VOLUME 21, ISSUE 2

ADVISOR’S BULLETIN

WHAT’S IN THIS MONTH’S NEWSLETTER

DYING WITHOUT AN ESTATE PLAN: THE SETTLEMENT OF ’S ESTATE Michael W. Lagos, CFP President A MESSAGE FROM Robert L. Langsam MICHAEL W. LAGOS, CF P

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DYING WITHOUT AN ESTATE PLAN: THE SETTLEMENT OF PRINCE’S ESTATE

Life

Born June 7, 1958, in , , Prince was the son of musicians and was writing and performing mu- sic from his earliest years. Prince’s rise to stardom began with his debut album, For You, with the lead single, “Soft and Wet,” making a moderately strong debut on R&B radio and cracking the at No. 92.

A second, self-titled album went platinum and yielded two more popular singles, “Why You Wanna Treat Me So Bad?” and “I Wanna Be Your Lover.” Prince's crossover potential was rising, as he made it to the top 20 of the Hot 100 and performed on American Bandstand in 1980.

In 1982, Prince released his 1999 double album. The title track, “Delirious,” and “Little Red Corvette” were widely played. His 1984 album, Purple Rain, accompanied the critically and commercially successful movie of the same name, in which Prince starred in his film debut. The dual offering helped Prince virtually dominate the pop culture of the year, with the album sitting at the top of the charts for 24 weeks and yielding hit after hit. The movie won an Academy Award for best original song score.

The title track from Purple Rain became one of Prince’s signature songs, widely played in concert for much of his ca- reer. The album also included the hits “,” “Let’s Go Crazy,” “Take Me with U,” and “I Would Die 4 U.”

Prince followed up the Purple Rain album with more successful albums and singles, although he had less positive results with his next movie .

Following the peak of his popularity in the 1980s, Prince continued to enjoy success with music recordings and live performances.

In his personal life, Prince was romantically connected with celebrities Sheila Escovedo (Sheila E), Apollonia Kotero, and Denise “Vanity” Matthews. Prince was married twice, with both relationships ending in divorce. He apparently had only one child, Boy Gregory, who was born in 1996 with Pfeiffer syndrome, a rare genetic disorder, and died a week after his birth.

Death

Prince died at his home in suburban Minneapolis of an accidental opioid overdose on April 21, 2016. He was 57.

A few days prior to Prince’s death, his doctor had prescribed an opioid painkiller. Friends had suggested that Prince became addicted to painkillers after sustaining injuries over the years while performing live.

Speculation was that Prince thought he was taking Vicodin to manage pain but had unknowingly taken counterfeit pills laced with fentanyl, and that drug caused his death. Police were unable to determine who provided the late mu- sician the illegal pills.

Probate

On April 26, 2016, five days after Prince’s death, his sister Tyka filed a petition in Carver County, Minnesota, asking the probate court to appoint Bremer Trust special administrator of Prince’s estate. In her petition, Tyka asserted:

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Prince left no last will, and

Prince’s closest heirs were his sister and five living half-siblings—John Nelson, Norrine Nelson, Sharon Nelson, Al- fred Jackson, and Omar Baker.

Tyka asked the court to appoint Bremer Trust as a special administrator in charge of the estate, as Prince’s valua- ble business assets needed active management.

Under Minnesota law, when a person dies without a will (intestate), family inherits the decedent’s property in the following order:

If you die with: Here’s what happens:

· Children but no spouse · Children inherit everything

· Spouse but no descendants · Spouse inherits everything

· Spouse and descendants from you and that · Spouse inherits everything spouse, and the spouse has no other descendants · Spouse and descendants from you and that · Spouse inherits the first $225,000 of your inter- spouse, and the spouse has descendants from an- state property, plus half of the balance other relationship · Descendants inherit everything else · Spouse and descendants from you and someone · Spouse inherits the first $225,000 of your inter- other than that spouse state property, plus half of the balance

· Descendants inherit everything else · Parents but no spouse or descendants · Parents inherit everything

· Siblings but no spouse, descendants, or parents · Siblings inherit everything

The court ordered Bremer Trust to act as special administrator until a general personal representative of Prince’s estate was named.

COMPETING CLAIMS OF KINSHIP

Shortly after the probate proceeding began, many people claiming to be Prince’s heirs surfaced, with some inter- vening in the probate proceeding. Here are a few examples.

· According to newspaper reports, as many as 700 people began the process of checking whether they might be another half-sibling of the late singer. · Duane Nelson Sr., who many believed to be Prince’s brother during his lifetime, predeceased the singer. Bri- anna Nelson is Duane’s daughter, and Victoria Nelson, a minor, is the daughter of Duane’s son, the late Duane Nelson Jr., who died in 2006. If Duane was truly Prince’s brother, Brianna and Victoria would likely have stood in line to divide a sibling’s share of Prince’s estate. When it seemed likely that there was no close genetic link between Duane and Prince, Brianna and Victoria went on to argue that since Prince’s father treated Duane like a son during Duane’s lifetime, then Duane and Prince should be considered brothers regardless.

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· Corey Simmons claimed that he was also Duane Nelson’s son, born outside of marriage as a result Duane’s relationship with Carolyn Simmons. · Carlin Q. Williams claimed a more direct link, alleging he was the son of Prince, with Marsha Henson. If that claim was validated, he stood to inherit Prince’s entire estate under Minnesota law. · Others claiming to be valid heirs also filed papers in the probate proceeding: All claims have been found by the probate court to be without merit—at least so far.

Based on genetic testing, the court determined that Duane Nelson Sr. was not, in fact, Prince’s brother. It also found that Carlin Q. Williams was not Prince’s son. To date, the court has only recognized the siblings originally listed in Tyka’s probate petition as Prince’s intestate heirs.

CLAIMS AGAINST THE ESTATE

Many people and organizations filed claims against Prince’s estate. Here are some examples.

· Rodney Dixon filed a petition claiming that he was the rightful owner of Prince’s intellectual property due to a predeath transfer:

The court ultimately rejected his claims, deciding they were frivolous. Dixon was barred from taking any further part in the probate proceeding.

· Mixed Blood Theatre filed a claim against the estate, alleging financial losses due to the special administrator’s cancellation of the fortieth anniversary gala. That claim was apparently settled by the estate.

· R. Kerr claimed that Prince owed $46,582.29 for costs related to predeath recording and producing activities. The estate rejected those claims.

· Jay Z’s Roc Nation made a claim against Prince’s estate based on a contract it had entered into with the sing- er’s companies prior to his death. Roc Nation alleged that the contract gave it the power to act as special ad- ministrator of Prince’s musical assets. The estate and Roc Nation reportedly came to a deal to resolve a legal dispute that included a release of a new full-length album of unreleased material from Prince’s vault.

CLAIMS BY THE ESTATE AND HEIRS

Prince’s heirs pursued wrongful death claims against

· Walgreens, which had filled Prince’s prescriptions,

· Trinity Medical Center, an Illinois hospital that treated Prince for an overdose shortly before his death,

· Dr. Howard Kornfeld, who ran a drug treatment facility,

· Dr. Michael Schulenberg, who had prescribed the painkillers to an associate of Prince, and

· Schulenberg’s former employer, North Memorial Health Care.

Many of these claims were dismissed, while some were likely settled.

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PROCEDURAL ISSUES

In December 2016, Bremer Trust was replaced as special administrator of Prince’s estate by Comerica Bank and Trust.

The special administrators have been called on to participate in a number of issues related to the settlement of Prince’s estate, including:

· Determining how paternity testing would take place;

· Deciding on a special master to help sort out fee issues in connection with the estate;

· Approving the hiring of consultants in connection with the estate’s effort to turn Prince’s Paisley Park residence into public museum;

· Asking the court to hide information from public view on information that it considered to be confidential.

The record shows that new probate documents have been filed in just about every week in the nearly five years since Prince’s death. In fact, during several weeks new court documents were added every day.

According to reports, the legal fees associated with the probate are well in excess of ten million dollars .

SALE OF RIGHTS TO INHERIT PROPERTY

To make matters even more complicated, Prince’s half brother Alfred Jackson died on August 29, 2019, at age 66. According to an article:

Just prior to his death, Jackson had signed most of his share of the rights to the estate to Primary Wave, a New York entertainment company that also owns a stake in the estate of Whitney Houston (it’s the compa- ny behind the hologram tour of the late R&B singer). Prince’s sister, Tyka Nelson, also has a deal with Pri- mary Wave.

Why would Alfred and Tyka have sold their inheritance rights to a third party? The court record does not say, alt- hough it seems plausible to speculate that they were tired of waiting and wanted to receive cash.

The Jackson County, Missouri, probate case revealed additional facts that will likely extend the duration of Prince’s probate process:

Alfred Jackson’s death has created a new, separate dispute in Jackson County: one of his surviving half brothers—Shawn Jackson, who is not a Prince sibling — is contesting a will purportedly written and signed by Alfred Jackson that would bypass his living siblings. Instead, that will would give Alfred Jackson’s entire estate to a California entertainment consultant who, according to Shawn Jackson, did not know him well or for very long.

Further complicating the case is a business deal Alfred Jackson purportedly completed on the day he died, in which he agreed to sell 90 percent of his expectancy interest in Prince’s estate to Primary Wave, a music publishing and talent management company.

The Jackson County, Missouri, probate case is Jackson v. Starke, personal representative of the estate of Alfred Jackson Jr., 1916-CV33231.

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Estate Tax Fight

If that is not enough, it has been widely reported that the Prince estate has been arguing with the IRS over the value of its assets.

The latest legal trouble for the estate is that the IRS says it is worth $163.2 million, nearly double the $82.3 million net worth that the estate’s administrator, Comerica Bank & Trust, allegedly claimed. . . . [I]t has be- come evident that the estate and the federal government have severely opposing views on the value of many of Prince’s assets, including real estate, music rights and the value of Prince’s name and likeness.

The IRS valuation would put the estate on the hook for more than $32 million more in federal estate taxes. The Ser- vice’s position is that the estate substantially undervalued its assets, making it subject to an additional $6.4 million penalty tax.

Estate valuation fights are common when a decedent has left valuable but hard-to-value assets for heirs. Many such disputes come down to the Tax Court determining which valuation expert—the estate’s or the IRS’s—is more credible.

It feels likely that the probate case will not be ready to be closed until the estate tax dispute is resolved.

How Things Could Have Been Better Organized

By any definition, the settlement of Prince’s estate has been—and continues to be—very complicated. Prince’s failure to plan for his death has contributed to the complexity of the probate process. There are many things he could have considered prior to his death that would have made things better for those left behind.

1. Prince could have created a living trust, transferring his music, real estate, and business interests into the trust prior to his death. We are writing about Prince’s estate because his probate is a public process. The fact that it is public reveals details of his assets, his complicated family, and the estate settlement. While that knowledge is valuable to us, we are pretty sure Prince and his family would have been happier with less publicity. One ad- vantage of creating a living trust, along with proper titling of assets, is that the transfer of control at death usually bypasses the probate process. Another advantage is that the decision-making process tends to be a bit easier and often less expensive than using probate. 2. Prince could have consolidated ownership of his intellectual property into one or more business entities prior to his death. Prince’s assets include his music catalog, the use of his likeness, and potential use of his home as a tourist attraction. The management of those assets can be difficult under the best of circumstances. If all of them were owned by a business entity—which business entity might have had an established management team—the probate process might have been simpler. 3. In conjunction with consolidated ownership of intellectual property in one or more business entities, Prince could have made buy-sell plans triggered by his death. If Prince had consolidated his intellectual property into a busi- ness entity, he could have made buy-sell plans triggered by his death. If that had been done properly, it could have had the following advantages:

· The estate could have been dealing with the split of post-buy-sell money instead of managing ongoing business interests.

· Heirs Tyke and Alfred would not necessarily have felt the same pressure to sell their inheritance expectancies as they felt during probate.

· A valid buy-sell agreement could have fixed the value of Prince’s intellectual property for estate tax purposes, eliminating the fight with the IRS over estate taxes. See Revenue Code Section 2703.

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4. Even if he had decided not to make the robust plans suggested above, at least a will document would have helped eliminate some of the issues raised in the probate process. The special administrator and probate court have spent much time sorting out exactly who was blood-related to Prince in such a way to stand at the front of the line to inherit Prince’s estate. The order of heirship is set forth under Minnesota law, but the identity of heirs is a question of fact that has to be sorted out in probate. Prince’s family connections were complicated, so that process was also difficult to sort out. Clear words in a will document could have bypassed many of the heirship issues that arose during the administration of Prince’s estate. 5. Life insurance could have been used to pay for estate taxes and potentially buy time for family settling the es- tate. The record is unclear as to whether Prince might have had insurance on his life at the time of his death. There is no doubt that life insurance could have played a key role in covering the estate tax liability and in helping the family stay patient during the estate settlement process.

CONCLUSION

Prince made a choice—by intention or neglect—to leave no will or substantial estate plan for his heirs. In part because of that decision, his family will likely continue to sort things out in a probate proceeding that has already lasted nearly five years.

What are the biggest lessons for our clients so far from the Prince estate-planning saga?

· Famous people should work with a competent estate-planning attorney to create testamentary documents. Would having attorney-drafted documents guaranteed avoiding a fight in probate court? No, but it seems the odds would have been better for a peaceful outcome—or at least a shorter, less expensive process.

· Consider a revocable trust and other probate-avoiding transfers—especially if privacy is a goal. While the Minne- sota court’s public probate record is helpful for us to better understand the wealth transfer process, Prince and his family might have preferred to keep their financial affairs more private. A living trust, business entities, and more careful titling of assets could all have played a role in hiding Prince’s business affairs and family issues from the public stage.

· Find trusted advisors who can work together as a team. Prince had many hard-to-manage and hard-to-value as- sets in his estate. While many apparently competent professionals were hired to deal with Prince’s intellectual property after his death, it would likely have been more efficient to have them in place in advance.

· For those with significant wealth, it’s never too early to make death-time plans. Prince was only 57 when he died. We will bet that every reader knows a wealthy friend or acquaintance who died even younger. No one can be sure that he has plenty of time to implement an estate plan.

With better planning on the front end, perhaps some of the pain, uncertainty, publicity, and expense of settling Prince’s estate could have been avoided.

LAGOS WEALTH ADVISORS Advisor’s Bulletin – February 2021

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IN THIS ISSUE OF ADVISOR’S BULLETIN

DYING WITHOUT AN ESTATE PLAN: THE SETTLEMENT OF PRINCE’S ESTATE

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