Steve McNair died without a Will. The consequences could be disastrous.
In contrast to my recent postings about Michael Jackson who appears to have engaged in professional estate planning before his death, there are reports that former NFL quarterback Steve McNair died intestate, or without a will. His wife (the wife he was cheating on with the woman who killed him) was appointed “administrator” of his estate. According to reports, McNair had a wife, two children from his marriage to this wife, and two children from a previous relationship. Instead of being able to decide himself how his property should be distributed, the distribution of his assets is determined by a formula set forth under state law.
I am not a Tennessee attorney, but according to my Internet research, the state’s laws of intestacy provide that McNair’s wife will receive 1/3 of the estate, and his children will divide the remaining 2/3 among themselves. Also, there appears to be an “elective share” rule in Tennessee, in which a surviving spouse can take a greater amount of an estate under certain circumstances.
There are a number of problems here for McNair’s estate and his heirs. First, instead of being able to distribute the assets in trust, they are distributed outright to everyone. This causes all sorts of creditor protection and tax problems. If McNair’s children are minors, then there will likely be a Guardianship set up to manage the assets until the minor reaches the age of majority, upon which he receives the funds outright. Those assets should have been left in trust and protected from creditors and from the child them self until a later age. His wife’s assets should also have been left in a trust too, to protect her.
Additionally, by dying intestate he missed the opportunity to engage in sophisticated tax planning. Below I will show the disastrous estate tax consequences and the incredible opportunity that he missed. Assume the following:
- The value of McNair’s gross estate is $25,000,000.
- His wife takes an “elective share” of 40% of the estate
- The remaining 60% is divided among McNair’s children.
- There was no estate planning done at all — no gifting, no insurance trusts (ILITS), nothing (this is a big assumption which I hope turns out to be not true).
From the in ital $25,000,000, the 40% being distributed to the surviving spouse ($10,000,000) is subtracted from the taxable estate because of the marital deduction. That leaves $15,000,000 remaining. Of that $15,000,000, there is a lifetime exemption in 2009 of $3,500,000, which is subtracted from the $15,000,000, leaving $11,500,000. Upon that $11.5 million there is an estate tax of forty five percent, or $5,175,000. After the $5,175,000 is paid to the government, there is $6,325,000 remaining to be divided among McNair’s four children, or $1,581,250 each.
With proper estate planning, McNair would have owed zero estate tax upon his death. If he had done nothing else but leave everything to his wife outright, that would have resulted in zero estate tax because of the marital deduction. A simple credit shelter trust would have resulted in zero estate tax and protected $3,500,000 (in today’s dollars and subject to grow) from the estate tax upon his wife’s subsequent death. Granted, with someone that was worth $25,000,000 and had children from a prior relationship, the planning would be more extensive and would likely involve insurance trusts, certain family entities, and gifting that would have started a long time ago. And this only scratches the surface.
The lesson to learn from all of this? Too many people put off estate planning until sometime “later.” They think that they can wait because they don’t think that they will die tomorrow. Unfortunately, tragic, sudden deaths happen all of the time, and you owe it to your family to be prepared. You are not immortal. The time to engage in proper estate planning is now.
