When American singer-songwriter Prince Rogers Nelson (Prince), famous for his song “Purple Rain,” suddenly passed away in 2016, he apparently hadn’t left a valid will. He was twice divorced and unmarried at the time of his death and had no offspring. Prince had numerous full- and half-siblings. Two of his siblings, one of whom had a child, predeceased Prince. All of Prince’s relatives (along with other people who claimed to be heirs) inundated the estate with frenzied efforts to determine who would receive Prince’s assets. This complicated scenario racked up hundreds of thousands of dollars in legal fees. The courts eventually determined that Prince’s sister Tyka Nelson and five half-siblings—Sharon Nelson, Norrine Nelson, John Nelson, Omarr Baker, and Alfred Jackson—would inherit his assets. Primary Wave, a privately owned music publishing and management firm based in Los Angeles, has since bought out three of the heirs.
As if dealing with the multitude of interested persons in this estate was not enough chaos, a large tax dispute also unfolded. In January 2021, the Internal Revenue Service (IRS) claimed that the administrator of Prince’s estate significantly undervalued the star’s assets. The administrator valued the estate at $82.3 million, but the IRS’s value was nearly double at $163.2 million. As a result, the estate’s tax bill was increased by $32.4 million, including a $6.4 million accuracy-related penalty.
Following the assessment, the administrator sued the IRS, and their dispute has been ongoing in federal tax court. The two sides had been far apart regarding the value of many of Prince’s assets, including the fair market value of Prince’s NPG Records, with the IRS valuing the label at $46.5 million versus the estate’s appraisal of $19.4 million. The IRS also valued Prince’s name, image, and likeness rights at approximately $6.2 million, which was nearly double what the administrator valued it at.
However, according to a filing in the US Tax Court in late November 2021, the March 2022 trial date set for each side to battle it out will no longer be necessary. The administrator of Prince’s estate and the IRS settled the complicated dispute over the value of Prince’s assets. The Star Tribune reported that the estate was finally settled at $156.4 million, as determined for estate tax purposes. Further, as part of the settlement, the IRS dropped the $6.4 million accuracy penalty.i It has also been reported that a February 2022 hearing date has been set in a Minnesota probate court to begin discussing the distribution of Prince’s assets.ii
The complications caused by failing to engage in good estate planning have cost Prince’s estate (and as a result, the estate’s beneficiaries) a small fortune in fees and penalties. In addition, the administration of Prince’s estate has dragged on for years. While very few people leave an estate of this size, we all can learn very valuable lessons from this situation.
Engaging in advance planning is immeasurably important. Having a last will and testament and other planning documents will save your loved ones the stress, confusion, and unnecessary costs that Prince’s heirs unfortunately incurred. A revocable trust is another option that can be particularly helpful for clients whose legal heirs are not the intended beneficiaries of the estate, for privacy purposes (since a trust is not a public document whereas a will may be once offered to a court for probate) and for complicated assets in multiple jurisdictions to avoid ancillary probate.
An experienced trust and estate planner, such as the attorneys in Barclay Damon’s Trusts & Estates Practice Area, can work with you to identify your assets, learn your family situation, understand your wishes, and develop an estate plan that will achieve your goals. The results of this work and the plan that is developed from it may include not only getting your estate to your intended beneficiaries but also asset protection and estate tax savings benefits. A well-developed plan will save you and your family members valuable time and will provide peace of mind. Barclay Damon’s experienced Trusts & Estates Practice Area attorneys are ready to discuss the options available to you regarding your planning.
If you have any questions regarding the content of this alert, please contact David Luzon, partner, at dluzon@barclaydamon.com; Briana Krawczyk, law clerk, at bkrawczyk@barclaydamon.com; or another member of the firm’s Trusts & Estates Practice Area.
i Mike Hughlett, “It’s Final—Prince’s Estate Is Worth $156.4 million,” Star Tribune, January 14, 2022, Business, https://www.startribune.com/prince-paisley-park-estate-is-worth-156-4-million/600136069/.
iiMike Hughlett, “Prince Estate Disputes Near an End as Hearing in February Looms for Distribution of Assets,” Star Tribune, December 22, 2021, Business, https://www.startribune.com/prince-estate-disputes-near-an-end-hearing-in-february-looms-for-distribution-of-assets/600129536/.