Sunday, September 24, 2023

Lessons for Advisors from Aretha Franklin’s Estate Woes -Dlight News

We tend to think that the famous and the super-rich have top-notch advisors and sound financial plans. In most cases, they are no more prepared than the average American when it comes to protecting and transferring their assets. Sometimes worse.

Take Aretha Franklin.

The legendary Queen of Soul left no formal typewritten will when she died of pancreatic cancer five years ago at the age of 76. Her net worth was estimated at $80 million at her death. But due to back taxes, legal fees and multiple updated estimates, the 18-time Grammy winner’s estate is now worth nearly $6 million, including her gated mansion, according to a report by a BBC report. But that’s still a sizable estate for her heirs to split, because the $6 million valuation doesn’t include future royalties, which are likely to be sizable.

Originally, many believed Franklin died intestate. That meant her four sons would likely split her fortune evenly after the probate hearing. But several months after her death, Franklin’s family discovered two handwritten, barely legible wills in their Detroit home, written in 2010 and 2014 respectively. The will from 2014 was found in a notebook under sofa cushions. The 2010 will was found in a locked cupboard.

Handwritten (holographic) wills are not recognized in most states because they are so easy to forge or alter. But Franklin’s home state of Michigan is one of the few states where handwritten wills are legal—provided those documents are signed by two competent witnesses. Generally, courts say that the most recent will takes precedence over older wills. But in Franklin’s case, the 2010 handwritten will was notarized and signed, while the 2014 will was not. Under Michigan law, the parameters in the unnotarized will continue to apply so long as it is dated, signed, and in the original drafter’s handwriting.

The 2010 will lists one of Franklin’s sons, Theodore White, and White’s niece, Sabrina Owens, as co-administrators of the estate. It also said two other sons, Kecalf Franklin and Edward Franklin, “must take business courses and earn a certificate or degree” to benefit from the estate. Those provisions were not necessary for the other two children, including Clarence Franklin, 63, who has special needs, lives under guardianship and requires regular care. In many cases, heirs with special needs are entitled to government benefits, disability benefits, etc. However, if the estate is not properly managed, such as with a special needs foundation, these benefits may be lost.

The 2014 will also names Owens as executor, but crosses out White’s name and replaces him with Franklin’s son, Kecalf Franklin. And in this version of the will, there is no provision mandating business classes. Kecalf Franklin and his grandchildren received his mother’s main home in Bloomfield Hills, which was valued at $1.1 million when she died but is worth much more today. However, the 2010 version splits the home evenly between White and Kecalf Franklin.

The sons sued the conflicting wills in court, and a Michigan jury ruled last week that the handwritten 2014 will — yes, the one found in a notebook under sofa cushions — is the valid will for Franklin’s multimillion-dollar estate. Presumably this is the blueprint for the estate plan (eventually).

In most states that don’t recognize handwritten wills, the estate would have been governed by wills law, which essentially states that the deceased had no plan. Then the estate would be divided at their own discretion. In addition, it is very slow, expensive (and public) to do it this way.

Unpaid taxes

In a separate challenge to the estate since Franklin’s death, the IRS claimed that the R&B legend owed nearly $8 million in unpaid taxes. Accordingly, the settlement was able to repay the debt by 2022 Detroit FreePress. Debt had kept Franklin’s children from making profits on their mother’s estate.

Keep things private

Ironically, despite years of poor health, Franklin was reluctant to consult an estate planner because she was so reserved about her personal life. A revocable trust could have allowed her to bypass the courts. But now her financial affairs are anything but private. As advisors, our job is to make clients feel comfortable speaking up about all of their financial concerns, including their wishes in the event of death. If you don’t know the whole truth, planning is extremely difficult. This happens more often than you think. Among others, Bob Marley, Prince, Howard Hughes, Pablo Picasso, Jimi Hendrix and even Abraham Lincoln died without a will, sparking years of family strife.

Lessons for consultants

We have to pull our heads out of the sand, and that applies across the board. Just because someone is wealthy or famous doesn’t mean they’ve done their estate planning — or done it correctly and recently. This is one of the biggest mistakes consultants make. Because their ultra-rich clients are successful and know how to make big bucks, advisors assume they’ll be fine for the rest of their lives — including their estate planning.

We have to be smart enough to ask the right questions. Very often, your wealthiest and most successful clients are surrounded by people who agree with them and rarely question them. As a result, they don’t know what they don’t know – and are ashamed to admit they don’t know. They behave well, come across as aloof and distant when they need help just as badly as everyone else. As their situations are more complex, the need for planning is all the more important.

Just because your clients don’t specifically ask you for help with their estate planning and gift planning doesn’t mean they don’t need help. People often shy away from the costs involved in complex estate planning. But what are the costs when you don’t have a complex estate plan – a lot more! I wouldn’t be surprised if the queen of soul looked down from above and thought, “Say a little prayer for me.”

Randy A. Fox, CFP, AEP is the founder ofTwo Hawks Consulting LLC. He is a nationally known wealth strategist, philanthropic estate planner, educator and public speaker.

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