Legendary Hollywood actress Lauren Bacall died on August 12, 2014, leaving behind an estate worth an estimated $26.6 million. Her three children now face a couple of potentially serious problems that could have been avoided through effective estate planning.
Bacall, who was married to Humphrey Bogart and Sam Robards, passed away in her New York City apartment, which at a $10 million valuation constitutes a sizeable part of her estate. Because Bacall used a will as the governing document of her estate plan instead of a revocable living trust, the division of her estate is a matter of public record.
In fact, her will was made public a mere 10 days following her death because her children plan to auction off her artwork this fall. As a resident of New York, Bacall’s estate will be subject to both state and federal estate taxes. A trust left to her by Bogart will also be subject to tax based on its valuation.
Unfortunately, her estate only included about $100,000 in liquid assets at the time of her death, so her heirs face a potentially serious liquidity problem when it comes to paying these taxes. This is probably the reason behind the rush to auction her artwork. Her family has only nine months from the date of her death to pay estate taxes.
Although Bacall directed in her will that her apartment be sold, there is no guarantee that it could sell in time to pay the estate taxes. Life insurance is one of the most common ways to ensure there is sufficient liquidity to pay taxes and other expenses.
Besides the financial assets, Bacall left her children the rights to her likeness and other intellectual property associated with her illustrious career. (She did request that her children not sell her personal effects, letters and memorabilia in her will.) This could be of significant value in future years, and the IRS could come after the heirs for taxes based on that value.
There could also be issues that arise regarding the management of this intellectual property in the coming years, which could lead to litigation as it has in the cases of many other famous entertainers, like Michael Jackson. To help avoid this, the family should consider establishing a trust or other legal entity to manage these assets and make decisions on how they will be used in the future.
Even though most of us don’t have a $26.6 million dollar estate to worry about, we can still learn valuable and pertinent lessons from Bacall’s mistakes. With a little advanced planning our loved ones can be spared from a public court process, the high costs of probate and estate taxes, and the liquidity problems that can spring up and force them to sell family heirlooms and even the family home. And I promise you there’s nothing like the feeling that comes from knowing you’ve done right by your family and taken care of all that for them.