it, or a cool $100 million, is owed to the Federal Government to pay estate taxes and that check is due nine months after his date of death. Although Prince’s musical library is tremendously valuable, it doesn’t mean it’s in cash. Much is tied up in illiquid assets, however, the government only accepts cash. This may result in a fire sale to produce liquidity to satisfy obligations.

Sadly, with a small amount of planning, the mega-estate could have been structured so no estate taxes would be due. Furthermore, it is a virtual certainty there will be years of fighting among heirs over his estate.

While Prince’s estate garners attention, everyone needs an estate plan as none of us escape this world alive. Thoughtful estate planning should be about control, protection and direction.

To begin with, everyone needs a Power of Attorney, Power of Healthcare and Directive to Physicians.

A Power of Attorney allows someone to make financial decisions on your behalf. Obviously, this person must be trusted and possess commonsense. Some POA’s might be effective immediately, while others may require a triggering event, such as your incapacity.

A Power of Healthcare allows someone to make health related decisions on your behalf if you are unable to do so. Although virtually all medical facilities will request you fill one out prior to surgery, it is a good idea to have it filled out regardless of circumstances.

The Directive to Physicians spells out whether or not you want to be kept on life-support type assistance if your death is imminent and your condition irreversible. My personal preference is to “pull the plug.” The thought of lying in a vegetative state doesn’t sound like fun.

Your last will and testament determines who gets your stuff and what controls you want placed on it after you die.

When thinking through this, you need an “executor” and a back-up. The executor is essentially a business manager tasked with winding up your affairs, paying final bills and dividing your assets according to the language in your will. Again, it is best to name an executor who is logical and organized.

If you have children under age eighteen, recognize they cannot inherit assets directly. Instead, they need a guardian to manage assets and raise them. Although the guardian of the person may also be guardian of the money, it does not have to be the same. Often the skillset needed to raise children in a loving environment is not necessarily the same needed to properly manage finances.

A common mistake we see in estate planning is the lack of coordination between the language in a person’s will and the beneficiary designations they have on various accounts.

Assets with a “Pay on Death” or “Joint With Rights of Survivorship” provision will circumvent the language in your will. Similarly, a retirement plan, insurance contract or annuity with a beneficiary designation supersedes the language in a will. As such, in your will you might leave your assets to your spouse, but forget that you named your sibling as the beneficiary of your retirement plan. A small amount of coordination can prevent awkward circumstances later.

Lastly, not everyone should receive an inheritance outright or wants assets outright. In these circumstances a trust can help manage assets for the underlying beneficiary.

Beneficiaries may be mentally incapacitated, be poor money managers or might have substance abuse problems. In situations like these a trust can professionally manage assets for that person, while implementing a level of control and protection.

Furthermore, people who are fully rational with no lingering “issues” may want to inherit assets in trust too. Assets in trust can allow a beneficiary to have the use of assets while still protecting them from creditors, ex-spouses and estate taxes.

Logical estate planning can run the gamut from very simple to quite complex. Ultimately, you are attempting to spell out your wishes when you cannot speak and offer guidance and protection to your loved ones. If done properly, you—not the State—will determine how your estate will be managed.

Dave Sather is a Victoria certified financial planner and owner of Sather Financial Group. His column, Money Matters, publishes every other week.