Everybody makes mistakes from time to time. Minor errors are easily forgiven and corrected. But some mistakes can affect you and your family for years.
One of these is poor estate planning — or not doing estate planning at all. An incomplete or ill-considered plan can take money out of your estate in taxes or legal fees for a drawn-out probate court dispute. It could also bequeath money to people you would rather not receive part of your legacy and omit those you wanted to inherit something.
Where the King of Rock went wrong
Some people put off estate planning until it is too late. Others try to do it themselves or get bad advice about creating or amending their plan. Elvis Presley’s estate gives us a good example. Presley had an estate plan when he died in 1977, but several errors likely cost his daughter, Lisa Marie Presley, millions of dollars in inheritance. Here are four mistakes that Elvis made and you should try to avoid.
- Plan to avoid estate taxes. After Presley’s death, the estate reported a modest $5 million value. However, the IRS disputed that, claimed the estate was worth far more, and pursued a $10 million estate tax claim. Though the exemption for federal and Minnesota estate taxes is fairly high, real estate and other valuable assets can put your estate over the limit. Using trusts and other tools can help you pass on your wealth without having to worry about estate taxes.
- Avoiding other taxes. Estate planning can also help assets held in trust avoid capital gains taxes upon sale. In 1995, Lisa Marie Presley and the co-trustee of her trust sold 85 percent of her interest in Elvis Presley Enterprises (EPE) for $100 million. EPE was created to control business related to licensing of Elvis products and the Graceland mansion. After taxes, Lisa Marie only cleared $40 million, plus $25 million in stock in a company that later declared bankruptcy. Had the trust been set up differently, and the sale more carefully prepared, capital gains taxes might have been minimized or even avoided.
- Putting the right people in charge. Elvis named his father Vernon as executor of his estate. By the time Elvis died, Vernon was in poor health; he died two years later. While it is common to designate a trusted family member to be your executor, choosing the right person requires careful thought. Is the person in good physical and mental health? Do they have experience in financial or legal matters? Can you trust them to handle this important responsibility? Also, a good choice for executor now might not make sense 10, 20 or 30 years from now, at which point you might amend your will to choose someone else.
- Considering your children’s legacy. The trust set up to control Lisa Marie’s inheritance appears to have had few conditions besides not giving her control over the assets until she turned 25. Many parents choose to include incentive provisions to encourage (though not force) their children to graduate college, perform public service, etc.
The right assistance can help you create a smart estate plan or amend an existing one.