Aretha Franklin could have saved her loved ones from her poor estate planning choices. First, people thought she died without any plan at all. But over the last three years, not only has the IRS come forward wanting a pice of the pie, but four different wills have surfaced. And ever since those documents came to light, her four adult sons—Clarence, Edward, Ted White Jr., and Kecalf—have been in court fighting one another over her assets, as well as who among them should be designated as the estate’s representative.
While a trial is set for August 2021 to establish whether any of the four documents, some of which are handwritten and barely legible, can formally stand as her will, Aretha’s story demonstrates just how destructive shoddy estate planning can be for the loved ones we leave behind.
Indeed, in part one of this series, we discussed how Aretha’s poor estate planning has resulted in an ongoing court battle between Aretha’s four sons has created an ugly rift between the siblings and exposed dark family secrets to the tabloids, both of which the notoriously private singer undoubtedly would have wanted to avoid. We also noted that following Aretha’s death, the IRS claimed that she owed nearly $8 million in unpaid income taxes. And because Aretha’s sons only recently reached a tentative deal to pay off the IRS, so far, Aretha’s family has yet to receive a single penny from her estate—which is estimated to be worth up to $80 million—even though the legendary musician died nearly three years ago.
Here in part two, we will discuss how Aretha could have planned to spare her loved ones from their current conflict, expense, and embarrassing public exposure. From there, we will discuss how you can take steps to ensure that your family can avoid suffering a similar fate as Aretha’s, even if you have far less wealth and assets than Aretha.
The IRS Comes Calling
Given that none of Aretha’s four alleged wills were properly completed or filed with the court, her estate and all its assets remain stuck in court, awaiting a judge to rule on the validity of those documents. However, even if one of those wills was proven valid, her assets would still be inaccessible to her loved ones due to her massive tax debt.
When Aretha died in 2018, the IRS claimed the late singer owed more than $7.8 million in unpaid income taxes, interest, and penalties, which accrued from 2010 to 2017, according to the Detroit Free Press. While her sons have appealed the total amount owed, the estate has been steadily paying on the tax debt and interest since Aretha’s death, and as of December 2020, the remaining unpaid balance with the IRS was estimated to be $4.75 million.
In March 2021, a tentative deal was reached with the IRS to pay off the debt, as well as finally distribute some cash to her four sons. Under the agreement, which was reached with attorneys for Aretha’s sons, the IRS will receive an immediate payment of $800,000. Additionally, 45% of quarterly revenue from the estate, which comes largely from royalties and licensing, will be paid toward the balance due to the IRS. Another 40% is to be held in an escrow account to pay future taxes on income generated by the estate.
The deal also stipulates that Aretha’s four sons will receive an immediate payment of just $50,000 each. From there, they are set to get quarterly payouts in equally distributed shares of whatever is left after the remaining 15% of revenue is used to cover the estate’s administration costs, which could eat up a substantial part of the remaining funds.
Although the deal must still be approved by a judge, and Aretha’s sons continue to dispute the total amount of taxes owed, the agreement stipulates that any overpayments to the IRS will be returned to the estate for equal distribution to the sons should they be successful in proving a lower amount is due, whether in trial or through a settlement outside of court.
The Dangers of DIY Planning (aka Poor Estate Planning)
Aretha made an obvious mistake by attempting to create her first three wills on her own by hand, with apparently no help from legal counsel, and the fact that those wills were lost for years attests to just how risky do-it-yourself (DIY) planning can be. We like to call this kind of planning Poor estate planning. Indeed, when you rely on DIY estate planning instead of the services of a trusted advisor guiding you and your family, your planning documents can easily disappear or even be stolen and changed by someone else.
When we create or update your plan, it is standard practice for us to not only keep current copies of your documents in a file at our office, but we also ensure that everyone named in your plan knows what their role is and what to do when something happens to you. This way, the people you choose can immediately put the necessary legal actions in motion to effectively manage your estate.
While it is always a good idea to have a lawyer help you create your planning documents, this is particularly true when you have a blended family like Aretha’s. If you are in a second (or more) marriage, with children from a prior marriage, there is an inherent risk of dispute because your children and spouse often have conflicting interests, particularly if there is significant wealth at stake.
And the risk of conflict is vastly increased if you are looking to disinherit a beneficiary, like Aretha may have attempted to do in one of her wills. By creating your own plan, even with the help of an online document service, like LegalZoom, Rocket Lawyer, or TrustandWill.com, you will not be able to consider and plan ahead to avoid all the potential legal and family conflicts that could arise.
As your Personal Legacy Lawyer®, our processes and systems are designed to identify and prevent conflicts before they ever happen, and our unique planning process can help create connections among your loved ones and bring your family closer together. In fact, this is part of our special sauce!
Relying on a Will Alone is Not Enough
Next up in the list of Aretha’s poor estate planning failures is her fourth will, which was reportedly created with help of the Detroit law firm Dickinson Wright, according to the Detroit Free Press. Although the fact that Aretha hired a law firm to help her draft the will shows that the singer was apparently getting more serious about planning, her efforts there still failed.
First off, because her estate plan includes only a will and not a trust to hold title to her assets privately, Aretha’s family had a guarantee of getting stuck in the court process known as probate. And as we have already seen in Aretha’s case, probate can not only be a long, drawn-out process that takes years to complete, but it can also create ugly conflicts between family members and waste significant money on lawyer’s fees.
Worst of all, relying on a will alone has the potential to have disastrous repercussions for one of Aretha’s family members in particular—her oldest son, Clarence, who has special needs. While Aretha’s fourth will reportedly contained instructions to create a trust for Clarence, it is unclear exactly what kind of a trust this would be, and regardless of the type, it appears that no trust was ever set up.
Planning For Those With Special Needs
When planning for a loved one with special needs, you must be extremely careful and always work with an experienced lawyer like us, because if handled improperly, you can easily disqualify your loved one with special needs from much-needed government benefits. Because individuals with special needs often require a lifetime of healthcare and other forms of support, most of these individuals rely on government programs to offset the exorbitant costs of such care.
However, these programs have strict income limits, so if you leave money directly to a person with special needs, such as through a will as Aretha seemed to do, you risk disqualifying him or her for those benefits. Aretha could have set up a planning vehicle known as a Special Needs Trust for her son Clarence. By creating a Special Needs Trust, Aretha would be able to provide supplemental financial resources for Clarence for the rest of his life, without affecting his eligibility for public healthcare and income assistance benefits like Medicaid and Social Security.
That said, the rules for Special Needs Trusts are complicated and can vary greatly between different states, so if you have a loved one with special needs like Clarence, be sure to work with us as your Personal Legacy Lawyer®. We can make certain that upon your death, your loved one with special needs would have the financial means they need to live a full life, without jeopardizing their access to government benefits.
One final benefit a Special Needs Trust would have had for Clarence is the fact that such a trust—like all trusts—would not be required to go through probate, so Clarence would have had immediate access to his inheritance. And though Clarence’s three brothers do not require a Special Needs Trust, they too would have been far better off had Aretha used a trust instead of just a will to leave them their inheritance.
Lifetime Asset Protection Trusts: Airtight Protection for Your Children’s Inheritance
While there are several types of trusts available, given the size of Aretha’s fortune and the complexity of her assets—which include the rights to her vast catalog of music, as well as royalties from her recordings and licensing rights to her name and image—we would have advised the Queen of Soul to create a Lifetime Asset Protection Trust to pass her assets to her three youngest sons, Edward, Ted White Jr., and Kecalf.
Using a Lifetime Asset Protection Trust, Aretha could have not only immediately transferred her assets to her sons upon her death or incapacity, without the need for court intervention, but she could have also ensured that those assets would transfer with protection from common life events like divorce, serious illness, lawsuits, and even bankruptcy. At the same time, the trust would give her sons the ability to access, manage, and invest those assets, while retaining airtight asset protection for their entire lives.
Guidance and Direction For Your Children’s Inheritance—And Your Legacy
Had Aretha used a trust, she could have provided guidelines to the Trustee, providing him or her with clear directions about how her assets could be used for her beneficiaries’ benefit, or even built-in provisions to let her heirs control their own inheritance while maintaining their asset protection benefits. By providing a Trustee with guidelines for distributions, you can be sure that the person you name to handle your affairs is aware of your wishes and values when making distributions, rather than simply guessing about what you would have wanted, which often leads to problems.
Given that Aretha’s estate includes the rights to her music, name, and likeness, all of which can provide a potentially indefinite source of income for her loved ones, it is almost certain that Aretha would have wanted a say in how this priceless intellectual property should be managed in the future. A Lifetime Asset Protection Trust would give Aretha the ability to govern how these treasured assets should—and should not be—used by her heirs, ensuring that her artistic legacy is always honored, and her family can benefit from her incredible talent for generations to come.
Although a Lifetime Asset Protection Trust would have been an ideal way for the Queen of Soul to protect and pass on her assets, such trusts are not for everyone. But contrary to what you might think, Lifetime Asset Protection Trusts are not just for the rich and famous.
These protective trusts can be even more useful if you are leaving a relatively modest inheritance, since the smaller the inheritance, the more at risk it is of getting wiped out by a single unfortunate event like a medical emergency or lawsuit. That said, if your kids are going to spend most of their inheritance on everyday expenses and consumables, such trusts probably do not make much sense.
Meet with us, as your Personal Legacy Lawyer®, to see if a Lifetime Asset Protection Trust is the right choice for your family.
Learn from Aretha’s Mistakes
Regardless of your financial status, planning for your potential incapacity and eventual death is something that you should take care of immediately, especially if you have children. While Aretha lived a relatively long life, you never know when tragedy may strike, and through diligent estate planning, you can save your family from the needless disputes, expense, and embarrassing public exposure the late singer’s loved ones are currently enduring.
As Aretha Franklin’s poor estate planning story demonstrates, do-it-yourself planning can have terrible consequences for your family—and in the worst cases, it can be even worse than if you had no estate plan at all. We urge you to use the Queen of Soul’s story as a learning experience—when done properly, estate planning can keep your family out of court, out of conflict, and out of the public eye. Even more, truly effective planning can ensure your wealth, assets, and legacy are protected and used to benefit your children, grandchildren, and great-grandchildren in strict accordance with your values.
To ensure your estate plan works exactly as intended, meet with your Personal Legacy Lawyer® to review and update your current plan or create one if you have yet to do so. Contact us today to schedule your appointment.