Business

Aretha Franklin’s failure to write a will has a lesson for all of us

As the news of Aretha Franklin’s death at age 76 grabbed headlines last month, the revelation that the Queen of Soul left no will or trust in place to protect an estate estimated at nearly $80 million wasn’t really surprising. Scores of entertainers, including Prince, Farrah Fawcett and James Brown, neglected to leave a will.

The rich and famous are not exceptions. According to a 2017 report from Caring.com, a whopping 58 percent of U.S. adults surveyed said they had no end-of-life plan.

Why don’t the legal battles following the demise of celebrities dying intestate serve as red flags for the rest of us? Like most advisers, I’ve counseled plenty of clients who refuse to do estate planning. To many of them, making a will or drawing up a living trust means confronting the inevitability of their own death — and they just can’t deal with it.

What happens when there’s no will: Because she left no instructions governing the disposition of her fortune, Franklin’s assets will have to go through the probate process, incurring unnecessary court costs, legal fees and other professional fees that could end up reducing an $80 million estate by a significant margin. The irony is that, in life, Franklin was famously tight-lipped about her finances, and those details will now become public knowledge.

The singer’s four surviving sons have already filed documents listing themselves as interested parties, according to CNN, and a niece has applied to be appointed executor. But when an estate goes to probate there’s little chance that the wishes of the deceased will be carried out — even if family members agree on what those wishes were.

The estate plan: Estate planning is not about saving or minimizing estate tax. In fact, with a personal combined gift/estate allowance of $11,200,000 under current law — set to revert $5 million in 2026 — the estate tax is no longer a concern for any but the wealthiest Americans. The real advantage for the individual in estate planning is to have control over the disposition of their bounty, and to deliver it to those persons they so designate in whatever amounts they think appropriate.

Wealth transfer can happen in several ways: inter Vivos (between the living; during life) or testamentary (at death). If Franklin made significant gifts during her life, she would have reduced her estate and gotten all future appreciation of those assets, out of her estate as well.

But as since Franklin died intestate, without a will (or a trust, in place), she effectively forces the court to take charge of her estate, appoint an administrator, oversee the payment of creditors, payment of taxes, and the disposition of the remaining assets to her heirs as determined by statute.

If Franklin had executed a will to govern the disposition of her probate assets, her court-approved executor would have had clear directions to follow. However, her will would still be subject to court supervision, and therefore accessible by the public.

An alternative would have been to create a revocable trust, place her assets into that trust, and name herself as trustee. She would have maintained control of the trust assets during her lifetime, and at death her predetermined successor trustee would step into her place and execute the trust’s instructions regarding the disposition of trust assets. The trust would not be subject to court supervision, and therefore privacy would be preserved. And because trusts usually, in turn, create other trusts for the benefit of the beneficiaries, there is an element of creditor protection established for those beneficiaries.

In general, I advise clients to use trusts rather than leaving assets outright in a will. It’s important to develop a plan that includes how wealth is intended to be used, shelters it beyond the reach of future creditors or predators and provides oversight of use of funds, if needed.

There’s no cookie-cutter approach to estate planning, but there are some strategies financial planning advisers commonly employ to help affluent clients reduce financial burdens.

Family limited partnerships (FLPs): An FLP is an entity set up by senior family members who, as full partners, can legally transfer wealth to younger family members while retaining full control of its use. Transferring assets into a partnership that imposes various restrictions on its limited partners, such as rights of withdrawal and making management decisions, creates protection from creditors or spouses in failed marriages.

When used properly, a FLP can save families thousands of dollars in gift and estate taxes.

Grantor retained annuity trusts (GRATS): A GRAT facilitates the low-risk transfer of wealth without having to pay gift or estate taxes. The grantor puts stock in a trust in return for a fixed annual payment for a predetermined number of years, typically two to five. If there is price appreciation, the incremental increase goes to the beneficiaries, either outright or in trust. This transfer is virtually gift or estate tax free.

Irrevocable life insurance trust (ILIT): Life insurance is an asset that can provide income replacement or estate liquidity at someone’s death. But, life insurance on the decedent’s life is subject to estate tax. However, there are structures commonly known as ILITS, which can insulate the proceeds of life insurance, so they are not subject to estate tax. Once the death benefit of the insurance is collected they can be paid to the estate, a surviving spouse, a child or left in trust to benefit multiple generations.

Estate planning isn’t just for the wealthy: Proper estate planning isn’t just for high-net-worth individuals impacted by the estate tax. It’s for everyone. Families should begin the planning process early. A proper plan can take years to put into place in order to create structures that are properly funded.

End-of-life plans can always be revisited whenever there is a change in the tax law or in family circumstances. Having one in place can save survivors money as well as stress from unplanned life events.

Cliff S. Gelber is a certified public accountant and partner at Gerson Preston Klein Lips Eisenberg Gelber, which has an office in Miami.

This is an opinion piece written for Business Monday’s “My View” space in the Miami Herald. The views expressed do not necessarily reflect those of the newspaper.

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