Brent Soloway, ChFC®

Remember the old saying: “Nothing in life is certain except death and taxes”? Although this is a reality many of us don’t want to face, it is inevitable. After so many years helping clients plan for their financial futures, it is also important to help them plan for the day they die. Sadly, on August 16, legendary Motown performer Aretha Franklin passed away at the age of 76. Much too young to lose this legend in the music industry. Her estate was valued at approximately $80 million and she died intestate, she had no will.

According to papers filed in Michigan’s Oakland County court, the singer was unwed at the time of her death and survived by her four sons — Clarence Franklin, Edward Franklin, Kecalf Franklin and Ted White Jr. — who are between the ages of 48 and 63. Clarence Franklin, the eldest, has special needs and is represented by a legal guardian.

What does all this mean? We don’t know yet, but there may be many ramifications as this estate is being settled. First, it will make the news. Her four sons and people close to her might have preferred that the closing of the estate was not subject to public scrutiny. If Ms. Franklin had established a Revocable Living Trust, she would have made her exact wishes known and the avoidance of probate would maintain the family’s privacy.

The question of what happens to Franklin’s sizable estate remains murky. According to intestate succession laws in Michigan — the state where the singer lived most of her life, and where she died — her four children should receive equal shares of the estate. However, one of her sons has special needs and leaving him his inheritance outright may create certain concerns. His guardian will most probably control the money. That may be okay, but it might have been better for this money to have been placed in a trust with an independent trustee who could work with the guardian to determine where and how the money is distributed, invested and, ultimately, where it goes after Clarence’s death. Also, for those special-needs individuals who are getting government aid, the outright distribution of assets may jeopardize those lifetime benefits. In the case of Clarence Franklin, there appears to be plenty of money to care for him. However, not everyone dies with an $80 million estate, and leaving even a modest amount of money outright to a child with special needs may have a dramatic impact on his or her life. In most cases, establishing a Special Needs Trust may mitigate this potential issue of losing benefits.

Another issue is estate taxes. There is no state estate tax in Michigan, but for an estate of this size there will be an estate tax levied. The current exemption at the federal level for an individual is $11,180,000. Most probably, anything over that amount will be subject to the federal estate tax of 40%. Had Ms. Franklin done some estate planning, she may have been able to reduce her taxable estate by gifting to family or charities. Also, assets may have to be liquidated to pay the tax, which is due nine months after the date of death. Liquidating assets at an inopportune time can further unnecessarily reduce the value of an estate. In the state of Washington, there is a state estate tax with an exemption of $2,193,000. Any amount more than that will be taxed at a rate between 10% and 20%. Furthermore, if estate planning documents are not executed properly, a married couple could lose one of their exemptions, costing the estate a minimum of $219,300.

Other important issues when dying intestate may include leaving assets to children when they are not old enough to effectively manage money, disinheriting children or other family members, having the state decide who will be guardians for minor children, not using trusts for asset protection, inability to pick a proper trustee, lengthening the probate process, creating a greater chance of family discord, and other expenses that would not occur were a will in place.

Finally, it is not just the will that is part of the estate-planning process. It is also very important to create documents for power of attorney and a health care directive. The details of these documents will be discussed at another time.

To reiterate, it seems very clear that having updated estate-planning documents is important for all of us. You have worked too hard to leave a mess behind when you die, as most people, I believe, want to leave a legacy where they are remembered in a positive light. You don’t have to be worth $80 million to act responsibly, and make sure your current estate distribution wishes are outlined in your current will or Revocable Living Trust.

Any opinions are those of Brent Soloway and not necessarily those of RJFS or Raymond James. The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. There is no assurance any of the trends mentioned will continue or forecasts will occur. Any information is not a complete summary or statement of all available data necessary for making an investment decision and does not constitute a recommendation. Raymond James does not provide tax or legal services. Please discuss these matters with the appropriate professional.