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‘I Never Meant to Cause You Any Sorrow’ –  Lessons from Prince on intestacy

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Prince

On April 21, the world was shocked to learn that the musician Prince had died in his home near Minneapolis. As family, friends, and fans mourned with tribute concerts and purple lights, another story emerged: the singer may have died without executing a will. His sister, Tyka Nelson, filed documents seeking the appointment of a special administrator and earlier this week, the probate court named a corporate fiduciary to serve.

It’s possible that a will may still be produced by Prince’s advisors, but for now it appears that Prince’s estate will proceed in intestacy. While this is surprising, the scenario is not altogether uncommon, even among the ultra-wealthy. What is likely to happen next should serve as a warning to anyone who does not have estate planning documents in place.

Intestacy — Let’s (not) Go Crazy

The law regards a person without a will as having chosen state laws of intestacy to govern the administration of his or her estate. These laws can lead to unintended consequences, regardless of the size of the estate. In Prince’s case, the intestacy laws of Minnesota will apply.

We know that Prince had substantial assets — reports say his net worth may have been between $150 million to $300 million or more at the time of his death. Once it is determined exactly what Prince owned, under intestacy the state will determine who will receive which assets.

This is what it sounds like When Doves (and copyright lawyers) Cry

If other celebrity estate administrations offer guidance, then Prince’s estate could be tied up in court for a very long time. In assessing the amount of estate tax due, the IRS and the estate administrator will need to value assets that are inherently very difficult to pin down, including the rights to Prince’s music catalog and rights to the continued and future use of his name and likeness. These are likely the most significant assets of Prince’s estate and may still increase significantly in value. Musicians can continue to earn millions of dollars per year even after death: Elvis Presley, Bob Marley, and Michael Jackson each earned more than $20 million in 2015. Billboard reported that 4 million copies of Prince albums and songs were sold in the eight days following Prince’s death.

Further complicating matters is that Minnesota lacks a statutory post-mortem right of publicity, nor is there case law on which Prince’s estate may rely.  This issue alone could be result in lengthy litigation and an uncertain outcome for his heirs.

The press is going to party like it’s 1999

Minnesota probate is, like every other state, a public process, meaning that Prince’s estate administration may be on public display for the entire world to see. Should a will not be produced and Prince’s estate proceed via intestacy, we can expect to learn details of Prince’s net worth, personal possessions and belongings, tax payments, and any debts he owed.

This is a party for the press, who will continue to cover the story as it develops. However, Prince was a notoriously private person and a savvy businessman who closely controlled his affairs. A very public proceeding detailing his private affairs is likely not what Prince would have wanted.

So, who gets the Little Red Corvette?

Prince died without a spouse and without children. He had one full sister and several half siblings, with whom he may not  have been close. Under the Minnesota intestacy laws, all of Prince’s siblings would receive equal shares of his estate.

Prince was apparently very religious and philanthropic, and there are numerous accounts of significant, yet largely private, charitable contributions. Yet neither the charity he established known as “Love 4 One Another” nor his church would  receive assets from his intestate estate, unless perhaps a posthumous gift is made.

Is this what Prince would have wanted? No one knows for sure, but it seems unlikely given the large sums of money he gifted during his lifetime.

A Raspberry Beret for Uncle Sam

But who will be the biggest potential recipient of Prince’s fortune? Given the maximum federal estate tax rate of 40% and the Minnesota state estate tax maximum rate of 16%, if Prince’s estate moves forward in intestacy, the government stands to take the largest share of the estate. It’s not yet known how this will play out, but it is possible that some assets, including part of his music rights, may have to be liquidated to pay the estate tax bill. For a musician like Prince who took pains to remove his works from streaming media during his lifetime, the potential sale of his creative assets would be a disastrous legacy.

Most of these issues could have been avoided through the creation of a proper estate plan, using trusts, lifetime giving, charitable planning, and other provisions to keep an estate administration out of the probate courts and out of the public eye. While it remains to be seen what will happen next in Prince’s estate administration, this should serve as a cautionary tale for all of us, practitioners and clients alike.

Carly McKeeman Carly McKeeman is a Vice President at Evercore Wealth Management, wherein she works with high-net-worth families and their outside advisors on investment management and fiduciary planning matters.  Prior to joining Evercore in 2016, Carly was with Fiduciary Trust, based in New York City. She earlier served as the Associate Director of Planned and Major Gifts at Columbia Law School. She has eight years of experience in charitable trust planning and has been recognized as a 2015-17 Fellow of the American Bar Association Section of Real Property, Trust and Estates.