The sudden death of pop music icon Prince came as a shock to his fans. The revelation that he apparently died without a will shines a spotlight on the importance of confronting uncomfortable financial planning topics, especially because life sometimes ends unexpectedly.
As a financial planner, I help clients plan for the futures they anticipate, but I also stress the importance of being prepared for the unexpected. Drafting and signing a will, obtaining insurance coverage to cover catastrophic losses like disability and premature death, and saving money for a rainy day are just some of the measures I regularly discuss with my clients under the heading “just in case.”
Unfortunately, Prince may have failed to address at least one of these just-in-case scenarios. As a result, Minnesota state law will probably decide, in a very public process, how his estate is divided and administered. It is virtually certain that the state’s decisions will be different than what Prince would have decided for himself. Prince left a sister, five living half-siblings and the children of two deceased half-siblings, all of whom are potential heirs because Minnesota law treats half-siblings the same as full siblings. The court-supervised process could easily lead to an extended intrafamily battle.
Prince’s profession muddies the waters even further. As The Wall Street Journal reported, musical collaborators who wrote or recorded with Prince probably will have some claim to his recordings and intellectual property. Unreleased music will be subject to claims by both the singer’s estate and Warner Music Group. The complications of valuing not only his music, but his image and other nontangible assets, will doubtless make the estate’s tax liability another point of contention.
Acing “Financial Planning 101” will ensure that you are better prepared for the unexpected than Prince was, but taking these preliminary steps is not enough. It is also essential to communicate your intentions and plans to your family during your lifetime. Even though they might not ultimately agree with how you decide to distribute your assets, at least they will understand your reasoning.
Prince was not a delegator. As The New York Times reported, he “fought hard to retain as much control as possible” in his lifetime business dealings. Many do-it-yourselfers are the same way. Unfortunately, the more controlling or secretive you are with your finances, the more difficult it will be for those who take over when you are no longer able to handle them yourself. In addition to creating more work for your successors, failing to communicate also puts them at risk of missing critical payments, failing to claim insurance benefits or overlooking certain assets.
Professionals often emphasize the importance of business succession plans, but personal succession plans are also important. First steps include sharing information about your current financial position and your wishes with your spouse and adult children. You might also want to engage a financial planner to begin to take over some responsibilities. Not only will delegation relieve you of certain tasks, but it will ensure someone else knows how to sort through your affairs if something happens to you unexpectedly.
Open communication about your financial decisions is important at other stages as well. Adult children should understand what their parents’ financial position is, how they manage their finances, who they delegate certain responsibilities to, and where they keep important financial and legal documents. Their parents’ example can help adult children manage their own financial lives, and it also prepares them to step in if the parents become incapable of managing their own affairs due to accident or cognitive decline.
In an ideal world, parents would initiate these financial conversations. In reality, many people find discussing personal finances a daunting prospect, as my colleague Anthony Criscuolo explained. Since parents do not always start the discussion, adult children should broach the topic if they think their parents won’t. Whichever side of the conversation you are on, remember that open communication is not an all or nothing proposition. Beginning to delve into financial topics, even at a superficial level, can break the ice and lead to more substantive conversations over time.
As Prince’s untimely death reminds us, tragedy does not always offer forewarning. Planning ahead, and discussing your plans with your loved ones, can make a tragic situation a little more bearable for those left behind.