One would assume that celebrities with extreme wealth would take steps to protect their estates. But think again: some of the world’s richest and most famous people pass away without naming a legal heir or with no estate plan. Others have made estate planning mistakes that tied up their fortunes and heirs in court for years. Let’s consider why and how to name legal heirs to best pass your estate to your loved ones. We’ll also look at some painful celebrity estate planning mistakes!
What is a Legal Heir vs. Beneficiary
Traditionally “heirs” refers to individuals who receive property of deceased individuals intestate, but the words ‘legal heir’ can also mean those inheriting property from a will or trust.
Generally, a beneficiary inherits specific assets that allow for naming a beneficiary outside of the will, trust, or probate process. These items pass outside of the will:
- Insurance policies
- Bank Accounts payable on death or with joint ownership with right of survivorship
- Jointly owned property with right of survivorship
- Investment accounts
- Retirement Accounts such as IRAs
Many individuals who inherit assets as a beneficiary also call themselves the legal heir.
Do Heirs Go to Court to Claim Their Inheritance?
With a Last Will & Testament: Probate Court
If a deceased person leaves a will naming their legal heirs, the heirs must go to probate court to claim their inheritance. Before they receive any assets, however, the judge appoints a personal representative to pay all creditors, debts, and taxes the estate owes.
Once the estate has taken care of its responsibilities to creditors, heirs may inherit assets named in the will.
With NO Last Will & Testament: Probate Court With Intestate Succession Law
If a decedent does not leave a will in North Carolina, the heirs inherit property according to succession laws based on bloodlines and other rules. This is called intestate succession, and it determines legal heirs. Intestate law gives assets based on their relationship to the deceased as a relative.
Assets often go to biological children, parents, a spouse, a legally adopted child, or other relatives. Generally, a direct descendant is more likely to inherit under this system than a niece or nephew.
How Trusts Bypass Probate Court to Pass Assets to Heirs
If the deceased owned a trust and all property is within the trust at death, the property passes to heirs directly from the trustee. There is no need for a court-ordered probate process or any involvement by a state authority.
The trustee pays all creditors and distributes property based on the trust document. Any named heirs
Celebrity Examples of Estate Planning Mishaps YOU Can Avoid
Michael Jackson, the “King of Pop,” was the father of three children, Prince Michael Jackson II, Paris-Michael Katherine Jackson, and Michael Joseph Jackson, Jr.
While Jackson created a trust to care for his children and other family and friends, he never actually funded it. The result? Embarrassing and seemingly endless probate court battles between family members, the executors, and the IRS.
Sadly, Jackson could not take advantage of any of these benefits. Although he created a “pour-over” will, intending to put his assets into a trust after his death, the “pour-over” will, like any other will, still had to be probated.
The probate, along with naming his attorney and a music executive as his executors (instead of family members), fueled a fire that could have been avoided with more mindful planning. Given the size of Jackson’s estate, it’s no surprise that everyone wanted a piece of the pie.
Lesson learned: You Must FUND Your Trust for the Strategy to Work for Your Heirs
The court battle over musician Prince’s estate was a probate disaster.
- When the ‘80s pop icon died in early 2016, he left no estate plan (reportedly due to some previous legal battles that left him distrusting legal professionals).
- The probate court had the task of determining Prince’s heirs among the people who stepped forward claiming an interest in Prince’s money and property. In 2017, the court ruled that his five half-siblings and his sister were to inherit from Prince.
- The court battle among Prince’s potential heirs cost millions of dollars, and all matters involving Prince’s money and property took about six years to resolve.
Lesson learned: Accurate legal documentation protects your legacy. Do not let a general distrust or a bad experience propagate through generations, leaving your loved ones to fight or lose their inheritance.
Whitney Houston failed to update her estate plan, leaving her daughter with more than she probably intended.
- Whitney Houston executed a will in 1993 and died in 2015 without making any updates to the distribution instructions in her will.
- Her will left everything to her nineteen-year-old daughter, Bobbi Kristina Brown.
- According to the will, one-tenth was to be given to Bobbi at age twenty-one (about $2 million), another one-sixth at age twenty-five, and the remainder at age thirty.
- Unfortunately, Bobbi died in 2015, at the age of twenty-two, of drowning.
- Many people have speculated that Bobbi was not mature enough to have received $2 million when she turned twenty-one.
Lesson learned: More than naming your child in your estate plan is required. You must periodically review the documents and assess whether your original plan to leave your money and property is still in your child’s best interest.
Michael Crichton, the author of Jurassic Park, had a will prepared and died, leaving behind a daughter from a previous marriage and his surviving wife. His surviving wife had signed a prenuptial agreement and was not considered an heir when he died. She was, however, pregnant with his son.
- He did not update his will to provide for his soon-to-be-born son.
- A court battle was fought between his daughter and his wife, on behalf of her son, to determine what share he was to receive. Was he to split the inheritance fifty-fifty with his half-sister, or a smaller amount as a pretermitted (omitted) heir?
- His son ultimately inherited from his father, but the cost of the litigation reduced the inheritance; the process took a considerable amount of time. The conflict most likely also damaged familial relationships.
4 Essential Purposes of a Trust
A trust is a fiduciary arrangement that allows a third party (known as a trustee) to hold assets on behalf of beneficiaries. There are four primary benefits of trusts:
- Avoiding probate. Funded trusts are not subject to probate. However, unfunded or underfunded trusts, just like wills, generally must go through probate.
- Maintaining privacy. Probate is a matter of public record. However, since trusts aren’t subject to probate, privacy is maintained.
- Mitigating the chance of litigation. Since trusts are not subject to the probate process, they are not a matter of public record. Therefore, fewer people know estate plan details – mitigating the chance of litigation.
- Providing asset protection. Assets passed to loved ones in trust can be drafted to provide legal protection so predators and creditors cannot easily seize assets.
While these are arguably the most essential purposes, trusts can also affect what you pay in estate taxes as well.
Don’t Burden Your Family!
Losing a loved one is difficult enough without enduring legal battles afterward. A proper estate plan helps reduce litigation and legal fees and provides privacy for your survivors. Your assets are worth protecting whether you have thousands or millions in your estate.
And four significant events should trigger a review of your estate plan: a birth, death, divorce, or move. These milestones can have a lasting impact on your estate plan. When they occur, review your plan and contact an experienced estate planning attorney to make the necessary changes.
Many types of trusts and estate planning tools can help ensure you don’t burden your family after your death.
We Can Help
Celebrity inheritance disasters serve as stark reminders that no one’s wealth is exempt from the legal trouble that can occur without proper estate planning. At Vail Gardner Law, we show you how to best provide for and protect your loved ones by creating an estate plan tailored to your needs.
Protect your loved ones and legacy. Give us a call today to discuss securing your hard-earned money and property. Create the future you envision for your loved ones.