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When Elvis Presley died, his estate was worth over $10 million dollars1. Then it went through probate. After appraisal costs, legal fees, executor's fees, and estate taxes, "The King's" estate was left with only $3 million.2 Because of improper estate planning, a whopping 73% of Elvis' estate was wiped out. So what did all that money pay for? And how can you avoid some of the same mistakes? Let's find out. Probate is the (usually lengthy) process of proving if a will is valid, clearing your estate of any debt, and making sure that no one challenges it. All of this takes place in court, which adds to the costliness. Will or no will, an estate must go through probate. But there are ways to reduce or eliminate costs associated with the complicated legal process. One of the most efficient includes establishing a trust. Assets and property within a properly drafted trust don't have to pass through probate. On top of that, upon death, assets are passed on relatively quickly, especially when compared with probate. Your assets are also more protected from creditors when placed in a trust. But trusts aren't your only option. If you choose not to establish a trust, there are several ways you can help reduce costs. One of the best and easiest ways is to be prepared. If you have a 401(k), an IRA, a life insurance policy, or all three, then you have three separate beneficiaries to name. By routinely updating your beneficiary designation, you avoid unwanted inheritances and ensure that your wishes are carried out. Any assets that pass through beneficiary designations aren't subject to probate, which makes their accuracy even more crucial. You can also choose to own assets jointly with someone else. From stocks to houses, if you own something jointly, that property is passed onto the survivor automatically. Also, many brokerage houses and banks allow you to name a beneficiary on your personal accounts by establishing a TOD (Transfer on Death) account. It's one more way that your assets will pass relatively quickly and easily to whomever you wish. Upon death, your accounts and their contents will be passed to whomever you've named. One other option is to gift your assets to family or friends before you pass away. By gifting the maximum tax-free amount each year ($11,000 in 2005), you reduce the amount of your estate, which, in turn usually reduces the amount of probate costs, which are usually based on the total estate value. By properly planning your estate with a financial professional and an estate planning attorney, you can increase your chances of decreasing probate costs and avoiding costly mistakes. While not many people like to discuss their own mortality, the thought of family, friends, or charity losing large percentages of their inheritance and your estate to costs, fees, and taxes, should be enough for anyone to start planning. While Elvis' estate may have been improperly managed early-on, since being bought out by his former wife, Priscilla and their daughter, Lisa Marie, it has become a major success story. With the proper management it has grown from a paltry $3 million, to over $250 million.3 The lesson to be learned lies in the stark contrast between proper and improper estate management, and shows how important an estate plan is, whether you're "the King," or not. 1 Back Room Technician, "Estates of Famous People" chart 2 Stevens, Sue. June 30, 2005. Avoid the Estate Planning Blunders of Marilyn and Elvis. 3 Floyd, Elaine. March 16, 2001. Elvis Lives! Or His Estate, at Least, Is Very Healthy.
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