Celebrities: They're just like us, at least when it comes to estate-planning mistakes. Whether it's because they are too busy, unwilling to consider their own mortality, or led astray by bad advice, celebrities often die with their estates in disarray. While you may not have to clarify in your will who gets your Oscar statuette; you should still take care, since these types of celebrity estate planning mistakes can happen to anyone.
Sonny Bono: Died Without a Will
When Congressman and musician Sonny Bono died in a skiing accident in 1998, he left behind grieving family and fans as well as a complicated estate. Bono died intestate, or without a will, which meant it was up to the courts to decide how his $1 million estate should be divided. Conflicts soon surfaced. His ex-wife Cher sued for alimony payments she claimed she was still owed and an illegitimate son surfaced, also seeking a portion of the deceased politician's assets.
The lesson: If Bono had created a will, it would have been clear how he wanted his assets divided among his family. If you, like Bono, die without a will, the courts will decide who should receive your assets, potentially a long and expensive process.
Philip Seymour Hoffman: Didn't Take Steps to Reduce Estate Taxes
Academy-Award-winning actor Philip Seymour Hoffman, who passed away in 2014, reportedly did not want his three minor children to become trust fund kids. Instead, he left his $35 million estate to his unmarried partner, who he also named as executor of his will. Because Hoffman and his girlfriend weren't married, however, she couldn't take advantage of the spousal estate-tax exemption, which means that a substantial portion of the estate may have unnecessarily gone to taxes.
The lesson: Hoffman likely had good reasons for not wanting to set up trusts for his kids, and he may not have been concerned about his heirs paying estate tax. But it's a valuable reminder for others involved in committed relationships with unmarried partners. If your estate exceeds the standard exemption ($5.43 million in 2015), any assets above that amount will be taxed, unless you engage in more complex estate planning.
Michael Jackson: Set Up a Trust, But Didn't Fund It
Sometimes, unfinished estate planning can be as devastating as no estate planning at all. Jackson created a trust that was supposed to provide for his three children and his mother. But the trust was never funded, which left his estate in limbo. Years after his death, his children are still living on allowances authorized by the estate's executor as other issues are resolved, including payments to creditors and taxes owed to the IRS. Meanwhile, family members who the singer disinherited are squabbling over his assets.
The lesson: Jackson's intentions were good, but by not using an irrevocable trust to transfer assets to his children, he created an estate-planning nightmare. While the Jackson family's situation was uniquely complex, it's a lesson in thinking through the unintended consequences of your estate-planning decisions and the importance of making your wishes abundantly clear.
Princess Diana: Left an Unenforceable Letter of Wishes
When Princess Diana died in 1997, she left the vast majority of her estate, valued in the tens of millions of dollars, to her two sons, Princes William and Harry. But she also intended some of her personal property to be distributed to each of her 17 godchildren, a desire she expressed in a letter of wishes rather than her will. Her mother and sister, who were executors of the estate, went to court and obtained permission to ignore the letter of wishes, and the godchildren received virtually nothing.
The lesson: Diana's wishes may have been clear, but they weren't legally enforceable. It's a key point to remember: Many people attach a letter of wishes to express thoughts or feelings that wouldn't be appropriate to include in a will. But such letters aren't the same as a will, which means they are not the place to include instructions about how you want your estate divided. If it's important to you that a certain person receive certain property (for example, you want your son to receive your engagement ring, your daughter to inherit the family china, and your best friend to receive a valuable piece of artwork), make sure you put it in your will.
James Gandolfini: Didn't Consider International Laws
When Sopranos star James Gandolfini died suddenly at age 51, he left behind a complicated family situation and an incomplete estate plan. Speculation about whether Gandolfini had inadvertently exposed his heirs to unnecessary estate taxes and whether he should have set up a trust to manage his young daughter's inheritance was rife. An issue that received less attention was property the actor owned in Italy, which he left in equal shares to his son and daughter, with the expressed wish that they keep the home in the family. But that direction seemed to be in conflict with Italian law, which automatically gives half of a decedent's property to his or her children and one quarter to their spouse, leaving the owner to determine who receives the remaining quarter.
The lesson: It's not uncommon for U.S. citizens to own property abroad. If that's your situation, make sure you're aware of any laws and taxes in the country where the property is located, so that your estate planning documents don't hit extra legal hurdles. Another thing to remember? If, like Gandolfini, you want your heirs to keep a piece of real estate in the family, it helps to provide dedicated funds to cover the upkeep, something Gandolfini doesn't appear to have done.
Warren Burger: Did It Himself
You might think that if there was one person who could avoid estate-planning headaches, it would be the Chief Justice of the Supreme Court. You'd be wrong. When Justice Warren Burger passed away in 1995, he left a self-prepared will that was just 176 words long. As a result, his heirs paid more in estate taxes than they might have if Burger had done more comprehensive estate planning. Plus, because the will was so brief, his executors had to go to court to get permission to deal with routine matters that would have been addressed in a more detailed will.
The lesson: It's easy to find templates for all kinds of legal documents online that seem to offer a cheap and easy way around hiring an attorney. But estate planning is complex, and even those knowledgeable about legal issues can make mistakes. Investing some money today to have a professional help with your estate planning could mean significantly more of your wealth ends up in your heirs' hands, rather than being lost to taxes and legal fees.