The Rich and Famous Estate Planning Mistakes Have Important Lessons For You

Celebrities and the very wealthy frequently make headlines with Estate Planning problems that provide important lessons for the rest of us. Their lifestyles might be different, but the rich and famous deal with as many estate planning issues as the rest of us. Here are some celebrities whose estates made headlines and what you can learn from them.

Prince. The singer/songwriter left an estate estimated to be worth $300 million and is considered one of the top-earning deceased celebrities. The already-valuable estate continues to increase with the new earnings.

Unfortunately, Prince neglected the most basic step. He didn’t have a will. With no will, Prince had no say in deciding who would inherit his estate and the future income from his songs, recordings and other assets. State law, in his case Minnesota’s, decides who receives the assets and income, as well as the percentage of each.

Of course, once it was known there was no will, many people claimed to be related to Prince. Everyone with a claim took a DNA test. The DNA tests determined Prince had one full sister and five half-siblings who qualified as relatives under Minnesota law. The estate would be divided among them in the proportions set under the law.

That likely will create other problems in the future, because these relatives have to work together to manage the assets and income. Prince didn’t put a structure in place to manage the assets, which we’ll discuss shortly. Also, there still are other potential heirs.

There’s a man Prince’s father referred to as his brother and treat-ed as a brother, though the two had no genetic or legal relationship. That man’s descendants claim they qualify as relatives. The probate court judge ruled against them, but they’re appealing. The estate could be tied up in the courts for a while.

That’s all because Prince didn’t prepare even a basic will.

Aretha Franklin. Almost as bad as not having a will is having multiple, contradictory and poorly prepared wills.

Initially, lawyers and family members said the “Queen of Soul” didn’t have a will.

After a few months, three wills were found. One will was found tucked in a spiral notebook that was under some furniture cushions. Two others were found in a locked cabinet; it took a while to locate the key to the lock.

Also, all the wills were handwritten. Only 26 states consider handwritten wills to be valid. One of them is Franklin’s home state of Michigan.

Naturally, the wills are being challenged by some family members who could inherit more if Franklin is ruled to have died without a will and state law determines how the estate is distributed. Franklin’s estate is in for a long court process to determine if the handwriting was Franklin’s, if she was of sound mind when they were written, and if the latest one revokes or merely amends the earlier wills.

If the court accepts a will, it must interpret the handwriting, which apparently includes cross outs.

Preparing a will yourself, especially a handwritten one, eventually can cost a lot more money than it saves. Franklin’s estate is going to spend more money sorting out the issues than it would have cost her to work with an estate planner. In addition, it’s likely to be years before the issues are decided.

Tom Petty. Some estate plans smooth over or work around family conflicts. Others make them worse.

Petty was somewhat unique among celebrities in that the singer/songwriter had a full estate plan in place and it had been updated shortly before his death.

Unfortunately, the plan tried to skirt around the potential tension between his widow and two children from a previous marriage.

Most of Petty’s assets were in a living trust with his widow as sole trustee. That appears to give her full discretion and decision-making authority. But the trust also said the widow and daughters “shall be entitled to participate equally in the management” of the property.

Petty’s widow took the position that means the three should share equal-ly in the income and cash flow. The daughters believe it means that all major decisions are decided by a vote of the three. That, of course, means the daughters could outvote the widow all the time.

The three don’t agree on how to manage the estate assets, so they are mired in litigation and no actions can be taken to create new sources of income.

In blended families and others in which conflicts are likely, details need to be spelled out. Petty could have required that professionals be hired to manage the assets or spelled out how his family was to “participate equally” so no one could offer a different inter

pretation. Petty also could have emulated Frank Sinatra and others.

Sinatra gave each heir separate assets in his or her own name, so the group didn’t have to agree on how to manage the assets. Stan Lee, Casey Kasem, Peter Max, Brook Astor and others. Elder financial exploitation and abuse might be the pre-eminent estate planning problem today. Being wealthy doesn’t protect you, unless you made solid plans for the possibility you might be-come frail or have diminished capacity.

That’s what happened to each of these famous people. In most cases, one or two people isolate the person and gain control of the income and assets.

The best protection against this is to have a team of people ready to act on your behalf instead of waiting until it’s too late and you become reliant on one person. You can move assets to a living trust and have several co-trustees take over management of the assets when that’s appropriate. You also can have a power of attorney naming agents to handle your assets that aren’t in the trust. An advance medical directive that names people who will make your medical decisions also is key.

Carefully select the people who will take these roles. You want people who are qualified to make the decisions and who will put your interests first. It’s often a good idea to have at least one professional, such as an attorney or accountant, involved. Frank Sinatra. Some celebrity estates provide positive lessons of what to do.

Sinatra knew there was potential for conflict between his children from his first marriage and his widow (his fourth wife). To deal with the conflict, Sinatra’s will first provided significant details of how assets were to be distributed. The will also included a no-contest, or in terrorem, clause. The clause provides that if anyone challenges the will, that person is disinherited. Sinatra’s was a detailed clause, citing 13 specific legal actions that would cause an heir to be disinherited. No one challenged the distribution of the estate.

Elizabeth Taylor. You don’t hear much about Taylor’s wealth or estate. There’s a good reason for that.

Taylor was a sharp businessperson who was married multiple times and had a complicated family situation. She knew there were potential conflicts over her estate and liked her privacy.

Taylor created one or more living trusts and transferred most of her assets to them. Even rights to her name and likeness and publicity rights were in trust. A living trust avoids probate, so there’s no public record of the value of the assets, who received them and other matters. The trusts also are harder to challenge than a will. That’s why we know so little about Taylor’s net worth and how it was distributed. It also is why we don’t hear about any acrimony regarding Taylor’s estate.

When you create a living trust, be sure to transfer legal title to your assets to the trust. Don’t be like the many people who had lawyers draft trust agreements and then failed to follow through and be sure the trusts were legal owners of their assets. The trust is useless if it doesn’t have legal title to assets.

Luke Perry. This is another positive case. The actor died unexpectedly of a stroke. Despite being relatively young and apparently healthy, Perry had a solid estate plan in place.

Perry was on life support in the hospital. After five days, his family decided to remove the life support. They were able to do this without a court order, because Perry had an advance medical directive that enabled family members (or others) to make decisions when he wasn’t able to do so.

Otherwise, the family would have had to ask for a court order. That would have opened the possibility that one or more family members could challenge the request, as has happened in many families, and required him to be left on life support indefinitely.

Perry also reportedly had a will and living trust in place that divided his assets among his loved ones. Because Perry had a cancer scare a few years earlier, he realized he wasn’t too young to prepare an estate plan and put one in place to protect him and his family.