For many people, thinking about what will happen to their estate after they die is too uncomfortable or too complicated of a topic to tackle. Some decide to wait. Some decide that a plan is not necessary. Others simply never get to it.
But for any estate where there is no concrete plan, a number of complications can arise. Unfortunately, many of those complications have been brought to light in the wake of the untimely death of musical icon Prince.
As far as anyone can tell, Prince did not have a will. In Minnesota, where he resided, any estate for which there is no will is subject to the intestate probate process. In other words, rather than divide the assets according to someone's wishes, the laws of the state of Minnesota determine who will get what from the estate.
Taxes are another important consideration. The actual size of Prince's estate is still unknown, but various news reports peg it at somewhere between $300 million and $800 million. In addition to federal estate taxes, many states levy their own estate tax, and Minnesota is one of them. That means that in the absence of any sort of action — such as bequests to charities — to reduce the taxable value of the estate, the amount left over might only be half of the starting value.
In fact, anyone hoping that a portion of their estate will go to charity should know that one of the more unfortunate aspects of a state probate intestate process is that no charitable bequests will be made out of the decedent's estate. The intestate rules of Minnesota are clear on who will inherit assets, and charity is not an option. The only way to ensure that the causes you care about can receive a gift from your estate is to clearly spell out those wishes beforehand.
Perhaps more unfortunate, however, is the fact that the probate process makes what many would prefer to be a private matter quite public. Court proceedings and the final determination of how the assets will be divided all become public in probate court.
To avoid this, many public figures use “revocable living trusts” to transfer their estates in a more discreet manner. As the name indicates, a revocable living trust allows the person who created the trust (known as the grantor) to revoke it or amend it up until their death or should they become incapacitated. When there is a revocable living trust in place, all assets are distributed privately, outside of the probate process, to the individuals and charities listed as the grantor's beneficiaries in the trust document. In addition to avoiding a probate process, when there is a revocable living trust in place, the trust document does not become a public record at the death of the grantor.
Anyone planning the transfer of their estate should not assume, however, that by having a will in place their heirs can avoid the public probate process. A will simply spells out which heirs receive which assets. The probate process is the means through which those assets are dispersed. So, without further planning — such as the creation of a revocable living trust — the details of the distribution would be a matter of public record.
Most people never intend to leave the fate of their estate in the hands of people who never knew them. But with a little bit of planning, anyone — regardless of the size of their estate — can ensure the things they've worked hard for are left in the hands of the people they love and benefit the causes they care most about.
Bill Ringham is vice president and senior wealth strategist at RBC Wealth Management-U.S.