Author: California Probate and Trust, PC

Dustin Macfarlane discusses the outcome of the famous pop singer’s (Prince) estate and how much money his heirs will not be receiving because he didn’t have an estate plan. He will dive into how a simple estate plan could have protected the singer’s money and provided a much larger inheritance.

Full Transcript from California Probate and Trust’s September 09, 2022 Podcast Episode 13 – Prince’s Estate & Probate

Hello, and welcome. You’re listening to Legally Speaking Podcast and Radio Show. My name is Dustin McFarland, and I own California Probate and Trust. We’re a law firm dedicated exclusively to helping California families protect their assets, avoid family drama, and eliminate government interference. If you are concerned about what’s going to happen to you and your affairs, your stuff, your money, your assets when you pass away, give me a call today. The number is (866) 674-1130. Again, (866) 674-1130. Prince Rogers Nelson, born June 7th, 1948, died April 21st, 2016. Prince died six years ago. 2016, he passed away. And just this week, we got the news that they are finalizing his probate estate, finalizing the probate, distributing the assets. So, what is probate, and why does it take so long? And why do we even have it? And oddly, not every state has probate, or every state has probates. Some states are really, really simple, very, very little government involvement.

And then apparently when… Obviously California, it’s all government all the time, and government wants to be heavily involved. It looks like Minnesota, because there was a contest, meaning because people were arguing over who got what and what percentage, the government does get involved. And essentially, everybody suing each other, which is just horrible for a family to go through. So in Prince’s case, his estate was probably larger than most of our estates. His estate was a hundred… It was finalized at $156 million. That’s a number they settled on. It’s important because it’ll tell how they… First, it’ll tell how much taxes owed. So, that’s a big number. And so the IRS had its fingers in this too, because if the estate was valued at a higher number, and the IRS gets 40% of it, that’s more money to the federal coffers, and they liked that.

So, this was a six year battle trying to figure out how to divide Prince’s estate. So, why was Prince in probate? Prince was in probate, and just like all of us would wind up in probate if we die intestate. Intestate means that we die without a will. Prince did nothing, no will, no trust, no… He put forth no effort to direct or give instructions to anyone regarding his estate upon his passing, nothing. He left it up to the state law and state legislators. And every state has its own set of rules built into their state law called in test state succession. Intestate succession is just the state default distribution plan if you die without a will or without a trust. And it really then is dependent on your family and how they’re related, and what generation they are, and when you receive the money, and if there are any other co-owners, and it’s just this big kind of convoluted mess.

When we explain this to people, they almost can’t wrap their head around it sometimes because the state just has its own way to do it. There’s not many laws that you can just modify on your own. And this is one of the real… If you remember nothing else from our conversation today, remember this, estate planning, and really intestate succession, this is the one area of law that you can just modify the law and change it how you want it to be. I wish we could do that with the tax code or with the speed limit. That would be awesome. I would modify it to say I could go a hundred miles an hour, but this is the only area of law that you can really just say, “You know what? I don’t want to do the default in test state succession. I have my own ideas about my family or about charities or churches,” or however you want to your estate to be divided up.

You can divide it. We can all divide it for ourselves. You can divide up your estate and lay out that distribution plan upon your passing however you want. No one really can interfere with that. The only time intestate succession comes into play is when you do nothing, when you have no involvement, you don’t write down on a napkin what you want to have happen. You just completely leave it up to the government, and that’s exactly what happened to Prince. He passed away. And so there were people who said, “Hey, I have a contractual interest in this estate. It should go to the company, the music company.” And other family members, these half siblings said, “No, we have an intestate succession right to the estate. It should go to us, the family.”

And then the IRS gets to step in and says, “Well, you guys are all cute, but we have a right to 40% of anything in excess of three and a half million dollars that is coming to us.” And so the IRS will get paid its 40% of, essentially $150 million. That goes. There is no question. The attorneys, they obviously get paid. Anytime we’re in court, know that the attorneys are getting paid. And so that is definitely going to happen. That’ll be several million dollars. The trustee or the executor, that’ll be several million. So, let’s talk about these players and how this kind works, and again, why it’s there, and most importantly, what you can do to avoid this.

So, intestate succession. In California, intestate succession is the plan, the default distribution plan for your assets. It’s different based on whether or not you’re married or whether or not you have children, whether or not you have siblings or parents or grandparents. It really is unique to you. And the biggest ones that we see are individuals who are not married and they pass away, and they have children. And if they die intestate, meaning without a will, then the state says, if you’re not married… And there’s even some caveats on that, if you were married and when your spouse died and how you received the property, but we won’t go into the technical details. Just know that there’s an asterisk on this example. But like Prince, not married, so it’s going to go to children. Well, Prince didn’t have any children. So then it’s going to go up to parents.

Well, his parents were deceased. So, then we’re going to go back down to his siblings. And that’s kind of where it settled, is the six half siblings. And I don’t care if they’re half siblings. If the state law says that they’re treated as full-blooded siblings, then that’s just how they’re going to be treated. It just doesn’t matter. So, the state law said that it goes to spouses. Well, Prince wasn’t married, so no spouse. It goes to children. Prince didn’t have any children. So, then where do we go? We go to parents. Both of his parents died before him, so it doesn’t go to parents. It goes to… Then we go… And if you can imagine it like a tree. We go down… Well, we go across to spouse and down to children. When we run into a dead end, we turn around and we go back up to parents.

If parents are deceased, we go out to siblings, brothers and sisters. And then that can include not only half siblings, but also adopted siblings. Again, every state is a little different, but California is going to include adopted and half siblings. And sometimes, it depends on the parents… Generally, it’s not step siblings, but I guess it depends on which parent is alive or deceased. And then we’re going to go down to siblings. And so Prince had these half siblings that are going to get their intestate share of the estate. The problem is that there’s also this record company. And the record company says, “Oh, hold on, hold on. We have a contractual interest. We gave Prince money. In return, he gave us rights, whether it’s royalty or whatever royalties to own some of the intellectual properties, some of the music, the albums, the creations that Prince came up with.”

And so this company and the family had been fighting for six years trying to figure out who gets what. And so essentially, and they’re probably all unhappy about this, but that’s just how the courts work. Essentially, half of the estate will go to… So first of all, 40% of the estate will go to the IRS. A lot of people are worried about the estate tax. CNN calls it the estate tax or the wealth tax. Fox News calls it the death tax. It’s all hyperbole. Really, it’s anything over, at that time, when Prince died, it was three and a half million dollars, is going to be taxed at 40%. Right now, these numbers are higher, but back then in 2016, it was three and a half million. So, you figure on $156 million estate, like $153 million is going to be taxed at 40%. All that’s going to go straight to the IRS, so they’ve got to come up with ways to finance that. And that’s, again, difficult because this estate is not a liquid estate.

It’s not like there’s $156,000 in cash sitting there. That would’ve been easy. It’s not like there’s $156,000 of real estate sitting there. That would’ve been easier. We’re talking about rights, ownership rights, royalty rights, owning intellectual property in all of the music. And valuing that and knowing how to get money out of that is what’s difficult. So, they’ve got to come up with ways to sell, and well, to value, which it took six years, and then divide, and now liquidate. They’re going to have to pay the IRS this estate tax, which they can’t avoid. It’s coming. But know this, know that most people don’t have enough wealth to qualify for this estate tax. Right now, it’s $12 million per person. Back when Prince died, it was three and a half million dollars per person. We don’t need to worry about the estate tax, but the probate court is going to make sure that the IRS gets paid first.

Then the probate court is going to make sure that the lawyers get paid. Then the probate court is… So, every time you have a… So, let’s talk about probate and who the players are. So number one, we always know that the government is involved. So, there’s the state court that’s involved. And a lot of times, we have to pay a little bit of nominal money to the state court. That’s just kind of peanuts in this case. We have to… If there’s any taxation, we know that the IRS or the estate or any other tax agency is going to have their fingers in the cookie jar. They’re going to be involved. Every estate that, not state, but E-S-T-A-T-E, every time we go to probate, there needs to be one person, or probably in this case, a company, who is in charge of managing and holding onto and preserving and ultimately paying checks and distributing the estate. That person is called the personal representative, the administrator, or the executor. If you do your will, we call it the executor.

But if you don’t have a will, California calls it, kind of depending on the circumstances, either an administrator or a personal representative. There’s always a personal representative. There’s always an administrator of the estate. And you think, well, why does there have to be a person? Think about this. There literally has to be a person to sign the deed, to sign a listing agreement to sell your house. There literally has to be a person who can get in the car, drive to the bank, withdraw the money, write the checks, and send it to the beneficiaries. There literally has to be a human being that hires the lawyer, that goes to court, that talks to the judge. There has to be a human. So, every single time somebody dies, there is at least one person involved in shutting down and gathering the assets, paying your bills, paying your taxes, distributing your assets, and then shutting down the probate case. There has to be a human to do that. And we pay these people. We pay them handsomely, in fact. They get a percentage of the estate.

So in this case, in Prince’s case, the administrator of the estate, and it’s a company, but the administrator of the estate is getting about $3 million. Not a bad gig if you can get it. I mean it’s four, six years of work, but I don’t know, $500,000 a year for six years, that’s not a bad day at the office. So, there’s always an administrator. We would much rather have an administrator that you choose instead of one appointed by the court. If you die without a will, that person’s going to be appointed by the court. And you may not know. They don’t really care. The ones that are appointed by the court, they are not emotionally attached to anything. They will sell anything. It does not matter to them.

It is just stuff. And there is no sentimental value, no heirlooms, no emotional interest, no nothing. It’s like, let’s just sell it, distribute it, and move on. And so that’s what administrators and executors do. If you have your own will, you can decide who’s in charge. Well, Prince didn’t do a will, so the court appointed a company to be the administrator of the estate. No administrator’s going to act alone, so every single administrator hires a lawyer, and the lawyers are going to get paid. Here in California, the administrator and the lawyer get paid the exact same amount of money. So, everyone says, “Oh, the lawyers, they just rape you on the estate. They get paid so much money.” Well, guess what? They don’t get any more money than the administrator. And probably, in most cases, the lawyer is doing most of the work. So, you can double up.

If, in California, the administrator gets $50,000, the lawyer gets 50,000. In California, if the administrator gets paid 100,000, the lawyer gets paid 100,000. It is dead even every time. And in California, there’s a very clear schedule of how to pay administrators and lawyers. It’s super clean. It’s set by state law. And anyway, there’s no arguing. There’s no negotiating, or well, what if, maybe. That’s not how it works. The judge sets the rules and follows the state law and just hands it down from Mount Sinai. Just the rules come down from on high, and there’s nothing you can do but follow the rules. So, you have an administrator. Every administrator has an attorney. And then the other people, they are heirs. So in Prince’s case, there’s a production company. They’re not heir. They have an interest because of a contract.

And I remember reading… I tried to find it for this bit, it’s been, I don’t know, six years. I remember reading initially that that contract was probably a verbal contract between Prince and the production company. Not ideal to have verbal contracts, because no one else knows what the heck you say. So, write stuff down. But he has this contract with his production company. And then you have heirs. Now, a lot of times when we’re talking about wills and trusts, we talk in terms of beneficiaries. Beneficiaries are people we designate. We’re like, “You know what? I designate John and Sue and Jane,” and whatever, specific people. But if you just ignore that responsibility and you decide, “You know what? I’m not doing a will. To hell with it. I’ll just let the government decide who gets what I have,” then you have what are called in testate heirs.

And the government, they don’t even have to guess. They just look at their state law. So in California, they look at the law and they say, “Okay, well these people are alive and these are the family members that you have,” whether you have a spouse or children or parents or siblings or nieces and nephews or whatever. And then they say, “Okay, well, here’s the percentages.” And literally, we can just go down the list and we can divide it up based on percentages. I know exactly… Unless there’s some sort of contest and people are fighting and someone can prove something otherwise, I can calculate, almost to the penny, what fractional interest, what your percentage is going to be of an estate, because it’s all laid out in state law. And what is so surprising is most people don’t really want it to go that way.

They want to take care of their spouse. They want to take care of their kids, maybe one kid more than another. They want to take care of a church or a charity or some cause that they’re behind. Prince didn’t do any of that, nothing. He left it all to just whatever the state law is. And if this was California, and I’m sure it’s very similar in Minnesota, the state looks at the family and they say, “Okay, well first we’re going to look to see if you’re married, and do you have children?” Well, Prince, not married, Prince, no children. So in California, we go to spouse and children first. So, it goes across and down. If you think about that, if you’re kind of mapping out the family, and you and your spouse are on the same line and the children are below, you go across and down at the same time.

Well, that didn’t happen for Prince because he didn’t have a spouse, not married, and no children. And so then we go, “Okay, well let’s go up.” And when I say up, I mean we go to parents. So, we go and look, are Prince’s parents alive at the time that he passed away? And the answer is no. Prince’s parents both deceased. So then we go, “Okay, well, now what do we do? Who inherits this money?” Well, did Prince have any siblings? And the answer is yes. He has six half siblings. So, then we go across, Prince’s same generation, Prince’s same generation, in the same generation, meaning his siblings that are on the same generation. They’re not his nieces and nephews. They’re not his uncle, aunts, and cousins. His siblings all are going to share an equal percentage. Now, it’s like the plot thickens now it’s been six years, and two of these people, two of the six, have also passed away since Prince died.

And that means, if those people didn’t have wills, in fact, I already know there’s going to be two more probates to probate those estates because each one of those shares is going to be worth… I haven’t done the math, but 175 divided by six, 10, 12 million, even if it’s 6 million after the… It’s going to be a significant amount of money. And so there’s going to be two more probates, which is going to be two more lawyers, two more courts, two more executors or administrators of those estates in wherever they lived, and it’s just going to go on and on. People don’t have their act together. And because of that, it just creates more mess and drama and more mess and drama and more mess and drama. It just never ends. So, Prince’s $156 million estate is going to be carved up into these little teeny chunks.

I mean 40% off the top is going to the IRS, and that leaves us with roughly 80 million. I’m kind of doing the math in my head, but roughly $80 million. And then maybe Ryan will do the math and put it up on the screen for me, but 80 million. And then of that, we’re going to split it half to the production company and half to the kids, and that’s 40 million each. And then the kids are going to share it six ways. So, 40 divided by six is just under seven, six and a half to each kid. And each kid is going to take then… And then there’s two of those that are going to be probated again. And if they were… Yeah, so there’s going to be another mess on their hands. It’s like it just…

It’s almost a comedy of errors. And all of this is just so avoidable. You don’t want to be in a probate court, mostly because it just, it’s an open forum to give the world, whether it’s the IRS or creditors or former business partners, it gives everyone the opportunity for their day in court. They can come in and complain and say, “Hey, I was owed money. I should get part of that.” And that happens. I’ve seen shakedowns happen. I’ve seen beneficiaries, “beneficiaries” come in out of the blue, and their strategy was this, makes so much noise that giving them 20 or 50,000 or whatever is faster and cheaper than fighting the truth. And in Prince’s case, there was enough money at stake that everyone was willing to fight. They fought for six years until finally, it was settled on the amount, and it was settled on the percentages, and it was settled on who is going to get what. And so again, the IRS, they’ll get paid first. The administrator will get paid, the lawyer will get paid, and then whatever’s left will be divided up how the court divides it.

And the question is, do you want your family to go through this? Six years, that’s a long time. It’s not the longest I’ve ever heard, but it’s a long time. In California, it’s one year minimum. One year. I mean, if you do it really tight and the court is on point and there’s no delays, you could probably get it down to nine months, 10 months. In a post-COVID world where everything is just delayed just for no apparent reason, just because, it’s probably a year plus. We’re seeing 18 months as normal now. And you think about it, people are depending on that. I mean they shouldn’t, but they are. They’re saying, “Hey, mom passed away. I need to inherit this because we need this money.” It’s like, sorry, the court’s involved. Well, it just has to be sold and given to me. I’m the only child. So? The court’s involved. Nothing that the government does is fast or efficient.

Nothing the government does really goes like this. I mean, if you go to the DMV, you know you’re going to spend some time, If you’ve got to send something to the IRS or send something to any sort of government agency, you know you’re going to spend some time. And you know if you’ve got to go to court, you’ve got a ton of rules to follow, and procedure and timeframes and stuff that you are just so beyond your control. And it’s baked in the system to make sure that taxes are paid and creditors are paid, and everyone has their opportunity to do this. How can this be avoided? The number one way to do this is to just have a trust with all of your assets in your trust. Wills do not avoid probate. Wills really just rewrite the distribution scheme.

A trust allows you to avoid probate. The question is, how important is this to you and really to your children? What impact would this have on your children if they had to wait 18 months and hire an attorney and an executor for $50,000 each? How would that impact your family if they had ended up inheriting a hundred thousand dollars less that went to an executor and to an attorney? How would that impact your family if you passed away and they’re dragged through a court proceeding? Maybe it’s not six year. Maybe it’s three. Maybe it’s one, but it’s still not simple and efficient. It has a negative impact on your kids, a financial impact, a real financial impact. Prince did not care. He didn’t have a spouse or children to protect. He just said, “To hell with it. Whatever. They can fight when I’m dead.”

And that is one approach. I would argue that if you’re married, if you have children, that’s not your approach. No father, no mother has ever said, “To hell with it. Let the kids fend for themselves.” We just don’t do that. We do everything we can to protect our family. Let me know. Give me a call. Let’s talk about how we can make sure your family does not go through the hell that Prince’s family went through. Whether it’s a hundred million dollars or a couple hundred thousand, it is worth protecting and keeping your family out of court. You can reach me at (866) 674-1130. That’s (866) 674-1130. My name is Dustin McFarland. This is all we do. We won’t waste your time. We will take care of you. You will be happy with knowing that your family won’t go through this mess and be strung out in a long, expensive, and unnecessary court proceeding. Keep the government out of your lives and take care of your family. Again, my phone number is (866) 674-1130. Give me a call. I’d love to sit down and talk with you. Have a great day.