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Probate,
Tax

Aug. 28, 2018

Leaving no will, Aretha reprises Prince. Don’t copy them.

Aretha Franklin was the Queen of Soul, beloved as a recording artist and person. She had a reported net worth of $80 million on her death. Yet she died without a will.

Robert W. Wood

Managing Partner, Wood LLP

333 Sacramento St
San Francisco , California 94111-3601

Phone: (415) 834-0113

Fax: (415) 789-4540

Email: wood@WoodLLP.com

Univ of Chicago Law School

Wood is a tax lawyer at Wood LLP, and often advises lawyers and litigants about tax issues.


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New York Times

Aretha Franklin was the Queen of Soul, beloved as a recording artist and person. She had a reported net worth of $80 million on her death. Yet she died without a will. Papers have already been filed in court by Franklin's four sons and niece.

That means there will be public proceedings, and as sometimes happens, there could be court battles too depending on who claims what. Celebrity deaths, whether anticipated or sudden and unexpected, can make the rest of us think about what documents we need to have in place. You can sometimes learn what to do -- or what not to do -- from someone else.

Not having a will is a little like not filing your taxes. It will catch up with you. Any way you slice it, the tax and financial hassle of probate or intestacy can be huge, even for normal sized estates. When you add the extra zeros that are familiar territory for a successful entertainer, the failures can seem much more palpable.

The decedent doesn't have to deal with the hassle, delay or expense. After all, by definition, he or she is gone when the smoke clears and the "no will" chant starts over at the courthouse. But you would think that everyone would want to say who should get their property. With no will, state law determines based on relationships how the assets will be divvied up.

Franklin is not the only star who neglected estate planning. In 2016, Prince died without a will, and he was echoing prior estate planning gaffes by Philip Seymour Hoffman, James Gandolfini, Amy Winehouse, Heath Ledger and others. All of these celebrity estates had issues of one sort or another. Some deaths were unexpected.

However, Aretha Franklin had been ill, so writing a will would have seemed logical. But even people with wills do not always think through the tax and other implications. For example, Seymour Hoffman had three children with Marianne O'Donnell, but the couple never married. Plus, he mentioned only one of his children in his will, not all three.

Like Prince, Amy Winehouse didn't have a will either. That means we do not know what either one of them really wanted to have done with their assets. Amy Winehouse's parents inherited her estate, while her ex-husband got nothing. Heath Ledger had a will, but it was five years old and outdated. It gave his parents and sisters his $20 million estate, failing to mention Michelle Williams or their child.

And after James Gandolfini died at age 51, reports said that his will clumsily sent $30 million of his $70 million to the IRS. These stories should make tax advisers and estate planners cringe. To be sure, what happens on your death isn't an easy subject for anyone to discuss.

But a few key points about Aretha Franklin's situation deserve mention. A will would have been clear as to what she wanted, but a will is public. There is no reason the public has to know about who you benefit and who you may disinherit. Probate is public, expensive, time consuming and unnecessary, but it is even worse not to have a will. With no will, the state has to decide who gets what, usually by statute.

It is far better to make those decisions yourself. The simple way to keep it private? Use a revocable trust. For very little money you can create a revocable trust that calls for the disposition of your assets. You still need to write a will. But the will just says that everything you own goes via the revocable trust. It's called a pour-over-will, since it pours all assets into the trust.

The trust is private, but using a trust does not necessarily mean saving taxes. No one wants to pay taxes unnecessarily, but you first want your assets to go to the persons you want to benefit. The identity of those people can change frequently during life. Another advantage of a revocable trust is that you can change it easily at any time

Using a trust does not necessarily mean saving taxes. No one wants to pay taxes unnecessarily, but you first want your assets to go to the persons you want to benefit. Think second about taxes, not first.

Mr. Hoffman gave his $35 million estate to Marianne O'Donnell, but they were not married, and marriage saves taxes. You can give an unlimited amount to your spouse tax-free during life or on death. Because Ms. O'Donnell was not Hoffman's spouse, taxes were due.

Sometimes people shift assets after death. Heath Ledger's will gave his parents and three sisters his $20 million estate, but they generously disclaimed it so his daughter Matilda inherited it. Still, with no spousal gifts (that would have been tax free), transfer to the child were taxable. Marianne O'Donnell received Mr. Hoffman's whole estate, but since they were unmarried, taxes probably devoured about $15 million. If they had been married, it would have been tax-free. Any legal marriage saves gift and estate taxes.

Mr. Gandolfini was criticized for leaving 80 percent of his estate to his sisters and his 9-month-old daughter, making 80 percent of the estate taxed. But sometimes you can do what you want and save taxes. Mr. Gandolfini took some tax-efficient steps. His teenage son received $7 million in life insurance proceeds via an irrevocable life insurance trust, a tax efficient transfer. No estate tax there.

To return to Aretha Franklin, the Queen of Soul commanded universal R-E-S-P-E-C-T, but she did not have a will. Hopefully, her estate administration process will be noncontroversial. But few are quick or inexpensive. That's a useful reminder for all of us.

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