The Queen of Soul, Aretha Franklin, passed away on August 16, 2018. At the time of her death, according to probate filings by her sons, Ms. Franklin died without a will (what lawyers call “intestate”).
Ms. Franklin’s sons (Clarence, Edward – these sons Ms. Franklin had when she was 12 and 14, respectively – and KeCalf Franklin and Ted White, Jr.) filed an application to probate her estate in Oakland County, Michigan. In these documents, the sons indicated that Ms. Franklin died intestate. What could possibly go wrong?
One item is for sure – the estate will pay some hefty estate taxes, much of which might have been avoided with careful, advanced planning. Essentially, when the administrator (which is essentially the same as an executor, but is the term used for an intestate appointee) determines the total taxable amount and has valued the property, the estate then turns toward filing an estate tax return (IRS Form 706). The IRS provides that “[o]nce you have accounted for the Gross Estate, certain deductions (and in special circumstances, reductions to value) are allowed in arriving at your ‘Taxable Estate.’ These deductions may include mortgages and other debts, estate administration expenses, property that passes to surviving spouses and qualified charities. The value of some operating business interests or farms may be reduced for estates that qualify.”1
Let’s say that the entire $80 million net worth of Ms. Franklin is included in her estate and is taxable. For 2018, the tax code provides that the first $11.18 million is excluded, leaving $68.82 million subject to the estate tax. The maximum / top rate tax is 40%, so her estate could then owe $27,528,000 in estate taxes. Critics of the estate tax point out that Ms. Franklin has already been taxed on these dollars through income taxes, which makes the price tag of earning these dollars quite large. We’ll leave the tax advice to accountants, but suffice it to say, a few tens of thousands in financial planning would have saved Ms. Franklin’s estate millions of dollars.
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Ms. Franklin was noted to be very private and protective of her personal life. However, a second fallout of no estate planning will be the absence of privacy. Because Ms. Franklin’s estate will “pass through probate,” the filings will be public. “Pass through probate” is the terminology meaning that the assets in her estate will be governed by the rulings and laws of the probate court. It is exceedingly simple to search for, and find, Ms. Franklin’s estate in the public records of Oakland County, Michigan. According to the terms of service for the county website, “Michigan and federal law preclude disclosure of certain information to the public, and that nonpublic information is not accessible through this website.”ii In other words, anything on the website is fair game and privacy for her estate will likely be at a minimum.
Had Ms. Franklin placed her assets, or the bulk of her assets, into a trust, they would not have passed through probate. This is because once a trust is formed, the trust, not the individual, owns the asset. And, of course, a trust does not pass away. For that reason, the trust assets are not typically subject to the estate tax. So, taxes are minimized and the property remains private and out of the public’s peering eye.
Last, at least for this blog, concerns probate disputes and probate litigation. While there are almost always a myriad of issues that could be raised in the probate context, without careful planning, disputes could be brewing. Even a brief review of the Oakland County website shows that Ms. Franklin was involved in a guardianship proceeding. Are there any looming issues with that guardianship? Who knows? But, liability for the estate could be protected if Ms. Franklin’s assets were in a trust.
In Texas, the Estates Code governs what would happen to the estate of a person who dies intestate. Judge Guy Herman, probate court judge in Travis County, has put together an excellent diagram that is worth reviewing for the curious. Ms. Franklin is reported to be twice (and long since) divorced, so if she had passed away in Texas, her property would probably pass equally to each child. Difficulties might arise, for example, in circumstances where there is an issue about property ownership, ownership of music rights, characterization of the property as separate or community, the taxable nature of property, and on and on.
Let’s hope for the best for Ms. Franklin and her children!