It has been slightly over a week already since we have lost one of music’s most gifted talents ever, Prince. He has given us so many classic songs and memories! Although we still mourn his loss, we are also coming to find that Prince left this world with no will or trust in place, an oversight or mistake that far too many of us make regularly.
Death is never a topic that any of us are overly eager to discuss, but including this topic in your overall financial plan is just as important as discussing risk or retirement planning. What tends to happen, especially in Prince’s case since he had accumulated significant assets, when one doesn’t have post life instructions in place, everything will be decided by the deceased’s state of residence. The state will basically become the administrator of the estate, determining who will inherit the remaining assets after the federal and state government levy the “death tax” or probate, and the outcome will almost always not be what the deceased would have wanted.
In Prince’s case, the respective governments are most likely licking their chops. Most of us will never accumulate anywhere near the wealth of Prince, but the outcome of passing away with no will or trust will invite the probate process regardless.
Now, I am neither a resident of Minnesota nor an estate attorney, but I discovered that Minnesota (Prince’s state of residence) has a fairly high death tax, approximately 16%, and the federal government’s is 40%! Yes, that means that approximately 50% of Prince’s hard earned assets will NOT go to his next of kin!
I am sure some may feel that the remaining $150 million being passed to his family is more than enough, and therefore disregard the issue. But since the majority of us pass away with fractions of his estate value, we will need to rely on any life insurance proceeds paid out, or even worse, may need to sale assets and businesses to cover probate. For the average household, this process can be devastating!
Regardless of the amount of assets I have accumulated upon my death, I have zero intention of donating any funds to any government, federal or state. Here are a few things you can do to make sure your post life wishes are adhered too…
1) Create a will—This document is the easiest and most cost effective when it comes to documenting instructions. It doesn’t need to be overly complicated, simply document your wishes regarding whom you would appoint as your estate administrator and where your assets should go.
2) Create a trust—A trust is basically a will on steroids. It is usually the document of choice for the more affluent, but anyone can really have one in place. The cost to create one can be moderate to fairly expensive because the document is drafted and finalized by lawyers. It is an ironclad way to ensure that all of your wishes will definitely be adhered too, no questions asked.
3) Identify POD or beneficiary—Whether you have a will or trust in place, or neither, it is always a good idea to document a POD (payable on death) designation on your cash accounts (checking or savings) and beneficiaries on any investment accounts you may have. This will provide immediate instructions if you were to pass away, and more importantly, those funds avoid probate.
4) Have personal life insurance— I discussed this topic in depth in my blog post “CYA,” highlighting how important life insurance is to your financial plan. Providing a beneficiary per such a policy will give clear direction as to whom the payout will go, but more importantly, allows your loved ones the ability to maintain financially in the deceased’ absence. Unfortunately, not enough families have the appropriate amount of life insurance in place, let alone a will or trust to give direction on how the funds will be dispersed.
If you have any questions, please don’t hesitate to contact me. Please, take the time necessary to ensure your hard earned money and assets will be taken care of and handled by someone you trust.