Texans who are considering the value and utility of moving forward with comprehensive estate planning need only look at the current news reports regarding the mistakes made by well-known people who failed to protect themselves, preserve assets, account for tax implications and detail their asset distribution in the event of death. Whether it is a wealthy person or one of more modest means, having a plan for the estate is an imperative. The case of the deceased entertainer Prince is a prime case study as to why this is paramount.
Prince did not have a will. Since he had substantial assets, the failure to plan ahead has resulted in a tax bill that is expected to take around half of his assets. In order to avoid this fate, Prince should have had a will. But he should also have had the type of will that would do several things to reduce the taxes to be paid. Prince would have been well-advised to lower the value of his assets that were subject to tax. He also could have used the charitable deductions option for gifts and estate tax as this would have lowered the value of the estate dollar for dollar.
Options he had included making a lifetime transfer of his assets to trusts, using valuation discount planning, giving gifts to charity while he was alive or at the time of his death and transferring his assets to trusts that have charitable and non-charitable beneficiaries. The transfer of his assets to trusts would have provided Prince with a stream of income for a certain amount of time. Then what was left would have been given to his beneficiaries without taxes. Valuation discount planning takes assets to a corporation, a partnership or an LLC and then is given to beneficiaries. The tax discounts would have been substantial.
Gifts to charity could have included a foundation in his name which he could have managed while he was alive. A Charitable Lead Trust would have been useful in lowering the estate tax because it gives the charity an income for a certain amount of time. This is tax deductible. The rest could have gone to his beneficiaries. Making plans for the future after death can be a difficult thing to do. However, it is necessary whether there are a large number of assets or not. A legal professional experienced in estate tax planning can help with making certain that the government does not seize a massive portion of an estate after death.
Source: Forbes, "Why Uncle Sam Is Prince's Biggest Fan," Gary Borofsky, Jan. 18, 2017