“Prince was an extraordinary talent and his is an extraordinary estate. Unfortunately, the differences of opinion between the fiduciary and the beneficiaries as to when distributions should be made are ordinary.”
~Howard Zaritsky, retired estate planning attorney
Prince is among the best-selling musical artists of all time, selling more than 100 million records worldwide during his life. He won a plethora of awards and was inducted into the Rock and Roll Hall of Fame, the UK Music Hall of Fame, and the Rhythm and Blues Music Hall of Fame. Sadly, he died in April 2016 at the young age of 57.
Prince's estate is estimated at more than $200,000,000, which includes his residence and royalty rights from his 39 studio albums and 2 albums released after his death. However, he died without a Will and was unmarried, which means his estate passes according to the state's law on intestacy (when a person dies without a Will). According to state law, Prince's heirs are his sister and five half-siblings.
Three of Prince's siblings have sued Comerica Bank, the Personal Representative of the estate, claiming it has been four years since Prince died and they have not received any distributions. Unfortunately, the dispute over when money is distributed is a very common problem in taxable estates. Beneficiaries typically feel their share of an estate should be available to them soon after the person dies.
However, the Personal Representative of an estate often has concerns other than when money is distributed. For example, a Personal Representative is responsible for paying debts and taxes from the estate. If the Personal Representative distributes assets too soon to impatient beneficiaries, then he could find himself personally liable for unpaid taxes. The government can insist that the Personal Representative's own assets be used to satisfy the debt.
In the case of Prince's estate, there are several unresolved estate tax matters. These issues over taxes must be resolved before the estate can be closed and the assets distributed to the heirs. Comerica Bank mitigates its liability by making sure all tax issues are resolved before distributing assets.
In addition, a Personal Representative can protect himself not only by fulfilling estate responsibilities before making distributions but also by requesting a discharge from personal liability for unpaid estate taxes. (At Troyer & Good, PC, we help our clients make this request as Personal Representative via IRS Form 5495.) This discharge applies only to the Personal Representative in a personal capacity and to his personal assets. He remains liable for estate or trust assets in his control. While the discharge does not relieve the estate from liability for unpaid estate taxes, it does mean the Personal Representative is not personally responsible for those taxes.
A Personal Representative is focused on fulfilling his fiduciary responsibilities and reducing liability, while the beneficiaries are focused on when they receive their funds. This difference in views results in tension in the estate. In addition, beneficiaries may want estate assets to be invested in whatever assets are currently producing the greatest return, while the Personal Representative wants to prudently invest in assets that have the least likelihood of declining in value.
While some tension may be unavoidable, there are a couple things that can be done to alleviate this tension.
Having a well-thought-out estate plan goes a long way. Your Will and/or Trust spells out exactly who will receive what from your estate. This helps clear any confusion and gives the beneficiaries an idea of what to expect. Also, you can state in your Will that you want the estate administration to be unsupervised. Unsupervised administration saves a lot of time because you do not need to get Court approval for every action.
In addition, you can coordinate your estate plan with beneficiary designations. Beneficiary designations take precedence over your Will or Trust. An asset that has beneficiaries named can be distributed directly to the beneficiaries without needing to go through the estate administration.
A person who is likely to have a large taxable estate may consider purchasing a life insurance policy through an irrevocable trust. As long as the insurance proceeds are not included in the decedent's gross estate, the funds can be distributed to the trust beneficiaries before estate tax issues are resolved.
A similar approach can accomplish the same goal without an irrevocable trust. A person may choose to have the beneficiaries buy policies on his life, but he personally pay the premiums. The life insurance proceeds will go directly to the beneficiary without going through estate or trust administration.
A key way to reduce tension and disagreement is clear communication. The Personal Representative should provide the beneficiaries with an outline of the estate administration. This outline can include items like what expenses will need to be paid, when the estate tax return will be due, how long the administration is likely to take, when fiduciary income tax returns will be filed, and any other issues that could delay the administration.
Providing a clear timeline of the estate administration will keep the beneficiaries informed and avoid unpleasant surprises. Often times, people are less likely to be upset when they know what to expect and when to expect it. Our attorneys help the Personal Representative provide this information early on in the administration process.
While Prince's estate is larger than most and has unusual circumstances, some of the core issues are all too common in estate administration. Being prepared before you die with an estate plan helps eliminate problems and frustrations. If you are serving as Personal Representative for someone, hiring an experienced estate attorney can ensure you fulfill your responsibilities in an accurate and timely manner.
Source: Leimberg Information Services, Inc. "Howard Zaritsky: Litigation over the Administration of the Estate of the Artist Sometimes Known as Prince Reveals Common and Often Unavoidable Problem"