Elvis Presley’s Estate Planning Mistakes: Lessons for Us All

Even the King of Rock ‘n’ Roll wasn’t immune to estate planning mistakes. Elvis Presley passed away in 1977 with a net worth of around $5 million. Nevertheless, poor estate planning resulted in significant financial challenges for his daughter, Lisa Marie Presley, who inherited the estate at age 25. Unfortunately, the saga of estate mismanagement continued with Lisa Marie’s untimely death in January 2023. This article examines the lessons we can learn from these oversights.

Why Did Elvis’s Estate Plan Fail?

Over-Reliance on a Will

Elvis relied on a basic will instead of a more comprehensive estate plan, such as a trust. While wills provide instructions for asset distribution, they don’t protect beneficiaries from probate. This led to significant legal costs and delays, reducing the estate’s value. Furthermore, only a fraction of his estate remained after creditors, unscrupulous business partners and the IRS took their share. Kiplinger details how these mistakes haunted his daughter, Lisa Marie Presley.

Excessive Spending

Elvis was generous and free spending. However, his estate planning didn’t account for this. As a result, much of his inheritance went to creditors rather than his daughter. However, creditors weren’t the only ones claiming what Elvis left behind. The most significant loss was to the IRS, which claimed that the estate tax was worth double the value of Elvis’ estate.

Trusting the Wrong People

Elvis trusted Thomas Parker, better known as Colonel Parker, with business management. However, Parker was a Dutch illegal immigrant with a history of mental instability. The Army discharged him following a “psychotic breakdown,” and he had only served as a private. Parker’s business deal entitled him to 50% of Elvis’ profits and enabled him to sell Elvis’ song catalog. He kept most of the profits, depriving the family of any royalties.

Lack of Estate Planning

Between the IRS, creditors and Parker, the woes Elvis left his loved ones have one thing in common: They were avoidable estate planning mistakes. While few people trust their will to Colonel Parker, many leave behind a will that doesn’t protect their loved ones. Advanced estate planning strategies, such as the creation of trusts, are much more reliable than a simple will.

Can You Avoid Similar Estate Planning Mistakes?

A will is better than nothing, but it’s only the start. Develop a comprehensive estate plan that includes a trust and a power of attorney, and follow these steps:

Plan for Estate Taxes: Many ways exist to reduce estate taxes. Consider strategies like gifting assets and establishing trusts.
Maintain Liquidity: Set aside liquid assets to cover immediate family needs and creditor expenses.
Regularly Review and Update Plans: Life changes, and your estate plan should too. Ensure that your estate is set up to provide your loved ones with what you wish for them.
Consult with a Reputable Estate Advisor: Estate law is complex. Consulting with an estate planning professional can help you avoid Elvis’ mistakes.

Take Action to Avoid Estate Planning Mistakes

Don’t let your loved ones face unnecessary financial difficulties. Develop a comprehensive estate plan with the help of our estate planning attorneys.

Key Takeaways

Elvis Presley’s Estate Planning Mistakes: Elvis relied on a basic will and trusted people he shouldn’t. Consequently, his wife Priscilla and his daughter Lisa Marie Presley only received a fraction of his estate. If the King of Rock ‘N Roll needed a thorough estate plan, we all do.
Avoid Estate Planning Pitfalls: A comprehensive plan centered on trusts to protect your loved ones avoids many common mistakes.
Contact a Trustworthy Professional: Elvis’ business partners sold many of his assets for personal benefit. Rely on a reputable estate planning attorney to give your family the best opportunities.

Reference: Kiplinger (May 17, 2023) “Five Estate Planning Lessons We Can Learn From Elvis’ Mistakes”

Guide to Incapacity Planning: Protecting Yourself and Your Estate

Incapacity planning is a crucial aspect of managing your estate and ensuring that your wishes are honored if you cannot make decisions for yourself. This article will examine the various components of incapacity planning, offering comprehensive advice for anyone looking to secure their future.

What Is Incapacity Planning?

Incapacity planning involves preparing legal documents and making decisions in advance should you become unable to manage your affairs due to illness, injury, or other reasons. This process ensures that your financial, health and personal preferences are respected and handled according to your wishes.

Understanding the Basics

Incapacity planning isn’t just for the elderly; unexpected life events can happen at any age. It’s about taking control of your future, regardless of what may happen. This planning includes choosing who will make decisions on your behalf and outlining your wishes for medical treatment and financial management.

The Importance of Early Planning

The best time to plan is now. Waiting until you’re incapacitated leaves your loved ones with difficult decisions and could lead to court involvement. Early planning ensures that your wishes are clear and legally documented.

What Is a Power of Attorney?

A Power of Attorney (POA) is a legal document allowing you to appoint someone to handle your affairs if you cannot. There are different types of POAs, each with specific functions.

Financial Power of Attorney

This document grants someone authority to manage your financial matters, from paying bills to handling investments. Choosing someone trustworthy and capable of managing your finances effectively is essential.

Medical Power of Attorney

Also known as a healthcare proxy, this allows someone to make medical decisions on your behalf. Discussing your wishes with this person is crucial, ensuring that they understand your preferences for medical treatment.

What Role Does a Trust Play in Incapacity Planning?

A trust is a legal arrangement where a trustee holds assets on behalf of a beneficiary. Trusts can be particularly useful in incapacity planning.

Revocable Living Trust

This type of trust allows you to maintain control over your assets while alive and capable. In the event of incapacity, a successor trustee can manage the trust assets according to your wishes.

Using Trusts to Avoid Guardianship

By setting up a trust, you can avoid needing a court-appointed guardian or conservator, since the trust’s instructions will guide how your assets are managed.

How Can I Ensure That My Medical Wishes are Respected?

Documenting your healthcare preferences is a vital part of incapacity planning. This ensures that your medical treatment aligns with your values and wishes.

Living Wills and Healthcare Directives

A living will or healthcare directive outlines your wishes for medical treatment, including end-of-life care. This can include specific instructions on issues, like life support and feeding tubes.

HIPAA Authorization

The federal Health Insurance Portability and Accountability Act (HIPAA), known as the Privacy Rule, gives individuals rights over their health information and sets rules and limits on who can look at and receive a person’s health information. A HIPAA authorization is a legal document that enables your healthcare providers to share your medical information with the individuals you’ve designated.

Healthcare Surrogate or Medical Agent

While the HIPAA authorization allows chosen individuals to receive or view your healthcare information, a healthcare surrogate or medical agent is an authorized individual who can make decisions for your medical care when you cannot.

What Happens If I don’t have an Incapacity Plan?

Without a plan, your family may face legal hurdles and difficult decisions. They may need to seek guardianship or conservatorship, which can be time-consuming, expensive, and stressful.

The Risk of Court Intervention

Without proper documents, a court may appoint someone to make decisions for you who might not align with your preferences. This can lead to family disputes and added emotional stress.

Ensuring Your Wishes are Followed

An effective incapacity plan helps avoid these issues, ensuring that your wishes are known and respected and that someone you trust makes decisions on your behalf.

How Do I Choose the Right People to Act on My Behalf?

Choosing the right individuals to make decisions for you is crucial. They should be people you trust, who understand your values and are willing to act in your best interests.

Selecting a Health Care Proxy

Your healthcare proxy appointee should understand your medical preferences and be willing to advocate on your behalf, even under challenging circumstances.

Choosing a Financial Proxy

Selecting someone with financial acumen and integrity is essential for managing your financial affairs. This person should be organized, responsible and understand your financial goals well.

Can Incapacity Planning Reduce Estate Taxes?

While incapacity planning primarily focuses on managing your affairs during life, it can also affect estate taxes. Proper planning can help manage your estate efficiently, potentially reducing tax liabilities.

Summary: Key Points to Remember

Start Early: Don’t wait until it’s too late to start planning.
Appoint Trusted Individuals: Choose people you trust to make decisions on your behalf.
Document Your Wishes: Clearly outline your healthcare and financial management preferences.
Consider a Trust: Trusts can provide a streamlined way to manage your assets if you become incapacitated.
Legal Advice: Consult an estate planning attorney to ensure that your plan meets your needs and complies with legal requirements.

Incapacity planning is not just about protecting your assets; it’s about ensuring your wishes are honored and providing peace of mind for you and your loved ones. With the right planning, you can safeguard your future, no matter what it holds.

What Are Estate Taxes?

As the baby boom generation members age, they will eventually pass on their wealth to the next generation. When this occurs, millennials must be prepared to pay taxes on their inheritances, says a recent article, “Millennials May Inherit $68 Trillion: Here’s What to Know About Estate and Inheritance Taxes,” from The Motley Fool.

Estate taxes are imposed on the transfer of assets after someone dies. Not every estate in the U.S. is subject to federal estate tax. Only estates valued above a certain threshold are subject to taxes. This is currently $12.92 million for singles and $25.84 for married couples. No federal estate tax is due if the estate is below this amount.

Estate taxes are paid by the decedent’s estate, not the person who inherits the wealth. When a person dies, their executor is responsible for completing the estate tax return and paying any taxes owed. The estate of the decedent person will only pay taxes on the amount over this threshold.

Estate taxes are levied on all assets a person owns at their death, including real estate, stocks, bonds, jewelry, cash and other valuables. The percentage of estate tax charged ranges from 18% to 40% of the estate’s total value. For example, an estate is valued at $15.5 million in 2023, and the expenses incurred before death—medical, funeral costs, etc., cost $500,000. You’d subtract this amount from the estate’s total value ($15.5 million—$500,000—$12.92 million threshold). Since the taxable amount is over $1 million, it will be subject to a 40% tax rate—making the taxes owed $832,000. The after-tax for heirs would be $14,168,000.

In addition, some states levy their own estate taxes. Twelve states have an estate tax: Connecticut, Hawaii, Illinois, Maine, Maryland, Massachusetts, Minnesota, New York, Oregon, Rhode Island, Vermont, Washington and the District of Columbia. Five states have only an inheritance tax—Iowa, Kentucky, Nebraska, New Jersey, Pennsylvania, and Maryland have a state estate tax plus an inheritance tax.

Can you protect your heirs from estate taxes? In a word, yes!

There are many ways to avoid federal and state estate taxes. One is to gift money and assets to loved ones while living, taking advantage of the annual gift tax exclusion, which lets you give up to $17,000 per person without incurring any taxes.

Another is to place assets in a trust. Your estate planning attorney will advise you on what kind of trust works best for your situation. For example, charitable trusts donate portions of your estate to a charity while taking the assets out of your taxable estate.

Once the Tax Cuts and Jobs Act of 2017 expires, the federal estate tax exemption will return to the $5.49 million exemption, around $6.2 million when adjusted for inflation. Therefore, it is essential for anyone whose estate may exceed this considerably lower threshold to plan now to avoid having to pay estate taxes after December 31, 2025.

Reference: The Motley Fool (May 2, 2023) “Millennials May Inherit $68 Trillion: Here’s What to Know About Estate and Inheritance Taxes”

What Is Included in an Estate Inventory?

The executor’s job includes gathering all of the assets, determining the value and ownership of real estate, securities, bank accounts and any other assets and filing a formal inventory with the probate court. Every state has its own rules, forms and deadline for the process, says a recent article from yahoo! Finance titled “What Do I Need to Do to Prepare an Estate Inventory for Probate,” which recommends contacting a local estate planning attorney to get it right.

The inventory is used to determine the overall value of the estate. It’s also used to determine whether the estate is solvent, when compared to any claims of creditors for taxes, mortgages, or other debts. The inventory will also be used to calculate any estate or inheritance taxes owed by the estate to the state or federal government.

What is an estate asset? Anything anyone owned at the time of their death is the short answer. This includes:

Real estate: houses, condos, apartments, investment properties
Financial accounts: checking, savings, money market accounts
Investments: brokerage accounts, certificates of deposits, stocks, bonds
Retirement accounts: 401(k)s, HSAs, traditional IRAs, Roth IRAs, pensions
Wages: Unpaid wages, unpaid commissions, un-exercised stock options
Insurance policies: life insurance or annuities
Vehicles: cars, trucks, motorcycles, boats
Business interests: any business holdings or partnerships
Debts/judgments: any personal loans to people or money received through court judgments

Preparing an inventory for probate may take some time. If the decedent hasn’t created an inventory and shared it with the executor, which would be the ideal situation, the executor may spend a great deal of time searching through desk drawers and filing cabinets and going through the mail for paper financial statements, if they exist.

If the estate includes real property owned in several states, this process becomes even more complex, as each state will require a separate probate process.

The court will not accept a simple list of items. For example, an inventory entry for real property will need to include the address, legal description of the property, copy of the deed and a fair market appraisal of the property by a professional appraiser.

Once all the assets are identified, the executor may need to use a state-specific inventory form for probate inventories. When completed, the executor files it with the probate court. An experienced estate planning attorney will be familiar with the process and be able to speed the process along without the learning curve needed by an inexperienced layperson.

Deadlines for filing the inventory also vary by state. Some probate judges may allow extensions, while other may not.

The executor has a fiduciary responsibility to the beneficiaries of the estate to file the inventory without delay. The executor is also responsible for paying off any debts or taxes and overseeing the distribution of any remaining assets to beneficiaries. It’s a large task, and one that will benefit from the help of an experienced estate planning attorney.

Reference: yahoo! finance (Dec. 3, 2022) “What Do I Need to Do to Prepare an Estate Inventory for Probate”

Why Do People Give to Charities at End of Year?

The landscape for charitable giving has undergone a lot of change in recent years. More changes are likely around the corner. This year, a more intentional approach to year-end giving may be needed, according to the article “How to Make the most of Year-End Charitable Giving” from Wealth Management.

From the continuing pandemic to natural and humanitarian disasters, the need for relief is pressing on many sides. Donors with experience in philanthropy understand charitable giving as part of a tax strategy, part of providing the essential support needed by non-profits to keep operating and respond to emergencies and, at the same time, ensure their charitable dollars are aligned with their family values and missions.

For the tax perspective, changes resulting from the Tax Cuts and Jobs Act of 2017 left many nonprofits harshly impacted by the doubling of the standard deduction, which gave fewer people a financial incentive to donate. The question now is, could the latest round of proposed changes spur greater giving?

Amid all of these changes, sound and stable giving strategies remain the wisest option.

The CARES Act encouraged individual giving during times of hardship, and tax breaks were extended in 2021. However, certain incentives are now closing, such as the ability to deduct up to 100% of adjusted gross income for cash gifts made directly to public charities.

The Build Back Better Agenda proposes increasing the long-term capital gains tax rate for individuals with more than $400,000 of taxable income, and married couples filing jointly with more than $450,000 of taxable income, to 25%, plus a 3% surcharge to income of more than $5 million. This would make charitable giving more attractive from an income tax perspective. However, this bill has yet to be passed.

Consider the following strategies:

Qualified charitable distributions. RMDs must be taken in 2021. For donors taking a standard deduction, a qualified charitable distribution is a possible option. If you are 70½ and over, you can donate up to $100,000 from an IRA. This satisfies the RMD, as long as the gift goes directly to a charity, not to a Donor Advised Fund.

Contributions of appreciated stock. To make charitable gifts in the most tax-efficient way possible, a donation of appreciated stock is a smart move. Donors receive a charitable income tax deduction (subject to AGI limitations) and avoid capital gains tax.

Charitable bequests. The uncertainty around income tax reform includes estate taxes, and pro-active individuals are now reviewing their estate plans with their estate planning attorneys.

Funding a Donor Advised Fund (DAF). A DAF allows donors to contribute assets to a tax-free investment account, from which they can direct gifts to the charities of their choice. The contribution to the fund provides the donor with a charitable income tax deduction in the year it’s made.

Reference: Wealth Management (Oct. 11, 2021) “How to Make the most of Year-End Charitable Giving”

Do I Have to Pay Taxes during Retirement?

Paying taxes when you aren’t working but are instead receiving income from a lifetime of working and Social Security is a harsh reality of retirement for many people. Figuring out how much of your income will be consumed by taxes is a tricky task, according to the article “What You Need to Know About Taxes and Your Retirement” from Next Avenue. Ignore it, and your finances will suffer.

Most households will pay about six percent of their retirement income in federal income tax, but that number varies greatly, depending upon the size of their retirement income. The lowest income groups may pay next to nothing, but as income rises, so do the taxes. Married couples with an average combined Social Security benefit of about $33,000, 401(k)/IRA balances of $180,790, and personal financial wealth of $87,000 could find themselves paying 10.5% to 20.9%.

Income taxes and health costs are most people’s biggest expenses in retirement. Income taxes are due on pensions and withdrawals from tax-deferred accounts, including traditional IRAs, 401(k)s, 403(b)s, and similar retirement accounts. The same goes for tax-deferred annuities. Required minimum distributions must be taken starting at age 72.

Roth IRA and 401(k) distributions are tax free, since taxes are paid when the funds go into the accounts, not when they are withdrawn.

If you have investments in addition to your tax-deferred funds, like stocks or bond funds, you also pay taxes on the dividends and interest paid to you. If you sell them, you’ll likely need to pay any capital gains taxes.

Learning that a portion of your Social Security benefits are subject to federal income tax is a shocker to many retirees, but about 40% of recipients do pay taxes on their benefits. The higher your income, the more taxes you’ll need to pay.

There may also be state taxes on your Social Security benefits, depending on where you live.

However, here’s the biggest shocker–if you work part time, you may forfeit benefits, temporarily, if you claim before your Full Retirement Age, while you are working. Claiming before FRA means that your benefits are subject to earnings limits—the most you can make from work before triggering a benefit reduction.

Social Security withholds $1 in benefits for every $2 earned above the annual earnings limitation cap. If you reach your FRA after 2020, that’s $18,240. If you reach your FRA in 2020, the annual exemption amount is $48,600.

Pension, investment income and any government benefits, like unemployment compensation, don’t count towards earned income.

Benefits that are withheld will be returned to you once you hit FRA when Social Security bumps up your monthly benefit to make up for the withholding, but this takes place over time.

Reference: Next Avenue (Sep. 17, 2020) “What You Need to Know About Taxes and Your Retirement”

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