Prince’s death is another tragedy for an icon in the music industry. Many of us have memories dating back to his Purple Rain album or even earlier. From all accounts, another tragedy was Prince’s failure to do any estate planning. The lack of proper planning will almost certainly cost his estate millions in taxes and legal fees.

From a tax standpoint, the IRS collects tax revenue through the Federal Estate Tax. For most of us, the Federal Estate Tax is meaningless because the first $5 million plus of a deceased person’s estate is exempt. For married couples, the surviving spouse can elect to take advantage of this exemption upon the death of the other spouse. Then, when the surviving spouse dies, the heirs can take advantage of the exemption for the second spouse. Essentially, a married couple can pass along over $10 Million to their children without any Federal Estate Tax.

For Prince, his assets are valued by some at over $300 Million. The Federal Tax Rate would be 40% on his estate. As such, the estate can get hit with an absurd tax bill. Had Prince taken steps to properly plan for eventual death, he could have set up trusts and then transferred his music and other assets into the trust. For example, if Prince had any unreleased music, he could have transferred it to a Dynasty Trust. After his death, the Trustee could release that music and the value of that music would increase. The value of the music would increase with no tax implications and the music held in that trust would also not be counted for Federal Estate Tax purposes upon Prince’s death.

Without a Will or a Trust, his closest family member will have to ask the Court to name that person as an administrator. The administrator, appointed by the Court, will have control over the entire estate including his music and his likeness. The administrator will be responsible for collecting royalties for his music and other income. The administrator will make decisions regarding these aspects of Prince’s estate. Prince’s sister has recently filed documents with the court to be appointed as the administrator. Is she capable of properly managing these assets? Can she be trusted? Will she make the right decisions? If there is unpublished music, what will she do with it? With proper planning, Prince could have created a Will or a Trust for these assets and appointed his own executor or trustee and given that person instruction on how to handle these assets.

Another issue is the distribution of the estate. State intestacy laws often describe what heirs are to receive the estate and in what portion. For most of us, it is easy to place a value on a home or a car. It is also easy to sell these assets, with the proceeds to be distributed to the heirs. For Prince’s assets, how do you value unpublished music? What about the value of his current music that shot up significantly since the day he died? Prince’s heirs will most likely end up in a legal battle over who is to receive what assets. The problem is that some of his heirs may want to sell these assets while other heirs may not. In addition, how do you divide up assets when opinions as to the value of these assets can vary by the millions?

Unfortunately, Prince’s estate will most likely be tied up in expensive litigation for years to come. His heirs could wind up in a nasty dispute. All of this could have been avoided by estate planning.

This should be lesson for all of us. Since none of us have the assets and estate that Prince had, it is easy to believe that a will or trust is not necessary for us. However, a will is perhaps even more important if you have young children. A will is the only document that allows you to name guardians for your children. A trust can also be created to ensure that your young children will have the financial comfort for health and education as the children grow. A will or trust can also prevent family disputes. The take away is that you do not need to be Prince to benefit from proper estate planning. All of us should implement a proper estate plan.