Estate Planning Mistakes by Famous People

Many estate planning mistakes by famous people illustrate on a grand scale what applies to all of us; the need for an up-to-date, quality estate plan.

The instructions for the disposition and management of one’s estate at death through the use of wills, trusts, and other devices can cover almost about any topic you can think of. While the majority of instructions in estate planning concern finances, wills and trusts frequently guide decisions regarding health care, guardianships, business, education and even which heir gets the entire Barry Manilow record collection.

Born2Invest’s recent article entitled “The biggest estate planning blunders of all time” looks at a few colossal estate planning mistakes by the rich and famous.  Estate planning mistakes by famous people show you what can go wrong in the worst of ways.

Estate planning usually conjures up thoughts of drafting a will by an attorney. Although the cost of drafting an estate plan varies significantly based on location and complexity, it can range from a few hundred dollars to several thousand. Regardless of the cost, hiring an experienced estate planning attorney will save your family time, money and anguish after your death.

With that said, let’s take a look at some estate planning mistakes by famous people who simply didn’t get around to this very important task.

Ted Williams (Baseball Legend). When Ted died in 2002, he had one will that said his body should be cremated, and another that instructed he should be cryogenically frozen. As you can imagine, there was a fight among his children. This resulted in Ted’s decapitation (postmortem). Therefore, the Splendid Splinter, the greatest baseball hitter of all time, had his body and head frozen in Arizona at Alcor Life Extension Foundation.

Sonny Bono (Singer and Congressman). Sonny didn’t create a will. As a result, he passed away intestate. A lawsuit was initiated by ex-wife and singing star, Cher, to collect $1.6 million in unpaid alimony, along with a fraudulent claim by an illegitimate child (disproven by DNA testing), and Sonny’s widow, Mary.

Heath Ledger (Actor). Heath failed to revise his will after the birth of his daughter. At his death in 2003, his entire estate was split between his parents and sisters, but they agreed to give all the money to his daughter.

Philip Seymour Hoffman (Actor). The Oscar-winning actor also never updated his will after the birth of his two daughters. Since he wasn’t married to his then girlfriend, there was an approximate $12 million estate tax that was owed.

Joe Robbie (the owner of the NFL Miami Dolphins). Robbie had a substandard estate plan that contained a pour-over will and revocable inter vivos trust. This was designed to defer estate taxes until after the death of his wife. However, it didn’t work as planned. She demanded her “elective share” as spouse, 30% of the husband’s illiquid estate, which created a $47 million tax bill that could only be settled by selling off his football team. His 11 children also went to court to fight over his estate.

James Brown (Singer). The “Godfather of Soul” wasn’t around to witness the 12-year epic legal battle among several blended families over his estate.

Barry White (Singer). White died in 2003 in the middle of divorce proceedings. Legally speaking, he was still only separated from his wife. As a result, she got it all, instead of his current girlfriend and mother of nine kids.

There are many more famous people who posthumously became members of this dubious club. Their eligibility for membership was poor estate planning that resulted in unintended—and in some cases, tragic—consequences. Although many Americans can’t really identify with these mega-wealthy or public icons, they do have assets and families and friends, and everyone should expect to need an estate plan.  See here for ideas on how to do it properly https://galligan-law.com/a-will-is-the-way-to-have-your-wishes-followed/

The club of estate planning mistakes by famous people shows the rest of us the need for proactive professional planning. Be certain that you work with a qualified estate planning attorney, so that your estate plan doesn’t end up like the ones above.

Reference: Born2Invest (January 27, 2020) “The biggest estate planning blunders of all time”

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Do I have to Pay the Estate’s Debt?

People often have debts when they pass away such as credit cards and medical bills, but family shouldn’t pay those debts themselves outside of the estate.

When a family is grieving after the death of a loved one, the last thing any of them wants to deal with is unpaid debts and debt collectors.  But, sooner or later creditors must be dealt with, and one of the first questions clients ask is whether they have to pay the estate’s debt.

nj.com’s recent article asks “Is mom liable for my dead father’s credit card debt?” The answer: generally, any unpaid debts are paid from the deceased person’s estate, which means from the estate’s assets only.  In fact, fair collection laws require debt collectors to let you know that you aren’t responsible for that debt.

In many states, family members, including the surviving spouse, typically aren’t required to pay the debts from their own assets, unless they co-signed on the account or loan.  In other words, if they would have been liable for the debt themselves, they are still responsible.  If the debt belongs to the decedent, such as a creditor card they used, then only the estate is responsible to pay the debt.  There are a few potential exceptions, such as the IRS collecting estate income from anyone who benefits from the estate, but not many.

All the stuff that a person owns at the time of death, including everything from money in the bank to their possessions to debts they owe, is called an estate. When the deceased person has debt, the executor of the estate will go through the probate process.  There is a lot more to this process, see here for a fuller description.  https://galligan-law.com/probate-dissolving-the-mystery/

During the probate process, all the deceased’s debts are paid off from the estate’s assets. Some assets—like retirement accounts, IRAs and life insurance proceeds—may pass outside of probate and aren’t included in the probate process. As a result, these assets may not be available to pay creditors. Other estate assets can be sold to pay off outstanding debts.

Now, this portion is very state specific sometimes with very specific requirements, so you should do it at the advice of an attorney.  A relative or the estate executor will typically notify any creditors, like credit card companies, when that person passes away. The creditor will then contact the executor about any balances due. Note: the creditor can’t add any additional fees, while the estate is being settled.  At this point, assuming there is enough money, the executor will pay the estate’s debt from estate assets.

If there’s not enough money in the estate to pay the estate’s debts, then the executor has a very important task.  Every state has an order of priority to satisfy debts such as administrative debts (attorney’s fees, accountant’s fees, court costs), priority debts and then general creditors.  Different states also have different rules about whether you have to satisfy one creditor to the exclusion of the other.  The executor, with the assistance of an attorney, should pay the estate’s debt according to that order of priority.  The executor and the heirs aren’t responsible for these debts and shouldn’t pay them. Unlike some debts, like a mortgage or a car loan, most debts aren’t secured. Therefore, the credit card company may need to write off that debt as a loss.  As an aside, there might be an opportunity to settle or negotiate debts on this basis, though there are tax implications to the estate for writing off the debt.

If your loved one passes away with debt, don’t pay it.  Talk with an attorney about opening an estate for that deceased loved one and discuss how or whether to pay the estate’s debts.

Reference: nj.com (Jan. 15, 2020) “Is mom liable for my dead father’s credit card debt?”

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Read more about the article Probate: Dissolving the Mystery
It is important to understand the probate process before deciding whether and how to avoid it.

Probate: Dissolving the Mystery

probate and estate planning
If you want to avoid probate, work with an experienced attorney to coordinate your plan and assets.

Probate avoidance is a common concern for our clients.  They frequently seek ways to pass their assets to their loved ones without going through probate.  Although it can be avoided with proper estate planning, probate avoidance should be done carefully and at the advice of an attorney as using piecemeal strategies usually don’t work, and sometimes create bigger problems.  For example, consider using trusts in your estate planning.  See this article for more information.  https://galligan-law.com/how-do-trusts-work-in-your-estate-plan/

Before considering whether you want to avoid probate, it is important to understand what the process is.  The Street’s recent article on this subject asks “What Is Probate and How Can You Avoid It?” The article looks at the probate process and tries to put it in real-life terms.

Probate is the process by which an Executor (person put in charge of the Will) goes to court to prove the validity of the Will and their authority to be in charge of the estate.  I find it helpful to remember that the word probate is essentially Latin for “prove it.”

Every state’s process is different, but in Texas, the Executor starts by filing the Will and an application to probate along with other documents necessary to that case.  Next, there is a hearing before a probate judge.  The Executor and her attorney ask the judge to admit the Will to probate as the valid Will of the decedent and ask that the Executor be empowered to handle the decedent’s affairs as directed in the Will.

Once the Will is admitted to probate and the Executor agrees to serve, there are many tasks for them to complete.  They include the following:

  • Giving notice to the beneficiaries in the Will;
  • Giving notice to potential creditors of the estate;
  • Gathering, valuing and categorizing the decedent’s assets;
  • Prepare an inventory of those assets;
  • Paying off any of the deceased’s existing valid debts or fighting invalid ones;
  • Paying final taxes or expenses of the estate; and
  • Distributing the deceased’s property to those directed by the Will

The above are just the basic responsibilities of the Executor.  The probate process becomes more complicated when a creditor appears, the family disagrees, assets are entangled or cumbersome, such as land or business interests, or the Will was written without the aid of an attorney.  Even worse, it is hard for an Executor to locate assets in the first place!  This can make estates drag on months or even years.  I recently spoke with a client whose family is still going through a probate 10 years after the decedent has passed.

With all of that uncertainty, it is worth discussing your wishes with an experienced estate planning attorney who will be able to explain what strategies are used to avoid probate, how to remove certain assets from the process, or whether it needs to be avoided at all.  The key, as with all estate plans, is to find the option that fits your goals for you and your family.

Reference: The Street (July 29, 2019) “What Is Probate and How Can You Avoid It?”

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