Last week, we lost an amazing musical icon when Prince Rogers Nelson was found unresponsive in the elevator of his home, Paisley Park. Prince entertained the world and through his music and movies we learned many lessons. We learned what it sounds like when doves cry, why little red corvettes are so sexy and why rain is at its best when it’s the color purple. This week there is another hot topic of discussion regarding him and Reginald Clark, the CEO of P3 Financial Group, has been kind enough to give his thoughts on what we can learn about estate planning from Prince.
The internet is buzzing about Prince “dying without a will and now a large portion of his money is going to the state.” Let me take a sec and clear up a few things…
Wills do not prevent or circumvent estate taxes nor do they avoid probate. They simply distribute your assets upon death. Other financial instruments such as a living trust places your assets and property “in trust” which are then managed by a trustee for the benefit of your beneficiaries. It allows you to avoid probate entirely because the property and assets are already distributed to the trust.
Now, estate taxes are another issue. Federal estate taxes are expensive (historically, 45%-55%) and they must be paid in cash, usually within nine months after you die. Because few estates have the cash, it has often been necessary to liquidate assets to pay these taxes. But, if you plan ahead, you can reduce and even eliminate estate taxes.
One very popular option is to purchase a life insurance policy equal to the amount of the estimated estate taxes. The death benefit from the policy will pass tax free to the beneficiaries who can then turn around and satisfy the estate taxes. The cost of the policy will be only a fraction of the value of the estate.
I know many people aren’t interested in this stuff, but if you are, I hope you just learned something. Stay wealthy my friends.
Reginald Clark is a Certified Financial Planner and CEO of P3 Financial Group Inc. He and his staff help people make wise decisions with their money and other assets. They offer investment, management, retirement planning, education management, cashflow and debt management and much more. Find him at www.p3retirement.com/