Failed Estate Plans of Celebrities – Mistakes to Avoid

Myth: Only rich people have estates.
Fact: Just about everyone has an estate.

An estate is essentially anything a person owns at the time of their death. An estate plan includes both tangible and intangible property.

Examples of tangible property:

• Personal property such as automobiles, furniture, or livestock
• Collectibles such as artwork, antiques, or coin collections
• Real estate

Examples of intangible property:

• Checking and savings accounts
• Investment accounts such as stocks, bonds, and mutual funds
• Pension accounts
• Life insurance
• Ownership in a business

Everyone’s estate plan will be different, but the reasons behind creating an estate plan are usually pretty standard.

Four main reasons for having an estate plan:

1. Reducing expenses and taxes associated with probate and the settlement of a will.
2. Making wishes known to spouses and heirs so they can carry on the legacy as desired.
3. Control of asset distribution from a wealth transfer and beneficiary designation standpoint.
4. Making it easier for loved ones to deal with their loss (no one fighting over who gets what.)

What is a Will?

A will (sometimes called a “last will and testament”) is a document that essentially states your final wishes. This is probably the most basic part of estate planning. Most people should have a will.

If you die without a will, this is called dying intestate, the state gets to decide what happens to all your stuff.

Without a will, your family may:

• Have to pay legal costs to sort out your affairs.
• Be unable to disclaim an inheritance in favor of another (i.e. a beneficiary would not be able refuse a gift, excluding it from their own estate, and allow it to pass onto someone else.)
• End up disappointed because things that were verbally promised are overridden in probate.
• Never know how you truly wanted your possessions divided up.

According to a recent Gallup poll, less than half of U.S. adults have a will in place.  

There are a number of excuses people give for not having a will including:

• they just haven’t gotten around to making one
• they feel making a will isn’t urgent
• they don’t think they need one
• they don’t want to think about death

Drafting a will doesn’t have to be expensive. Hiring an estate lawyer is the best way to ensure everything is correctly done and valid, but if you do not have a sizable or complicated estate this isn’t necessary. You can even draft a will yourself online for an inexpensive fee at websites such as Giving Docs.

What is a Trust?

A trust is an agreement used in estate planning that states what you want to happen to the assets held in that trust. While a trust may sound similar to a will, they are two different documents with different purposes, yet the two may overlap in regards to function. Having a will does not mean you do not need a trust and vice-versa.

A trust is created by the grantor who determines the trust’s rules: what goes in, what it’s to do, and how and when to do it. The grantor appoints a trustee to carry out these rules. The recipients of gifts within the trust are called beneficiaries. Beneficiaries can be family, friends, charities, even pets. There are essentially two different types of trust: revocable and irrevocable.

Revocable Trust

A revocable trust, also known as a living trust, allows the grantor the right to alter, change, modify, or revoke it entirely. Because the grantor has full access to the assets in a revocable trust, the grantor’s creditors also can get access. The assets in a revocable trust are included in the grantor’s estate, and thus can be subject to estate taxes.

Irrevocable Trust

With an irrevocable trust, no one can access the assets once they are transferred into the trust, not even the grantor. An irrevocable trust is one which cannot be altered, changed, modified, or revoked. Because these assets can no longer be accessed by the grantor, they typically are then exempt from estate taxes.

Unlike a will, a trust typically avoids the probate process. While having a will is better than dying without one, sometimes determining the validity of a will and settling the estate can be a long and drawn out process. Trusts don’t have this problem.

Trusts ensure your wishes are carried out in a timely manner and privately. Trusts are more complicated than wills so it is recommended that you work with an estate planning attorney when setting one up. 

The Importance of a Beneficiary Review

Estate planning is all about the beneficiaries. Once you’re dead, you have no use for any of your possessions and can’t do anything about anything from the grave. This is why conducting beneficiary reviews is essential to make sure your estate plan is set up according to your wishes.

Proper designation on your life insurance policies and retirement and investment accounts can help with the following:

• Life events or changes – Life changing events such as marriage, remarriage, divorce, children, death of a spouse or an existing named beneficiary are all reasons why conducting a beneficiary review is important.
• Providing for your loved ones – Knowing that your assets will be received by those they originally intended.
  • Protecting assets from the probate process ensures a smooth transition from your accounts to the appropriate beneficiaries and the assets are preserved rather than going to pay for administrative expenses, attorney’s fees, possible estate taxes, or court costs.
  • Ensure each account has a named beneficiary and their contact information is accurate.
  • Designating contingent beneficiaries is equally as important as designating primary beneficiaries. Contingent beneficiaries are next in line to receive proceeds from the account if the primary beneficiary(ies) have pre-deceased you or disclaim the assets.
•  Avoid probate – As mentioned, probate can be a lengthy and costly procedure for beneficiaries.

Keep on top of updating your policies and accounts as necessary. You don’t know when you’re going to die and it’s too late to change beneficiary designations after you’re gone.

Lifestyles of the Rich and Famous: Estate Fails

You would think that with all their money and success that celebrities would have the best of the best when it came to financial planners and making sure their affairs are order. This isn’t always the case. Let’s take a look at some examples to learn from.

Prince

Quotacy is headquartered in Minnesota. So, you know we’re all about The Artist Formerly Known as Prince. His death at age 57 in April of 2016 was sad and unexpected.

Prince died without a will or trust. As of 2021, his estate settlement is still in limbo. During the probate process, Prince’s estate has paid out millions to lawyers and consultants and his family, as you can imagine, is exhausted. The end to finalizing his estate is not yet in sight.

Sonny Bono

Sonny Bono died in a tragic skiing accident at the age of 62.

He had no will or trust in place. His wife, Mary, spent years battling to be the executor of his estate and had to fight multiple lawsuits brought on by individuals who claimed to deserve a piece of his estate which was worth approximately $2 million.

Eventually, the estate was divided between Mary and Bono’s two children. Had Bono had an estate plan in place, his family would not have had to go through legal battles or spend thousands on court-related expenses.

Marlon Brando

Marlon Brando died at the age of 80 with a will, but countless individuals came forward claiming he had verbally promised them certain assets. Five years after his death, Brando’s estate, which was worth approximately $20 million, was involved in more than two dozen lawsuits.

One particular lawsuit involved Brando’s housekeeper. She sued the estate executors alleging that Brando verbally promised her continued employment and the house she lived in. She eventually settled for $125,000. This lawsuit could have been avoided had Brando specifically named or disinherited her in his will.

Heath Ledger

Heath Ledger died far too soon at the age of 28. He left behind a will drafted before the birth of his daughter and failed to update it to include her.

U.S. law determined that his will was valid and instructions needed to be carried out. The will stated his assets were to go to Ledger’s parents and sisters, leaving his daughter and her mother no rights to make a claim on his $20 million estate.

However, Ledger did have a $10 million life insurance policy, which had its own legal issues, to which his daughter was the named beneficiary. This then brought up questions as to Ledger’s wishes. Did he want his estate going to his parents and sisters since he purchased this policy for his daughter? Or did he really just forget to update his will?

Ledger’s family eventually agreed to give his daughter the majority of the estate, believing that is what he would have wanted.

Philip Seymour Hoffman

Philip Seymour Hoffman died at age 46. He created a will after the birth of his first child, but never updated it to include the additional two children he had later on. He also had a trust which stated that his long-time girlfriend was to inherit his $35 million estate. However, because they were not married, taxes ate up about $15 million of that estate.

Princess Diana

When Princess Diana passed away at the age of 36, she had two sons and 17 godchildren. She also had written a “letter of wishes” that stated that she wanted a quarter of her possessions to be divided among her godchildren (each share of which would have been worth approximately $160,000), but because this letter was not referenced in her will or trust, it was deemed ineffective and not carried out by her estate.

As you have read, estate planning is extremely important and a life insurance policy is an important part of an estate plan. If you do not yet have a life insurance policy, take a look at how affordable it can be by simply running term quote.

Also, know that life insurance trumps will beneficiary designations. In other words, if your will states “I want my life insurance death benefit to go to my daughter” but your life insurance policy is outdated and names an ex-spouse as the beneficiary, guess who is getting that money? Your ex.

Learn more about how life insurance works with an estate plan here: How Does Life Insurance Provide Estate Liquidity?