Aretha Franklin passed away at her home in Detroit after a long battle with pancreatic cancer on August 16, 2018. She is survived by four adult children Clarence Franklin, 63, Edward Franklin, 61, Ted White Jr, 54, and Kecalf Cunningham, 48, as well as four grandchildren.
The Queen of Soul had been dealing with health issues for some time, but did not leave a Last Will and Testament (“will”). Without a will, Aretha’s assets are considered ‘intestate’, meaning her estate will be split evenly between her four children, based on Michigan state law. The singer’s estate is estimated to be worth $80 million. The personal representative, who administers the process of transferring assets, will be appointed by the court.
However, as with the case of Prince, who also died intestate, the personal representative can collect millions in fees while the family receives nothing until the value of the estate is established. While Aretha Franklin’s children will likely receive the lion’s share of the proceeds from the estate; there are a few costly drawbacks to not planning ahead:
Lack of Privacy and Little Control
Probate is a legal process occurring in a court, thus some of the proceedings and filings are open to public view. In some circumstances, any person can gain access to your probate file, thereby discovering the nature of your estate, its value and the names of your beneficiaries. Probate is under the administrative control of a judge. Even if you designate your son or daughter as the personal representative of your estate, he or she will need to file reports with the court and may need a judge’s approval for certain actions.
The Expense of Probate
Probate involves numerous expenses, including the fees of the personal representative or administrator, attorney’s fees, the premium for a fidelity bond on behalf of the personal representative or administrator (if required), appraisal fees (if needed), court costs and other expenses. Additionally, if a beneficiary is dissatisfied with the will or the circumstances surrounding its execution, the estate will typically need to pay both the personal representative’s and the estate’s attorney for time involved in defending the will should a claim be made against the estate.
The federal estate tax in the United States is a tax on the transfer of the estate of a deceased person. The tax applies to property that is transferred via a will or according to state laws of intestacy.
If an asset is left to a spouse or a federally recognized charity, the tax usually does not apply. In addition, a maximum amount, varying year by year, can be given by an individual, before and/or upon their death, without incurring federal gift or estate taxes. For 2017, the exemption amount increased to $5.5 million. In 2018, the exemption doubled to $11.18 million per taxpayer due to the Tax Cuts and Jobs Act of 2017. That means Franklin’s estate will have to pay out roughly $27 million in estate taxes alone.
Special Needs Children
It has been reported that one of Franklin’s adult children, Clarence, has special needs, and requires “financial and other forms of support for his entire life.” An effective way to provide for a person with special needs is through a Special Needs Trust.
Special Needs Trusts (“SNT”) generally work like this: a person wants to make sure their loved one with special needs is provided for upon their death. Instead of leaving a lump sum of money behind in their will, they will create an SNT to benefit the disabled individual (the “Beneficiary”). The person creating the Trust (“Grantor”) places certain assets into the Trust and designates who will manage them (“Trustee”). The assets in the Trust are then managed according to the Grantor’s terms and used to help pay for the beneficiary’s needs. The most important aspect of an SNT is that the assets in the Trust are not counted as being owned by the special needs individual. This allows them to qualify or retain their public assistance benefits such as Medicaid, Supplemental Security Income (SSI), or subsidized housing. If this option is no longer available there are still ways to protect a special needs individual’s assets through court reformation if the special needs individual was a listed beneficiary with a financial institution.
Contact OC Estate and Elder Law at (954) 251-0332 or firstname.lastname@example.org to receive a personalized consultation on how planning ahead can save your family money.