April 21st saw the death of another musical icon, Prince Rogers Nelson was found dead in Minnesota at age 57; a talented producer, singer, songwriter, and instrumentalist. Whether you remember him as “Prince”, “The Artist”, or my personal favorite “His Royal Badness”; the icon’s prolific career spanned over thirty-five years and thirty-nine solo studio albums running the gamut from pop to funk to hip-hop, and everywhere in between. Sadly, in addition to this legacy, Prince’s unexpected death leaves his estate in turmoil.
At the time of this writing, it is not believed that Prince left a will or estate plan. His real estate holdings in Minnesota alone, including his Paisley Park studios in the suburbs of Minneapolis, are valued at about $31.3 million according to property records, and music experts value his existing catalog of music upwards of $50 million. The biggest variable is the thousands of hours of unreleased recordings stored in the vault, which is estimated be worth another $50 million.
The ultimate value of this treasure trove will depend on how Prince’s unreleased music is managed, and whether it is handled by someone who seeks to enhance its value or merely liquidate it. While the search for a will continues, Bremer Trust, a bank, has been appointed to oversee the estate for the next few months.
If no will is located, Prince leaves behind a sister as well as several half-siblings that may be possible heirs. Though Prince was married twice, he was divorced at the time of his death and his only known child passed away in 1996.
Even if Prince’s surviving family members are in full accord, it will take a long time to settle his estate. Other claimants are likely to come forward, and any disagreement with tax authorities over the value of the estate could result in additional litigation.
As is often the case, no matter how the remainder of Prince’s legacy is handled, one entity stands to benefit the most from his death – the U.S. Government. Minnesota has an estate tax rate as high as 16 percent, and the federal government also has an estate tax with rates of 40 percent. The end result will likely be that more than half of Prince’s estate will go to the government.
In the absence of a will or estate plan, Prince’s Estate will be determined by a Minnesota probate court. However, the court will not blindly accept the assertion that Prince did not have an estate plan. (This is with good reason – Michael Jackson’s final will, unbeknownst to his family, surfaced over a week after his death in 2009.) The overseer of Prince’s Estate will have to prove that they completed a thorough search and that no will or estate plan has been found to be in existence.
Barring the discovery of any new documents, Minnesota’s intestacy statutes will determine who gets what, and at what expense. With no surviving spouse or living children, Prince’s sister and five half-siblings will likely each inherit one sixth of the estate. On the surface, this makes issues surrounding Prince’s Estate seem relatively straightforward. However, the reality of the matter is as murky as the sky during a Purple Rain. The real problem in dealing with the estate of an artist like Prince is that the majority of his assets are not in cash, and thus the estate will have a liquidity problem in paying off the estate taxes. Prince’s name, likeness, and image will be given a valuation for which there is no perfect calculation. In fact, valuating these types of property rights is more akin to an art than a science.
The IRS is no stranger to these matters. The Internal Revenue Service will do its best to compute the present value of the Prince Estate’s future income stream, such as the future royalties of his music catalogue. However, the IRS will more than likely propose a very high valuation on Prince’s future income stream, which will cost the estate millions in litigation to fight the valuations proposed by the IRS.
One way or another, Prince’s heirs are going to have to come up with the cash to pay the IRS, or be forced to sell certain assets at reduced value. How they accomplish this remains to be seen, but it is safe to say these issues will be tied up in court for years to come.
Prince’s death was indeed a tragic loss to his family, friends, fans, and collaborators, but the added hardship in not creating an estate plan while living, will ultimately cost his estate, heirs, and family millions of dollars in additional taxes and legal fees. Much of the cost and headache could have been avoided if Prince had only met with an estate planning attorney.
Contact the South Florida law firm of The Bauer Law Office for your Estate Planning, Tax Planning, Probate and Real Estate/Title needs. Call (305) 712-7979 for a free case evaluation.