On August 16, 2018, we lost a national treasure. Aretha Franklin, a.k.a. the “Queen of Soul,” passed away in Detroit at the age of 76 from advanced pancreatic cancer.¹ What is not too surprising is that Franklin will join the long list of celebrities who died without a will, including, most recently, Prince. What is surprising is that Franklin left behind a son with special needs, Clarence, who will split her $80 million estate with his three brothers. Clarence will need “financial and other forms of support for his entire life.”²

Will we really “find out what it means to me”? Because Franklin died without a will, she is said to have died “intestate,” which means that the State of Michigan will decide who receives her assets. Generally, under most state intestacy laws, the decedent’s spouse will receive the assets and if the decedent was not married at death, like Franklin, the decedent’s children will receive the assets. Franklin’s estate will also have to go through Probate before it can be distributed. Probate is the court-supervised process of transferring a decedent’s assets to his or her heirs. This process is public and can be time consuming, which in Franklin’s case most likely will be VERY time consuming because before her estate can be distributed, anyone who has a potential claim against her estate will be afforded an opportunity to make a claim. Given Franklin’s vast wealth, high profile celebrity status, and long career of business dealings, this could wind up being many people.

What could Franklin have done to avoid subjecting her family to a long, dragged-out process in the public spotlight? For starters, she could have planned ahead and in addition to creating a will, she could have created a Revocable Living Trust. Unlike a will, a Revocable Living Trust allows the trust creator, or “Settlor,” to avoid the Probate process entirely — saving time and money and preserving privacy. The Settlor appoints a Trustee, who is responsible for managing the trust property not only for the ultimate beneficiaries of the trust, but also for the Settlor herself if she becomes incapacitated or is otherwise unable to manage the trust property on her own. Having a Revocable Living Trust would have undoubtedly been a benefit to Franklin because she would have likely needed assistance managing her property in the final months leading up to her death during her battle with cancer.

A Revocable Living Trust would have also allowed Franklin to provide protection and professional management of the trust assets passing to Clarence. A Settlor can create a “Special Needs Trust” under the terms of a Revocable Living Trust that will hold trust funds in perpetuity for a special needs beneficiary after the Settlor’s death. This can be extremely important, especially if the special needs beneficiary is receiving or qualifies for public assistance. Without the Special Needs Trust, the special needs beneficiary’s assets could be claimed by the state to pay for his or her care.

A unique feature of a Special Needs Trust allows the trust property to escape classification as an asset of the special needs beneficiary for purposes of qualifying for public aid, while giving the Trustee the ability to supplement the special needs beneficiary’s basic needs to enhance the quality of his or her life. Examples of supplemental distributions can include money to pay for special dietary supplements, money to attend educational programs, and even money for special trips to visit family.

To enhance the effectiveness of a Special Needs Trust, Settlors can name a Corporate Trustee to take on fiduciary duties, file trust tax returns, manage trust assets, and make trust distributions. In many states, a Settlor can also appoint a “Trust Protector” to monitor the activities of a Corporate Trustee to ensure the Trustee is being attentive to the beneficiary’s needs. A Trust Protector’s other powers may include the power to remove and replace Corporate Trustees, modify the trust instrument to correct mistakes or to better take advantage of changing tax laws, construe the terms of a trust to resolve ambiguity and guide the trustee and beneficiaries, change trust distribution standards, and terminate a trust if it is no longer needed.³ Settlors will often name a close family member or friend who knows the special needs beneficiary very well. This is often an ideal arrangement because the Corporate Trustee takes on all of the administrative activities that a family member or individual Trustee is often unwilling or ill-equipped to handle, and the family member Trust Protector is often in a better position to advise the Corporate Trustee on what the special needs beneficiary’s needs truly are because of their familiarity with the beneficiary.

Another potential pitfall of not doing advanced estate planning before it is too late, especially if you are among the uber wealthy like Franklin, is that you miss out on opportunities to take advantage of wealth transfer techniques to reduce future estate taxes. At the end of 2017, Congress passed the Tax Cuts and Jobs Act of 2017 (TCJA). TCJA raised the federal estate tax exemption from roughly $5.5 million per individual to $11.18 million per individual. Based on Franklin’s estimated $80 million estate at her death, her family may be on the hook for approximately $27.5 million in taxes. With a bit of professional guidance and advanced planning, Franklin may have had the opportunity to save millions in estate taxes through the use of Charitable Trusts, Grantor Retained Annuity Trusts, Family Limited Partnerships, or other wealth transfer vehicles.

As we celebrate Franklin’s legacy, we should all take some time to review our own estate plans and make sure that we have the important documents in place to protect our loved ones and provide for the orderly and efficient management of our property in the event of an accident, illness, or death.

¹ Hillary Hoffower, Aretha Franklin died with a reported net worth of $80 million and no will
² Hillary Hoffower, Aretha Franklin died with a reported net worth of $80 million and no will
³ Andrew T. Huber, Trust Protectors, Probate & Property January/February 2017, at 32

This information is not intended as tax or legal advice but should be used as a basis for discussion with your tax and/or legal professionals.

Author Dominick J. Parillo Director of Wealth Transfer

Dominick earned a JD degree from the George Mason University School of Law. He focuses on estate planning and wealth transfer strategies for high net worth families and business owners and advises clients on all facets of trust and estate administration.

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