We hear about this far too often when a wealthy celebrity passes away and the public learns that they did not have even the basics of an estate plan. The media has reported that Aretha died without a simple will or even a trust. Her estate has been reported to be worth approximately $80,000,000. How does this happen when someone of her position has attorneys and advisors constantly available to offer valuable advice. This is unfortunately far more common than it should be as both celebrities and others are totally unprepared for tragedy.
An effective estate plan does not have to be complex to be beneficial. You just need to have a plan in place. As a professional wealth advisor with over 25 years of experience I have met with hundreds of families who did not have even the basics of an estate plan. Very similar to Ms. Franklin, no will, no plan. As an advisor I work with clients to assist them along with a qualified estate planning attorney to understand their wishes so that a comprehensive estate strategy may be implemented so that their wishes are carried out and their family is protected.
What are some of the pitfalls that may impact the kingdom of the Queen of Soul?
- NO Will = Intestate Succession. If you would pass away without a will the court will appoint someone to represent you as executor. What could possibly go wrong with this? In the case of Aretha it has been reported that her niece has already petitioned the court to represent the estate. That could create a problem for her four sons who may also want that coveted role. Ultimately the court will be the deciding vote on who gets to oversee the estate distribution. Each state’s rules of asset distribution may vary. I am confident that the wishes and desires of the decedent will differ from that of the state.
- NO Privacy. In Aretha’s case her estate proceedings will be of public record for everyone to gossip about. In my experience, even the most modest of estates do not wish to have their personal information made available to the public for their busybody neighbors to discuss. Proper estate planning would protect the privacy of the estate.
- Court Costs and Attorney’s Fees. Think about this for a moment. $80M estate with no instructions or directions to guide its distribution. Every family member, and those who think they are family, will be clamoring for a share of the estate. How much time and legal fees may be spent determining who is who and who gets what. Can you just hear the cash register at the court ringing up the fees and expenses to settle this mess. This could go on for years and years before the court releases the assets and closes the estate.
- Estate Taxes. The laws on Federal Inheritance Taxes have changed significantly over the last 20 years and many families who once had to concern themselves with it now fortunately do not. However, those like Aretha who have amassed large personal wealth should be very concerned with this. The 2018 estate tax exemption allows for the protection of the first $11,180,000 of assets. After that – the tax rate balloons to 40%. Yes, the IRS will tax the estate at a rate of 40% on all assets above $11,180,000. It is reported that Aretha’s estate is worth nearly $80,000,000 – now do the math….
- Income Taxes. In addition to the estate taxes we just reviewed the eventual heirs may also be personally liable for income taxes. Yes, the heirs may personally pay income taxes to receive part of her estate. If Aretha has investments in IRAs, 401(k), annuities or even EE Savings Bonds the heirs may be responsible for paying income taxes on the assets they receive that have tax deferred appreciation. Keep in mind that the top tax rate is now 37%.
- NO Control. I am sure like all of us Aretha loves her children and family and would have wanted to provide for them and protect her wealth for their benefit for generations to come. However, she did not take the steps to insure that to occur. Money will not be left to the charities she cared about. Tax strategies will not be utilized to reduce and limit the amount of taxes due on her assets. Heirs who receive her assets are free to save, spend and squander the money. All the wealth that she built during a career of performing and creating some of our most loved music will be scattered to the winds.
Most of us will not have an estate as large as Aretha Franklin’s. However, all of us can choose to have a better estate plan to protect the wealth that we have spent our lives building for us and our family. Make the time to meet with your Financial Advisor, Estate Attorney and CPA. Together, this team of professionals can support you and create an estate plan that will clearly outline your wishes, reduce taxes and protect the assets for generations of your family to benefit.
Witten by: Christopher Abla APMA®, AWMA®, AAMS®, CRPC® – Wealth Advisor