The estate planning, retirement planning, and financial mistakes made by the average Jane or Joe rarely receive headlines. The financial mistakes made by celebrities, on the other hand, can dominate a day’s news. Let’s look at some of the mistakes that give us a powerful lesson.
There are several financial mistakes people make. Some people lose millions of dollars due to bad investments. Some entertainers and athletes make the mistake of reckless spending, living above their means, or living within their means but never saving for when their fame runs out. Others make the critical mistake of not planning. A lack of a financial and estate plan can prove catastrophic to one’s estate.
Financial Mistakes Made by Celebrities
Here’s a look at some depressing examples:
When Prince died at 57, it was reported that he didn’t have a will. As a result, it was left to a judge to decide how to distribute his estimated $300 million estate among six siblings. Prince is not alone – it’s been estimated that two-thirds of all adults don’t have a will.
Whitney Houston reportedly never updated her will. The only one she had was drawn up before the birth of her daughter. She left her 10 percent of her estate when she reached the age of 21, with the rest to come later. By not updating her will, Houston failed to consider whether her daughter was mature enough to handle millions of dollars at that age (which was shortly before she died in a bathtub).
James Gandolfini was reportedly worth $70 million when he died but never did any tax planning. As a result, the estate is said to have ended up paying federal and state estate taxes at a rate of 55 percent. This could have been largely avoided with proper tax planning.
Philip Seymour Hoffman was determined not to let his children become spoiled “trust-fund kids,” so he never created a trust for them. His $35 million estate went to the mother of his three children, which was fine, except that Hoffman’s decision meant his beneficiaries also inherited a huge estate tax bill. Trusts can be customized and could have included specific stipulations about when, how, and under what circumstances his kids inherited money. This step would have saved his heirs millions of dollars.
Michael Jackson created a trust but never funded it. This has resulted in several court battles over his estimated $600 million estate.
Neither Katy Perry nor Paul McCartney ever signed prenuptial agreements with their spouses. The two artists’ marriages lasted one and four years, respectively, costing each millions of dollars that could have been avoided with such an agreement.
Odell Beckham Jr. decided to take his salary in Bitcoin. When the wide receiver signed with the Los Angeles Rams, he opted to take his entire NFL salary in a currency that was hitting all-time highs. The cryptocurrency is now worth nearly half of the original price. Once taxes are factored, Beckham Jr. will realize he caught a lot of passes for not a lot of money.
These examples illustrate how a lack of financial planning advice can cost an estate and its heirs millions. In each case, the celebrity failed to receive the proper financial advice.
How to Avoid the Same Financial Mistakes
At the very least, ensure you have three central estate planning documents in place: A Will, a Power of Attorney, and a Living Will. These estate planning documents are essential for families of every age. You don’t need to possess millions of dollars for these documents to make sense.
Ideally, it would be best to have a comprehensive financial plan, including an estate plan. This ensures that your financial goals are considered alongside your current and future cash flow needs and any financial obligations you may have. A financial planning professional can assist you in identifying these goals and illustrating how you can ensure you achieve them.
Working with a financial planner can help you avoid the financial mistakes we have witnessed so many other individuals make.