For the Halloween episode of Motley Fool Answers, Alison Southwick and Robert Brokamp engage in a spirited discussion of the horrors some folks have visited upon their families' finances from the afterlife, by making big mistakes in estate planning. From famous rock stars to ordinary middle-class Americans, these individuals' blunders, oversights, and occasional odd choices made matters miserable for their heirs.
A full transcript follows the video.
This video was recorded on Oct. 31, 2017.
Alison Southwick: This is Motley Fool Answers. I'm Alison Southwick and I'm joined, as always, by Robert Brokamp, personal finance expert here at The Motley Fool. Hello, Bro!
Robert Brokamp: Happy Halloween, Alison!
Southwick: Gather round the campfire, kids, because Bro is here with estate planning h-o-r-r-o-r stories.
Southwick: We'll also answer your question about directing employer contributions and you'll want to stick around to hear about what we got in the mail. It's pretty amazing. All that and more on this week's episode of Motley Fool Answers.
Southwick: It's time for Answers, Answers and it comes from Eric today. "In January my employer will begin offering a Roth 401(k). After looking at my circumstances, it makes sense for me to switch to that option, but from what I've read, my employer match gets held in a separate account because it is made with pre-tax dollars. Can I direct which investments get my contribution and which get my employer's contributions?"
Brokamp: Well, Eric, you are absolutely right. If you participate in the Roth 401(k), what that means is your contributions go in. You don't get a tax deduction, but the money grows tax-free as long as you follow the rules. However, the match goes into essentially a traditional account, and that is where the money goes in. You don't get the deduction. The company gets the deduction. The money grows tax-deferred, but when you take out that match money, it gets taxed. However, this is really just an accounting issue. You don't have two separate accounts, and because of that you don't get to say, "I'm going to invest my Roth contributions in this fund and then I want the employer match to be invested in this fund." You just choose the funds and the money is apportioned ratably, as they might say.
However, Eric, I think you're on the right track, because it does make sense to think of your Roth assets and your traditional assets differently in terms of the investments. The Roth is going to be the tax-free account. That's the one you want to be bigger, so if you're choosing among different assets like cash, bonds, and stocks [and you have to decide which account goes into which], you choose the Roth for the things that you expect to grow more because that's the account you want to be bigger.
So I like the way you're thinking. People should definitely think differently in terms of how they invest their Roth accounts and their traditional accounts. Unfortunately, though, in the Roth 401(k), you can't do it.
Southwick: Death comes for all of us, unless you're a zombie, a vampire, a ghost, or some other state of undead. The bottom line is, spoiler, you're probably going to die! And even if you are a zombie, a vampire, or a ghost I don't think you have a lot of legal rights.
Brokamp: I don't think so. Not yet.
Southwick: You might as well prepare for death because if you don't, the aftermath can be a terrifying wonder hell for your loved ones. Joining us, today, with a few lessons to be learned from estate planning h-o-r-r-o-r stories is, of course, Robert Brokamp. Hi!
Southwick: The first horror story of estate planning is the The Ghost of Paisley Park. The lack of planning haunts his legacy forever, ever, ever.
Brokamp: Well, as we're talking about [as you might have guessed], Prince, who died in 2016. Officially known as Prince Rogers Nelson because Prince Rogers was his dad's stage name as a jazz musician.
Southwick: Oh, I didn't know that.
Brokamp: So now you know. Prince died in 2016 very tragically. Did not have a will. No estate planning whatsoever.
Southwick: It's just mind-boggling that he has all these managers and agents that let him get away with that.
Brokamp: When you look at the list of famous or smart people who have died without a will, it's quite amazing. From Abraham Lincoln and Martin Luther King to Sonny Bono and Jimi Hendrix, they all died without any estate planning.
What happened in Prince's case? First of all, what happens is you look for any heirs. He had one full sister...
Southwick: Not a half-sister?
Brokamp: What's the proper term for that? I mean, you call someone your half-brother or your half-sister, but do you call someone else your full brother? Your full sister?
Rick Engdahl: Sister. Just plain sister.
Brokamp: Sister. He had a sister. He had a few half-siblings. But then tons of people come out of the woodwork claiming that they also are half-siblings. There's an inmate in Colorado who says that he is Prince's son because Prince slept with his mother back in the 1970s. One article I read said as many as 700 people have come out claiming some part of his estate.
Brokamp: So, what happens? First of all, the court has to [appoint] an administrator or executor of the estate. In this case they named a trust in Minnesota that had done some business dealings with Prince, but then all of this stuff is tied up in court for years until it all gets decided.
Another thing was a lot of this stuff was locked away in a vault in Prince's Paisley Park. He was the only one who had the combination, so the bank that took over the estate had to actually drill through the vault to take inventory of everything that was owned. Recently that was switched to another bank and that bank said, "You know what? That vault is not actually in great shape," so they're having all the stuff that's in the vault moved to Los Angeles to another company that specializes in storing this type of stuff.
Two of the half-siblings are very unhappy about this, but because Prince didn't set all this out officially and legally as to who makes those decisions, they're just going to have to fight it out in the courts.
Southwick: It's crazy that Prince made so much baby-making music, but he didn't make any babies. That we know of.
Brokamp: That we know of. NPR had a great headline on the first-year anniversary of his death. The headline was, Prince's Posthumous Year in Business Was Full of Weirdos and Chaos. That's what happens when you don't have any estate planning.
Southwick: Ugh! Weirdos and chaos. All right, our next story. From the master of horror, Jolene. It's like Christine, but this time it's a tractor. When you laugh at this it makes it less scary, by the way.
Brokamp: I'm sorry. OK, cut out all my laughing. I'll stop laughing at Alison.
Southwick: No, no. You can laugh.
Brokamp: OK. Here we come upon the sad tale of Cecil George Harris, who was a Canadian farmer in Saskatchewan which is where? You should know this. Where is Saskatchewan?
Brokamp: It's Canada. It's north of Montana.
Southwick: Did you just say he was a Canadian farmer from Saskatchewan and then you want to quiz me on where Saskatchewan is? Canada! It's in Canada.
Engdahl: Isn't that where Sasquatch comes from?
Brokamp: That's what I thought! It's funny you say that because that's what I thought when I was a kid. Because all the Bigfoot sightings were up north. So on June 8, 1945 poor Cecil. Out on his tractor. Gets pinned under the tractor. And he's there for hours before anyone finds him. They do find him. He's still alive. Take him to the hospital. Unfortunately, he dies the next day. It turns out that he doesn't have a will [or so people think].
Southwick: [Gasps] Duh duh duh!
Brokamp: Later on neighbors were looking at the tractor. They looked at the fender and they saw something scrolled there.
Southwick: No way!
Brokamp: Yes, they did. It basically said, "In case I die in this mess, I leave all to the wife. Cecil George Harris." And because there was no doubt as to who wrote that...
Brokamp: ... they accepted that as his will. The problem is with a will it has to be filed with the court, so the bumper had to be removed from the tractor...
Southwick: No way!
Brokamp: ... filed with the courthouse in Saskatchewan and then in 1996 [so this is decades after he died], it was handed over to the University of Saskatchewan College of Law for public display.
Southwick: Oh! How do you keep something...? Like if something is written in dust, how do you keep it intact?
Brokamp: Actually, what he did is he had a pocket knife... and he scrawled it into the fender as he was laying there. I know. It's pretty cool, isn't it?
Brokamp: Anyway, the lesson of this story is that we definitely think you should see a qualified estate planning attorney. Get it all done legally. Don't do it on your own. However, if you have to do something, sometimes doing something is better than doing nothing. Some states do recognize handwritten wills, for example. So if you're ever in a situation and you don't know how things are going to turn out, try something.
Southwick: It's a classic tale of terror. The Re-Animator. When you thought removing the head was enough, it's time for another inning. That one doesn't make sense, but it's going to make sense. Trust us.
Brokamp: It's true. It's going to make sense because we're talking about a baseball player -- in this case Hall of Fame baseball player Ted Williams. He actually had a will. He died in 2002. His will said he wanted to be cremated and he wanted his ashes scattered in the Florida Keys. He lived in Florida at the time.
However, before it was able to be put into effect, the two youngest children [he had three kids, one from one marriage and two from another] produced a napkin and on it was basically written that if we die we want to be put in [cryostasis] [in other words, cryogenically frozen] just in case something [develops] down the road we can be reanimated, as you say.
Written on a napkin. The two kids and Ted Williams signed it. Courts look at it and say, "OK, that's Ted Williams' signature. We are going to honor this." They put his body on ice and sent him out to a cryogenic center in Arizona.
The older daughter disputed this and said, "No. His will said he wanted to be cremated. I don't think this napkin is real." She actually thought it was just his autograph and then the other two kids wrote the rest of it around his autograph. He autographed things as Ted Williams and he signed legal documents as Theodore Williams. Anyway, it doesn't matter. The family spent over $100,000 to have him cryogenically frozen. What that means, by the way, is they separate the head from the body. Put him in these big vats. It's looks like a dairy, essentially. These big, metal vats with valves and tubes coming out of them. And if you want to get really gruesome, just google what happened to his head after this and the various drillings and crackings that went on. The older daughter eventually gave up because she ran out of money...
Southwick: This wasn't supposed to be a legitimately terrifying episode, by the way.
Brokamp: It's pretty terrifying. So, there you have it. He's still under deep freeze. Side note: His one son that also agreed to do this died two years later at a very young age [only 35] of cancer. He also now is in the deep freeze, and by deep I'm talking like 320 degrees below zero just in case, later on, technologically maybe they'll be able to be reanimated.
Southwick: And what's the lesson, here, Bro?
Brokamp: The lesson here is the courts have decided this was Ted Williams' final wishes, but there's certainly debate about that. If you want to change anything to your will, do it officially. Either update your will completely or do what's known as a codicil to the will. But have it officially approved, witnessed, and all those things so there's no debate about any change; not only to what happens to your body when you pass away, but anything. If you want to disinherit someone. Have more kids. Any life events. You should always officially update your will, and not just put the update on a napkin.
Southwick: In our next story, tomb raiders greedily steal the rainbow suspenders and fail to heed the curse of the mummy. These aren't bad. These aren't that bad. They're not all great, but they're not all gems.
Brokamp: Well, when you think rainbow suspenders, who do you think of?
Southwick: Robin Williams.
Brokamp: Robin Williams, who died in 2014 while living with his third wife and her two kids. Now he actually had a very solid estate plan. Most of it went to his three kids from previous marriages; however [his then current wife and kids] were allowed to stay in [his house] and receive some money for its maintenance for as long as they wanted. Once they were gone, the house would go to his other kids.
The question was what happens to the stuff inside the house? That's where the debate came from, or at least the more interesting debate. What happens to things like furniture? Artwork? The rainbow suspenders?
The kids and the wife actually had to go to court to decide not only [how much] it cost to maintain the house, but what happens to all these things, including bikes, watches, and Robin Williams' slippers and underwear.
In the end, they settled. People are, I think, generally happy. Most of those personal effects go to the kids, but the wife was able to keep some of the things that were important to her. Things that she even said were wedding gifts but that the kids said were actually memorabilia attributed to Robin Williams, so they're ours.
Southwick: When you die you never want the conversations to be about your underwear.
Brokamp: That's true.
Southwick: You just never want that to come up.
Brokamp: Right. So the lesson, here, is when most people think of estate planning, they think of their accounts, and their life insurance, and their house. Property like that. But there are a lot of other items, things that you have that may not have much monetary value. They might have more sentimental value. But being specific, as much as possible, you probably don't want to say too much about your underwear, but maybe. I don't know. Who knows, as we can see people do fight about it. But as much as possible be specific about who gets things that you may not think are worth a lot of money, but people might fight over.
Southwick: Don't will me your underwear, Bro. Or Rick.
Brokamp: Rick's already getting that. What am I wearing today?
Southwick: The haunted underpants! Darkness falls across the land. The midnight hour is close at hand. Creatures crawl in search of massive residuals and royalties. Oh, yes, it's Thriller.
Brokamp: Yes, Michael Jackson, another tragic death. A great musician. Died too young. A lot can be said about Michael Jackson's finances, in general, as well as his estate planning. We'll just focus on one thing, here. He actually did some decent estate planning. He did have a will and he did set up trusts, and trusts have all kinds of benefits, one of them being that the assets will then pass to the heirs and bypass probate, which can be a long and legal drawn-out process of passing assets on.
The problem was he created the trusts, but he didn't fund them. It's sort of like opening an account but not putting in any money. Because they weren't funded, all the assets had to go through probate before they could get to the trust. It's still ongoing even though he died in 2009. He had young kids at the time, and when you have assets tied up in the probate process, they may or may not be able to access some of those assets to pay for living expenses. It's a very long, complicated story. Even recently there have been some more issues about how his estate is being handled, so there's a lot with that.
But the No. 1 lesson with Michael Jackson is going to a lawyer and getting an estate plan is a great step. An important first step. But then you've got to follow through on whatever you've decided to do with the estate plan.
Interesting fact about Michael Jackson. In 2016 he was the highest-paid dead celebrity according to Forbes .
Brokamp: Do you want to take a guess how much money his estate made?
Southwick: Does his estate still own the Beatles catalog?
Brokamp: Yes, and I think it was a deal with Sony. He was top paid in 2015, but in 2016 it skyrocketed. It was $825 million...
Brokamp: ...one year. Do you want to take a guess at any of the top 10? Rick?
Brokamp: Elvis, No. 4. Any other guesses?
Southwick: We'll say some Beatles. John Lennon?
Brokamp: John Lennon. No. 2 is Charles Schultz.
Southwick: Oh, Peanuts!
Brokamp: Yes. Three, Arnold Palmer. Four, Elvis. Five, Prince. Six, Bob Marley. Still pulling in $21 million a year.
Southwick: It's like a legal requirement that you have to buy Legend your junior year of high school. Like everyone goes through that Bob Marley phase.
Brokamp: Seven, Dr. Seuss. Nine, Albert Einstein. Still bringing in $11.5 million a year. Ten, Bettie Page.
Brokamp: 1950s pinup.
Southwick: Just when you thought she was out of your life for good, it's Zombie Wife.
Brokamp: This is the case of William Kennedy. Not part of the famous Kennedy family. This Kennedy worked for DuPont and participated in the company's retirement plan. In 1994 he and his wife, whose name was Liv, got divorced and in the agreement she waived any rights to his retirement plan.
Seven years later, William passes away. The money, however, was sent from the retirement plan to the wife. Why? Because William did not update the beneficiary form on his retirement plan. When you signed up for your 401(k) at work, you filled out the beneficiary form, but you also have that on IRAs. You have it on life insurance policies. There are all types of different assets and accounts in which you've filled out the beneficiary form.
He didn't update it, so the daughter who should have [or at least she thought] should have inherited the money took it to court. Went all the way to the Supreme Court in 2009. They decided for Liv, the ex-wife. She's the one who gets the $400,000.
Southwick: Oh, that's not bad! That's not too shabby.
Brokamp: No, not too bad. The lesson, here, is to review and update your beneficiary forms and include copies with all your other important papers.
Southwick: Is that a gremlin or J.P. Morgan? Either way, it's the Nightmare at 20,000 Feet. Feet, feet, feet.
Brokamp: This is the story of Max Hopper, who was an [innovator with] American Airlines. He created their reservations system. He died in 2010 with assets of more than $19 million. But he didn't have a will. Didn't have an estate plan. No trust or anything like that, so J.P. Morgan was hired to be the administrator of the will.
However, very recently, according to Bloomberg, the family sued J.P. Morgan. Why? Well, in a statement from the family's lawyer they said, "Instead of independently and impartially collecting and dividing the estate's assets, the bank took years to release basic interests in art, home furnishings, jewelry, and notably Mr. Hopper's collection of 6,700 golf putters."
Southwick: Wait! 6,000?
Brokamp: 6,700 golf putters.
Southwick: Was that like his thing?
Brokamp: I guess so. And 900 bottles of wine.
Southwick: Well, that I can understand, but 6,000 putters?
Brokamp: Some of the interests in the assets were not released for more than five years.
Southwick: Was it J.P. Morgan just being bad at their job?
Brokamp: I guess so. When they were taken to court, the jury agreed that J.P. Morgan was not doing a good job, awarding the family some money. Now remember, his estate was worth $19 million. Do you want to take a guess how much the jury awarded the family from J.P. Morgan?
Southwick: $100 million.
Brokamp: Between $4 and $8 billion...
Southwick: Wait! What?
Brokamp: ... dollars, because the jury was instructed to consider the net worth of the company in their judgment. So given that J.P. Morgan is worth over $300 billion, they figured it was fair.
Now, anyone who reads about this case will be told it's going to get knocked down in appeals. They're not going to get $4 to $8 billion. The lesson, here, is to get an estate plan. But if you don't have one, hire J.P. Morgan. They'll do a horrible job...
Southwick: You get your payday...
Brokamp: ... it will take years, but you will make billions! Billions!
Southwick: Love it!
Brokamp: Or as a more practical piece of advice, when you name the person to be the executor or administrator of your estate, name someone who is responsible and who will get the job done.
By the way, did you know there's a female version of the word "executor?"
Southwick: Trix? Ooh.
Brokamp: I know. It sounds kind of dirty.
Southwick: Hey! Speaking of dirty Bro, Halloween is, of course, today, but we're taping this episode ahead of Halloween, so I actually don't know what your Halloween costume is going to be for this year. Do our listeners know how epic you are every year when it comes to dressing up for Halloween?
Brokamp: Probably not. It's funny. This is the 10-year anniversary of probably my most famous costume when I went as Larry Craig, the senator who was soliciting people in the Minneapolis airport. I can't believe that was 10 years ago.
Anyways, google Robert Brokamp, Larry Craig, The Washington Post, and you'll see the picture actually made it into the Post . Click on the link. You've got to scroll down to see it, but there you go.
Southwick: Well, Chris Hill was talking to me before the show and he remembers the year when you used your baby son as a costume.
Brokamp: Yes, I went as Dr. Evil, and he was Mini-Me, and I shaved my head. So a vision of things to come when I eventually just give up and shave my head. I went as Harry Whittington, the guy that Dick Cheney shot. Two years ago, I went as Barista Leia, not Princess Leia, who served coffee at Java the Hut and I had a whole thing going there. I had a few other goofy things like that. Blue Man Group. I was a member of the Blue Man Group. I was so into the Blue Man Group for a while. Man, they're awesome.
Engdahl: That was the slave Leia, by the way.
Brokamp: The slave Leia. That's right.
Southwick: Oh, yeah. No, it was not a tasteful...
Engdahl: I have a picture of the two of you that involved that costume which is not going to make its way to The Washington Post .
Southwick: No. Wait. Are we doing something inappropriate? In-a-Bro-priate? Sorry.
Engdahl: Well, Bro is just inappropriate, and you are reaching for inappropriate things. I'm sorry.
Southwick: Oh! Yeah, that's going to happen.
Brokamp: As my wife said when she saw that picture [talking about me], "You're not an attractive woman!"
Southwick: Aw! She's right, but...
Brokamp: She is right. By the way, I want to give a shout-out to a book that is excellent about estate planning, but also puts it in the context of a lot of really interesting stories. It's called Trials and Heirs: Famous Fortune Fights! Some of the things we talked about here are in that book. But if you want to learn about estate planning and some really interesting stories, some about [...], some not, get Trials and Heirs. I tried.
Southwick: All right.
Southwick: That was seven estate planning horror stories. Hopefully you learned a little something and weren't too scared, especially by the thoughts of Brokamp and his Halloween costumes.
Brokamp: I was thinking you were going to say getting your head drilled, but whatever is worse.
Southwick: Well, the postcards continue to come in, among other things. First off, we have Shoot. The longtime listener Shoot sent us a card from Utah. It was our first. John sent a card from Seattle. FiftyBillionCents sent a card from Washington State University. Go Cougars!
And we also have this amazing postcard. I'm going to try to describe it. It's a straw or hay field that has recently been plowed down. There's a man standing resolutely wearing kind of a hot pink Nehru suit jacket and he is pushing an empty red grocery cart. This is a postcard from Myanmar.
Southwick: Yes, from Myanmar and it's from Joe who writes, "Brokamp reminds me of the guy on this postcard."
Engdahl: Because he's outstanding in his field?
Southwick: There we go.
Brokamp: Yeah! I'm just seeing this for the first time. It really is like a wheat field [with] a guy in a glowing pink suit pushing a red grocery cart.
Southwick: Yeah. We may have to post this picture on our Twitter and Facebook accounts because the picture is just so epic, I can't even begin to understand what's going on and I love it so much. So, thank you, Joe, for that!
We also received in the mail something that literally brought tears to my eyes. Brent sent us a challenge coin that he was awarded for his Special Ops service in Afghanistan, and Bro is going to read what he wrote, because if I have to read it I'll start crying again.
Brokamp: OK. I'll do my best. "I wish I had more of these, but they only give you one if they like you, so you'll have to share. The Motley Fool has helped me a great deal. It has allowed me to start my journey to financial freedom. While this was given to me for my service in Afghanistan, what you have done for me is just as valuable. Plus it beats a postcard. Brent. PS: I listen to all the podcasts, but I like yours the best."
Southwick: That's us he's talking about. Isn't that amazing?
Brokamp: Really, it's literally one of the highlights of the year to get something like that.
Southwick: And also, literally, I can't talk about it without tearing up because it's just so amazing. So thank you, Brent, so much for sending it! We appreciate your service and there's no way that what you have done in Afghanistan compares to what we have done, here, at The Motley Fool. So thank you for that. Agree to disagree that you're more awesome than we are...
Brokamp: I think so, too.
Southwick: ... by far. So that's the show. Our email is Answers@Fool.com. Our next episode is going to be an all-Mailbag episode, so if you get your question in ASAP, we might be able to fit it in the show. Probably not, but I don't know. Maybe give it a try.
The show is edited horrifyingly by Rick Engdahl. Happy Halloween, everyone, and stay Foolish!