North Carolina residents are likely aware that Prince was one of many celebrity deaths in 2016. However, they may not be aware that federal and state estate taxes will reduce his $200 million estate to roughly $88 million. This is because his estate was subject to a 40 percent federal tax as well as a 16 percent Minnesota state tax. The large tax bill was the result of little estate planning on Prince’s part before his death.
The use of grantor retained annuity trusts could have helped Prince to reduce his tax bill. In fact, it could help anyone looking to reduce their estate tax burden. A GRAT allows an individual to transfer assets into a trust while retaining an income stream for a fixed period of time. Once that period is over, whatever is left over in the trust passes to its intended beneficiary free from gift and estate taxes.
Giving money to charity could have also helped Prince to reduce his tax bill. He could have created his own foundation or given to other qualified charities that already exist. A charitable lead trust may also have been effective as it would have provided tax-deductible charitable contributions while he was alive. After Prince died, whatever was left in the trust could have gone to family members or other non-charitable beneficiaries.
Proper estate planning may help an individual reduce estate taxes while still giving to family members or charitable causes. Those who wish to create such a plan may wish to talk to an attorney. Legal counsel may also review any plan documents that have already been made. In some cases, it may be beneficial to add, edit or remove documents to best meet an individual’s needs and changing family circumstances.