What a week in America with John McCain and Aretha Franklin’s funerals being must-see TV on seemingly every channel. Yesterday I was presented with yet another article about Aretha Franklin’s lack of estate planning. Here’s a link.
The question is what would her probate and estate look like had she died in California with no will or trust? What would be happening here? Let’s hypothesize….
I have seen estimates for her estate to be valued between $50 and $100m. She has real estate in Michigan as the article says and I assume cash, stocks, bonds and a TON of future music royalties. These are assumptions on my part.
She has 4 adult children and one of them is developmentally disabled. The lack of planning will be especially painful to that child in my opinion.
WHO SHOULD BE ADMINISTRATOR?
When someone dies this should be the first question. Someone needs to get into a position of authority to stand in the decedent’s shoes… no matter how big those shoes are to fill! In a California probate the order of priority for who should serve as Administrator is determined by probate code 8461. There the order is:
(a) Surviving spouse or domestic partner as defined in Section 37.
(d) Other issue.
(f) Brothers and sisters.
(g) Issue of brothers and sisters.
(i) Issue of grandparents.
(j) Children of a predeceased spouse or domestic partner.
(k) Other issue of a predeceased spouse or domestic partner.
(l) Other next of kin.
(m) Parents of a predeceased spouse or domestic partner.
(n) Issue of parents of a predeceased spouse or domestic partner.
(o) Conservator or guardian of the estate acting in that capacity at the time of death who has filed a first account and is not acting as conservator or guardian for any other person.
(p) Public administrator.
(r) Any other person.
I highlight (b) and (g) above. The article indicates Aretha’s niece is serving as personal representative. In California the children would have clear priority to serve. I do not know what Michigan law is but I would always advise my client to first consider serving as administrator before relinquishing that job to their cousin. We don’t know all the facts though. Maybe there is good reason for this!? Maybe Aretha’s children are not good with money and the niece is an accountant, a lawyer or a financial planner!? Let’s assume that. In any event, if this were in California the order of priority is clear.
WHO GETS THE MONEY?
The next question is who gets Aretha’s money. This is pretty clear. The money, at least if she lived in California, would be divided between her four children. I will assume Michigan law is the same. In California the laws of intestacy are laid out at probate code 6400 et seq. They pretty much follow the family tree except for married people it gets more complicated. In California the money would be divided by her four children equally.
However, when you get into music royalties you get into hard to accurately value assets. I have had cases with music royalties before and they can create interesting twists. The issue of who should get the music royalties might relate to what they are valued at and who is willing to take a chance on them increasing in value.
WHAT ABOUT SPECIAL NEEDS?
The lack of planning is going to be potentially costly, for the family, as relates to the child with special needs. If Aretha had set up a special need’s trust, prior to her passing, she could have picked a trusted person to watch over the assets without Court involvement. The on-going monitoring of a special needs trust in court, at least in California, could be very costly. People with a special child, like Aretha, are under extra pressure to get their affairs set up right. This is a big fail on the part of her or her advisors.
THE TAX MAN COMETH
As Sir-Mix-a-Lot once rapped:
If you’re livin too large, ya better watch that [beep]
Cause the IRS
Is gonna take yo stash
He went on in Take My Stash to say:
TAXMAN COMETH, TAXMAN TAKETH
TAXMAN’S A PIMP, SO THE TAXMAN BREAK-ETH
So yes the tax man will definitely be getting involved with Ms. Franklin’s estate. A single person can give away approximately $11m tax free in the United States. The thing is if she had met with an estate attorney who specializes in high net worth planning, like my law school classmate Steve Oshins in Las Vegas, her family might pay little or no estate tax. However, without the proper planning her family might be writing a check to the IRS for $25 million or more within 9 months of death. OUCH!
THE COST OF PROBATE
So the tax man is paid but we still have the costs of probate to deal with. If Ms. Franklin had died in California the total cost of probate (attorney fees, PR fees, probate court costs) could exceed ONE MILLION DOLLARS. That’s a mil on top of the above estate tax hit. Yes, a great day for a probate attorney but this cost could be easily avoided with a revocable living trust. I do not know the costs of probate in Michigan so it could be more or less but the point is you can easily avoid this cost after death.
I mention that the adult disabled child’s money will be protected and probably by some type of court proceeding… at least it would be in California. What about the other children? Might they already have gone out any bought new Bentley’s like so many children of wealthy people before? Perhaps it would make more sense to set that money up in trust with someone else as trustee!? Perhaps it would make sense to set that money up in some type of generation skipping trust so that the money is not taxed AGAIN when the children die!? Again, proper planning would have addressed these major issues but Ms. Franklin failed to do so unfortunately.
I am sure many celebrities are reading this blog post, right!? All of you wealthy celebs should get your estate planning properly organized NOW! Do not delay. I do not care how busy you are making music, or making movies, or whatever… take care of your family and avoid the unnecessary costs of probate and unnecessary estate taxes. Get your estate planned and then update that plan with a top notch estate planning attorney.
RIP Ms. Franklin.