> While estate taxes cannot always be avoided, they can be minimized through proper planning.
> Privacy and probate avoidance can benefit estates of all sizes, not just celebrity estates.
> If specific funeral wishes are important, they should be clearly reflected in the appropriate document.
Iconic musician, David R. Jones, more popularly known as David Bowie, passed away on January 10, 2016. According to reports, Bowie left an estate exceeding $100 million. His 20-page Will, executed in 2004, was filed on January 29th in the Surrogate’s Court in Manhattan, New York. In addition to the estate and gift tax considerations that accompany an estate of this size, the administration of Bowie’s estate includes specific requests for the disposition of his remains. Surprisingly, as is too often the case, Bowie’s Will leaves his assets and his loved ones exposed to public scrutiny by failing to take advantage of all of the benefits that a proper estate plan can offer.
Estate Tax Considerations
Bowie’s Will leaves $2 million to his personal assistant, Corinne Schwab, $1 million to his nanny, Marion Skene, and his mountain retreat in Ulster County, New York to his 15-year old daughter, Alexandria Zahra Jones, in a testamentary Trust. The balance of his estate is to be divided 25% to his 44-year old son, Duncan Jones, 25% to Alexandria and 50% to his wife, Iman. Unfortunately for his family, 50% of Bowie’s estate will be subject to New York and federal estate taxes.
While assets left to a surviving spouse or charity are excluded from the decedent’s taxable estate, all other assets in excess of applicable exemptions transferred at death are subject to state and federal estate taxes. The 2016 federal estate tax exemption is $5.45 million with a top tax rate of 40% and the New York estate tax exemption is $3.125 million (death prior to April 1, 2016) with a top tax rate of 16%. Assuming that Bowie left approximately $50 million to individuals other than his spouse, nearly 25% of Bowie’s estate, or $25 million, will go to the IRS.
While it is possible that Bowie undertook lifetime gifting techniques to reduce the size of his taxable estate, the use of a Will, rather than a Revocable Living Trust, as his primary estate planning instrument makes this a difficult assumption. Had Bowie utilized advanced planning techniques, such as Irrevocable Life Insurance Trusts (ILIT), Grantor Retained Annuity Trusts (GRAT) or lifetime gifts, he would have been able to leave a larger portion of his estate to his loved ones and a smaller portion to the IRS.
Privacy, Privacy, Privacy
It remains a mystery why individuals who live in the public eye fail to take advantage of the privacy of a Trust. While a Will must be filed with the probate court after death, a Trust is a private document between the grantor (creator), trustee and beneficiaries. Privacy is not just a concern for celebrities. Due to the exposure and scrutiny of estates when it comes to challenges by family members or creditors, keeping estate planning documents out of the public eye can be an invaluable benefit of a proper estate plan.
In Bowie’s case, in addition to his wife’s and children’s desire for privacy during a difficult time, his assistant and nanny probably would have preferred that their gifts not be public knowledge. Additionally, leaving assets to his children in a Revocable Living Trust would have allowed Bowie to protect his children’s inheritances and place limitations on their withdrawal rights.
Funeral and Burial Wishes
In addition to the division and disposition of his assets, Bowie requested that his body “be shipped to Bali, Indonesia, to be cremated in accordance with the Buddhist rituals of Bali.” Contemplating the potential obstacles of transporting his body out of the country, his Will states that, at a minimum, he would like his ashes to be scattered in Bali. According to his death certificate, his body was cremated in New Jersey on January 12th.
Many states now have laws dictating the disposition of remains and appointing the individuals authorized to make such decisions, in order of priority. Under Illinois law, an individual may leave an “Appointment of Agent to Control Disposition of Remains.” Such a document may also provide for successor agents and include specific instructions for the disposition. Absent such a designation, the executor of the decedent’s estate has first priority in making such decisions.
Lessons from Bowie’s Estate
While estate taxes cannot always be avoided, they can be minimized. Without knowing additional details of other planning techniques utilized by Bowie and his advisors, it is difficult to know whether all options were explored. What is apparent from his Will is that his cremation and scattering of ashes was of primary importance to Bowie, so making his wishes clear to his family in a written document was a crucial step in achieving his estate planning goals. However, Bowie’s estate plan would certainly have benefitted from utilizing a Revocable Living Trust as his primary planning tool. By placing his assets in Trust during his life, the size, division and distribution of his estate could have remained private and probate could have been avoided.