Intestacy is the condition of passing away without any estate planning documents at all. The vast majority of American adults do not have estate plans in place, so intestacy is not uncommon in the big picture. However, very wealthy people are usually not going to pass away intestate.
The musical icon Prince was the exception to the rule. When he died in 2016, he did not have a will or trust, but he certainly did have a valuable estate, so he left behind a messy situation.
There is a federal estate tax with a 40 percent top rate, so it can consume a significant portion of an estate. This tax can be imposed on the portion of an estate that exceeds the exclusion, and in 2016 when Prince died, it was $5.45 million.
Estate tax efficiency strategies can be implemented, and they can save millions of dollars. Unfortunately, since Prince did not take any action, there were no safeguards in place.
When a party dies intestate, the probate court will appoint an estate administrator to handle the business of the estate. In this case, the banking company Comerica was named as the administrator of the Prince estate.
The IRS estimated the value of the estate at $163.2 million, and Comerica countered with a figure that was about half of that. This matter was held up in probate for six years, but early in 2022, a figure of $156.4 million was agreed upon, and taxes were paid.
This matter is now closed, but there are lessons to be learned, even if you are not a multimillionaire celebrity.
Six years is a long time to wait for an inheritance, but the Prince situation was an extreme case. This being stated, probate will take about eight months at minimum even if there are no particular complications and there is not an enormous amount of money involved.
Probate expenses are another factor. One can only imagine the extent of the legal fees and other expenses that accumulated when the Prince estate was being administered, but ordinary families face their fair share of probate costs.
The administrator is entitled to payment for their efforts, and a filing fee is charged by the court. In many instances, the executor will engage a probate lawyer and an accountant. Property appraisals and liquidation charges can further reduce the value of the estate.
Intestacy matters are handled by the probate court as we have stated, but if you use a will as your asset transfer vehicle, it would be admitted to probate. As a result, your family would be forced to deal with these drawbacks.
You could use a revocable living trust instead of a will as your primary asset transfer vehicle. If you do this, you would be the trustee while you are living, and you would name a successor to administer the trust after your death.
The successor would distribute assets according to your wishes after your passing, and probate would not be necessary. This is one of the major benefits, and there are others, and this is why revocable living trusts are widely utilized by informed people.
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