December, 2018 Newsletter
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Bruce Steiner: Lessons from Aretha Franklin's Lack of a Will
"Estate planners can learn valuable lessons from Aretha Franklin’s lack of a Will. Aretha Franklin presumably worked with lawyers, accountants and other advisors in connection with her entertainment activities. They should have encouraged her to sign a Will, and could have referred her to appropriate lawyers who could have prepared a Will for her. Indeed, her entertainment lawyer, Don Wilson of Los Angeles, said that he had recommended that she create a trust. It is not possible to prove that a decedent did not have a Will. However, in Aretha Franklin’s case, if she had a Will, presumably the law firm that prepared the will would have contacted the named executor or the court."
Bruce Steiner provides members with the lessons estate planners can learn from Aretha Franklin’s lack of a Will. Bruce previously wrote about the lessons estate planners can learn from James Gandolfini’s, Philip Seymour Hoffman’s, Lauren Bacall’s, Tom Clancy’s, Joan Rivers’, Whitney Houston’s, Frank Gifford’s, David Bowie’s, Yogi Berra’s, Fred Bass’ and Tom Wolfe’s Wills, Prince’s lack of a Will and Robin Williams’ insurance trusts.
Bruce D. Steiner, of the New York City law firm of Kleinberg, Kaplan, Wolff & Cohen, P.C., and a member of the New York, New Jersey and Florida Bars, is a long time LISI commentator team member and frequent contributor to Estate Planning, Trusts & Estates and other major tax and estate planning publications. He is on the editorial advisory board of Trusts & Estates, and is a popular seminar presenter at continuing education seminars and for Estate Planning Councils throughout the country. He has served on the professional advisory boards of several major charitable organizations, and was named a New York Super Lawyer in 2010 through 2018 and was selected for Best Lawyers of New York for 2018 and 2019. Bruce has been quoted in various publications including Forbes, the New York Times, the Wall Street Journal, the Daily Tax Report, Investment News, Lawyers Weekly, Bloomberg’s Wealth Manager, Financial Planning, Kiplinger’s Retirement Report, Medical Economics, Newsday, the New York Post, the Naples Daily News, Individual Investor, CNBC, Reuters Money, Fox Business, TheStreet.com, and Dow Jones (formerly CBS) Market Watch.
Here is his commentary:
Estate planners can learn valuable lessons from Aretha Franklin’s lack of a Will.
Aretha Franklin Rogers Nelson (Aretha Franklin) died on August 16, 2018. She was 76 years old. She was a singer, songwriter and pianist. She was a resident of Michigan.
Aretha Franklin left a large estate. Several news stories reported that she was worth $60 to $80 million. Given the nature of her assets, her estate could be worth substantially more or less than that.
Aretha Franklin had her first child, Clarence, in 1955 at age 12. She had her second child, Edward, in 1957 at age 14.
She married Theodore (Ted) White in 1961 at age 19. She and Ted had a child, Ted White, Jr., in 1964 and were divorced in 1969.
She had her fourth child, Kecalf Cunningham, in 1970.
She then married Glynn Turman in 1978, and they were divorced in 1984.
Aretha Franklin did not leave a Will. Her children filed a petition for administration in Oakland County, Michigan, requesting that Aretha Franklin’s niece, Sabrina Owens, be appointed as administrator.
If Aretha Franklin’s estate, net of administrative expenses, is $60 million, and the estate taxes are $20 million, each child’s one-fourth share will be about $10 million after estate taxes and expenses.
Aretha Franklin should have had a Will. By having a Will, Aretha Franklin could have saved transfer taxes for her family, protected her children’s inheritances and named executors and trustees of her choice.
Assets passing to Aretha Franklin’s children outright will be included in their estates for estate tax purposes, and will be subject to their creditors and spouses.
If Aretha Franklin had a Will, she could have provided for her children in trust rather than outright. In that way, their inheritances would not have been included in their estates, and would have been protected from their creditors and spouses. She could have given each child effective control over his trust. In other words, each child upon reaching a specified age could have been a trustee, and could have had the power to remove and replace his co-trustee (provided the replacement trustee was not a close relative or subordinate employee). Each child could have had the broadest special power of appointment, so he could have appointed (given or left) the trust assets to anyone he wanted (except himself or his estate or creditors).
Michigan has replaced its rule against perpetuities. Therefore, to the extent of Aretha Franklin’s remaining GST exemption, this would have sheltered her children’s inheritances, and the income and growth thereon, from transfer taxes forever.
We do not know whether Aretha Franklin had any remaining GST exemption, or whether she used her GST exemption during her lifetime, perhaps in 2012 when it was scheduled to revert to $1 million in 2013. However, since he did not leave a Will, it is unlikely that she used her GST exemption during her lifetime.
Since the GST exemption is presently $11,180,000, if Aretha Franklin’s estate, net of estate taxes and administrative expenses, is $40 million, about 28% of her estate would be GST exempt.
The trustees could have divided each child’s trust into a GST taxable trust and a GST exempt trust. Distributions could then be made to them out of their GST taxable trusts.
If any of Aretha Franklin’s children have children of their own, they could take advantage of their GST exemption by disclaiming same or all of their
share in favor of their children. However, since a disclaimer is irrevocable, a child is unlikely to disclaim unless he is confident that he will have enough assets for his needs without the disclaimed property.
Aretha Franklin was engaged twice to Willie Wilkerson. By having a Will, she could have provided for him. She could also have provided for other relatives.
By having a Will, Aretha Franklin could have named executors and trustees of her choosing. The choice of executors is particularly important in an estate of this size and nature. The executors will control the estate tax proceedings, including the selection of appraisers and any dealings with the Internal Revenue Service. The executors will also control the exploitation of Aretha Franklin’s intellectual property. Presumably Aretha Franklin would have known who she would have wanted to control her estate.
Since Aretha Franklin’s son Clarence has disabilities, a guardian was appointed for him in Michigan. Guardianships are generally cumbersome. Depending upon state law, a guardian may have to post a bond and file court accountings. A guardian may need court approval for expenditures for the minor. A guardian may not be able to invest prudently, or may need to obtain court approval to be able to invest prudently; and in order to obtain court approval to invest the assets prudently may be forced to incur a greater level of investment expenses than would otherwise be necessary. By having a Will, Aretha Franklin could have left Clarence’s share in trust. The trustees could have administered the trust free from the restrictions of a guardianship.
It is noteworthy that Aretha Franklin’s children sought the appointment of her niece, Sabrina Owens, as personal representative rather than themselves. Usually petitioners seek their own appointment as personal representative.
Under Michigan law, if there is a disagreement among the heirs as to the appointment of a personal representative, the court may appoint a personal representative who is acceptable to heirs having a majority in interest in the estate. If no one is acceptable to heirs having a majority in interest in the estate, then the court may appoint any suitable person as administrator. Perhaps Ms. Franklin’s children were unable to obtain a consensus among
themselves for the appointment of one or more of them, but were able to obtain a consensus for the appointment of her niece. Or perhaps none of them wanted to take on the task of administering an estate of that size and complexity.
Aretha Franklin presumably worked with lawyers, accountants and other advisors in connection with her entertainment activities. They should have encouraged her to sign a Will, and could have referred her to appropriate lawyers who could have prepared a Will for her. Indeed, her entertainment lawyer, Don Wilson of Los Angeles, said that he had recommended that she create a trust.
It is not possible to prove that a decedent did not have a Will. However, in Aretha Franklin’s case, if she had a Will, presumably the law firm that prepared the will would have contacted the named executor or the court.
Estate planners can learn valuable lessons from Aretha Franklin’s lack of a Will.
HOPE THIS HELPS YOU HELP OTHERS MAKE A POSITIVE DIFFERENCE!
LISI Estate Planning Newsletter #2677 (November 1, 2018) http://www.leimbergservices.com Copyright 2018 Leimberg Information Services, Inc. (LISI). Reproduction in Any Form or Forwarding to Any Person Prohibited – Without Express Permission.
Aretha Franklin; Revenue Ruling 95-58, 1995-2 C.B. 191; Michigan Compiled Laws § 700.3203(2)(b).
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