Aretha Franklin Showed No R-E-S-P-E-C-T for Estate Planning
Aretha Franklin, the Queen of Soul, died in August with a reported net worth of approximately $80 million. Amazingly, she left no Will or Trust. So what does this mean for her, and what lessons can we learn?
For her, it means that she has given up an incredible amount of control over the process of administering her estate. She has given up the ability to keep things out of the public eye. She has given up control over where her assets go. She has guaranteed a large increase in the amount of time and expense that will have to be incurred to pay her debts and transfer her assets. She gave up all kinds of opportunities to reduce her exposure to estate taxes, provide for a disabled child, and give to charity. Even the most basic Will could have helped immensely.
1. Control. No one has complete control of assets from the grave, but just having a simple Last Will and Testament allows you to (1) name who you want to receive your assets when you die, and (2) who is in charge of administering your estate. The latter part, naming your Executor, can be crucial for several reasons. Your Executor should be someone you can trust. Your Executor should be someone who is level-headed and fair and will be impartial to the heirs. Dying without naming an Executor can lead to a bitter dispute right out of the gate, especially considering that in Ohio, the Executor is entitled to a fee based on a percentage of the estate’s assets. Your Will can also grant the Executor important powers that will streamline the probate process. Your Will can waive the requirement that your Executor post a bond, which can result in significant savings. All of these things can give a decedent some control and help make the probate process easier in any estate. For the estate of Aretha Franklin, none of these issues were addressed, and given the extent of her assets, the problems will be magnified.
2. Public vs. Private. One of the downsides of going through probate is that it’s all a public record, open for inspection to anyone. An estate plan does not need to be difficult to avoid probate altogether. By using beneficiary designations and having a Trust, Aretha Franklin could have kept all of her assets out of probate court and her finances completely private. Note that having a Will does not help you avoid probate. A Will is helpful because it makes the probate process much easier and gives you some control over that process. But a Will is just one tool in the estate planner’s toolbox, and a relatively simple plan could have kept Aretha’s private matters private.
3. Who Inherits? Many times, dying without a Will means that your assets may go to individuals, or in proportions to certain individuals, that are against your wishes. Sometimes it doesn’t matter. And actually, in Aretha Franklin’s case, her assets may very well end up in her four children’s hands in exactly the proportions that she wanted. But that certainly doesn’t mean she couldn’t have benefited from a Will. And for anyone who has children by someone other than their spouse at death, dying without a Will often has disastrous consequences. Even if you have a very traditional family structure, and want most of your estate to pass to your spouse, and then your children equally, you may have some specific wishes regarding family heirlooms or a gift to charity that bear mentioning.
4. Time and Expense. To reiterate, having a Will does not help you avoid probate—that is a common misconception. But having a Will helps you control the probate process. A Will not only helps govern the process, but it reduces the time and expense of probate as well. Most of the horror stories about probate involve a decedent who died without a Will, or disgruntled heirs, or complicated and far-flung assets. Although creating a Will cannot eliminate disgruntled heirs, expressing your wishes clearly can go a long way toward avoiding litigation. So having a Will helps streamline the process and can save time and expense. And of course, there are other strategies that can help you avoid probate altogether and help reduce the time and expense of estate administration further.
5. Reduce Estate Taxes and Give to Charity. “Going through probate” does not mean you have to pay estate taxes. This is another common misconception. Aretha Franklin could have avoided probate with a trust, but she would not have avoided estate taxes. Conversely, if you die this year with less than $11.18 million, you won’t owe federal estate taxes, even if your estate ends up in probate. But estate planning is more than just “avoiding probate.” For Aretha Franklin, although avoiding estate taxes altogether was not going to happen, she could have reduced her exposure with a little planning. The simplest thing to do for someone in her position is to give the maximum annual gift tax exclusion amount to children, relatives, friends ($15,000 a year in 2018), and pay tuition for children and grandchildren. This requires no estate plan at all. Second, she could have made gifts to charity during her lifetime and at death that could have greatly benefited the public while simultaneously reducing her tax liability. Third, she could have made lifetime gifts to her children of assets that were likely to increase greatly in value, and thereby removed the increase in the asset’s value out of her estate. And of course there are an infinite number of more complicated strategies that she could have employed to reduce her tax exposure—and they would have been worth it given the size of her estate.
6. Complicated Assets. Even a relatively modest estate can become a complicated morass without some planning. But for someone with an $80 million estate, much of which is music rights and royalties, having no plan at all is a disaster. Just ask Prince’s heirs. He died without a Will, and more than two years after his death, his heirs have yet to see a dime of their inheritance. Not all assets are easy to transfer, either, regardless of their size. Planning can provide solutions to problems with assets that aren’t easily divided, or produce long-term income, or have special tax consequences.
7. Disability Planning. One of Aretha Franklin’s sons is disabled and it appears that she also missed an opportunity to provide a plan that was at least in part tailored to his circumstances. Estate planning can include a Special Needs Trust for beneficiaries who receive government assistance and/or benefits or it can provide for special care and specific directions for beneficiaries with special needs. Without a Special Needs Trust, there could be a need for a guardianship, complete with ongoing court oversight and involvement, and a potentially enormous increase in expense.
8. Why Else Have a Will? Another benefit in having a Will is that you can name a guardian to take care of your minor children if you and your spouse die before your children turn 18. You can also name a custodian to oversee their inheritance until age 25, even without a trust. Although this didn’t apply in Aretha Franklin’s case, it’s definitely another good reason to have your estate plan in order.
9. Why Else Have an Estate Plan? The reason we use the term “estate plan” is because it’s broader than just “having your Will done.” As you can see from reading above, an estate plan is a comprehensive plan that covers you during your life and after. One of the most important parts of the estate plan is having a Durable General Power of Attorney. With this document, you name someone else as your agent to do things on your behalf as varied as paying your bills, signing a deed, filing a tax return, and so on. If you ever become incompetent, it will be too late to get a Power of Attorney, so it’s critical to have it done now, even if you’re young and in great health. Your estate plan can also include a Health Care Power of Attorney and a Living Will to cover your health decisions if you’re unable to make them, and end-of-life decisions, respectively, should it ever come to that. Finally, any discussion on estate planning should include what to do with all your beneficiary designations. Nowadays, there are so many opportunities to pass property at death outside of your Will, and outside of the probate process, but you want to be sure that your beneficiary designations are completed, up-to-date, and don’t contradict your wishes outlined anywhere else.
The estate planning attorneys at Reese Pyle Meyer PLL have a have a wealth of knowledge and experience in estate planning and probate and trust administration. We would be happy to work with you to create an estate plan that’s just right for you. Contact Lee D. Heckman at [email protected] with any questions.