By Trust and Estates Attorney Kerri Castellini (Photo Courtesy of Nico7Martin)
On April 21, 2016, the music industry lost an icon with the death of Prince. Born Prince Rogers Nelson on June 7, 1958 in Minneapolis, Minnesota, the artist’s music spanned both generations and genres. Monuments around the world such as the Los Angeles City Hall and the Melbourne Arts Center were lit in purple to honor the artist.
Although mystery still surrounds the circumstances of his death, speculation has begun about how Prince’s estate will be distributed. Rumored to be close to $300 million by BET and the Los Angeles Times, but not yet confirmed by a representative of his estate, the inheritance would be significant even if divided by a number of friends, relatives or charitable institutions.
Prince was not survived by a spouse or children, and his death highlights an interesting dilemma in estate planning: the bachelor. Although there have been some mumblings that Prince took precautions by planning for the disposition of his assets at his death, many single individuals do not.
Most individuals are prompted by marriage or the birth of their first child to begin the estate planning process and execute either a Last Will and Testament or a trust. However, many single individuals with no children, do not have the same motivation to complete an estate plan.
In the District of Columbia or Maryland, when an individual dies without a Last Will and Testament, or assets prefunded into a trust, any assets in his or her sole name are distributed pursuant to the laws of intestacy. The laws of intestacy are generally based on the degree of blood relation to the decedent.
For example, Prince had no surviving children, spouse, or parents, but was survived by a half-sister. D.C. and Maryland do not make a distinction between whole blooded and half-blooded siblings. If Prince died as a resident of DC or Maryland, his entire estate would likely be distributed to his sister, if he did not complete any estate planning prior to his death.
Distribution of assets aside, with an estate as large as Prince’s there could be massive DC or Maryland as well as Federal estate tax liability. The State of Maryland has a $2 million estate tax exemption for decedent’s dying this year, while the District of Columbia only protects $1 million of estate assets from estate taxes. If Prince died as a resident of DC or Maryland, or even held real estate in either jurisdiction, the local estate tax could be as high as $47 million.
The current Federal estate system is more generous, and offers an exemption for $5,450,000 for decedent’s dying this year. The maximum tax rate of estates that exceed the exemption is 40%. An estate similar in size to Prince’s could be subject to around $117 million in Federal estate tax.
Although Prince’s estate is much larger than the average resident’s, there are a couple of takeaways that can be learned from his passing. Estate planning is just as important for unmarried individuals as it is for married couples. In addition to possibly preserving the estate by minimizing exposure to estate taxes or reducing administrative expenses, estate planning can often be the first step in reducing risk for estate disputes. Furthermore, beyond passing on assets at death, estate planning can also help create a plan for incapacity while an individual is still alive.
Prince fans and the music industry alike will continue to mourn the loss of the artist. His music and inspiration will live on for generations to come. Hopefully, he ensured his legacy and the distribution of his royalties that he fought so hard for by creating a proper estate plan. For now, we will continue to honor his memory with repeat choruses of “Purple Rain.”