Is Your Estate Plan Like the Rich & Famous?

Aretha Franklin died last month with an estate estimated at some $80 million, and did not leave a will or trust. Although Aretha’s four sons are her heirs-at-law entitled to her assets under state law, a niece who handled finances for her during her lifetime has claimed a share of the estate.

Singer Prince, who died in 2016, also did not have a will or trust and left an estimated $200 million estate. His heirs-at-law, a sister and five half-siblings, earlier this year complained to the court that they have yet to receive a single penny from the estate, and feared that they would get nothing after payment of all of the fees and expenses of the court appointed administrator Comerica and their high-priced lawyers.

Singer Ike Turner died in 2007 and it was determined by the court that he had no valid will at the time of his death. His estate is still being litigated eleven years later over who is entitled to the copyrights of over 4,000 of his songs. Pablo Picasso, Howard Hughes and Sonny Bono also did not leave a will.

You would think that attorneys, trained legal professionals, would have completed their own estate plan. Alas, attorneys are no different than anybody else and many fail to plan. One of the most famous and respected attorneys of all time, Abraham Lincoln, died without a will. I have known a number of attorneys over the years who have also died without even having the simplest of wills.

If you have done no estate planning, congratulations! You are with the majority of adults in the US with no plan. You may think of estate planning as death planning, but it is much more than that. A more comprehensive definition of estate planning is: I want to control my property while I’m alive and well; plan for me and my loved ones if I become mentally disabled; and when I’m gone, I want to give what I have to whom I want when I want and the way I want; all at the lowest overall cost to me and those I love.

More often problems arise when attorneys who are not estate planning specialists attempt to do their own and their clients’ estate plans. These attorneys often believe they are qualified to prepare estate plans. I regularly review wills, trusts, powers of attorney and other estate planning documents that are drafted by attorneys who are not estate planning specialists. These plans usually have unintended results. Unfortunately, many times I only see the estate planning documents after the maker’s incapacity or death when there is little that can be done to remedy the situation.

I regularly review health care powers of attorney that do not to have living will provisions, mental health care powers, Health Insurance Portability and Accountability Act (HIPAA) access and release powers or signed patient advocate acceptances. I have seen wills, which are death instruments, contain health care powers, which can only be used during lifetime. I often see financial powers of attorney that do not allow for the gifting of assets to the loved ones instead of spending it all down on nursing home care.

I regularly review trusts with faulty tax provisions. Over the last 32 years, every single person coming into our office with a trust done by another attorney did not have their trust fully-funded. Trust funding is completely and correctly designating your trust and individuals as owners, beneficiaries and insured parties of your assets. Basically, it’s putting your stuff in your trust. Our office has been fully-funding our clients’ trusts since 1999.

The proper funding of your trust is critical in making your estate plan work and having the results you plan. Failure to properly fund your trusts may cause unintended results. These may include probate during your lifetime or after death; distributions not in accordance with your goals and objectives; additional taxes; and additional administrative, legal and other expenses.

Planning for you and your estate both during your lifetime and after your death is the legal equivalent of heart surgery. You don’t go to your family doctor for heart surgery; why would you go to a general practitioner for estate planning services? This planning is going to require lots of instructions. To make the proper instructions, the estate planning attorney has to have a working knowledge of six areas of the law, estate planning, elder law, business, real estate, taxation and probate.

It’s pretty obvious that an estate planning attorney should know about wills, trusts and powers of attorney for both finances and health care. The attorney should also be familiar with elder law, which focuses on those issues that affect seniors, including elder care, living arrangements and governmental benefits.

Although one of your goals may be to stay out of probate court, familiarity with the court and its various types of proceedings would allow an attorney to properly advise you or your loved ones if the situation arises. Also, it is very difficult to draft an effective estate plan without knowing how the taxes on investments, life insurance, annuities and retirement accounts will be affected by the instructions in those estate planning documents.

A thorough understanding of deeds and real estate ownership interests is a requirement for any attorney doing estate planning because most people doing estate planning own a home. In order to accomplish many estate plans, it is imperative that the attorney have a handle on the tax, liability, succession and other ramifications of the various forms of business entities, including C- and S-corporations, partnerships and limited liability companies.

Often the rich and famous do no planning or poor planning. However, with estates whose amounts end in lots of zeros, the unintended consequences have much more of a financial impact. The rich and famous make the same mistakes as everybody else, only worse. The failure to plan or failure to plan properly, has resulted in many estates of the rich and famous to be eaten up administration expenses, taxes and litigation costs.

For example, the King of Rock “n” Roll, Elvis Presley, left a relatively modest $10.2 million dollar estate, considering his stature in the entertainment world. His estate’s settlement costs of nearly $7.4 million, or 73% of his estate, left only about $2.8 million to his heirs.

Many estates of the rich and famous are consumed by settlement costs. What do J.P. Morgan, John D. Rockefeller, T. Frederick Vanderbilt, Alwin C. Ernst CPA, Marilyn Monroe and Conrad N. Hilton all have in common? They had estate settlement costs in excess of 50% of the value of their estates.

Andy Warhol on the other hand, did proper estate planning. Although his estate was nearly $300 million, his estate settlement costs were $6.9 million, only 2.3% of the value of his estate.

Rapper Mac Miller died earlier this month, and surprisingly at age 26, had both a will and a trust to dispose of his assets. He had a trust plan similar to Michael Jackson, who died in 2009. In addition to a trust, Michael had a pour-over will in which any assets not in his trust at the time of his death, went through probate and were poured-over into his trust.

Michael Jackson however, made the same mistake that many people, including many estate planners, make, his trust was not fully-funded. Substantial assets had to go through probate to get to Michael’s trust that he wanted to keep private, triggering numerous probate court battles and resulting in significant settlement costs.

Although an unfunded trust or a will-based plan can be real cheap to set up, they result in substantial fees after your death, including probate. A fully-funded trust-based estate plan will cost more up-front than an unfunded trust or a will-based plan. However, we have found in our practice that the overall costs of fully-funded trust-based estate plans, including the initial fees to set up the plan, annual update fees, disability administration costs and the after death administration costs all combined, total less than typical after death probate costs.

So if you want to keep things private, avoid probate, minimize expenses and maximize the amount going to your loved ones, a fully-funded trust-based estate plan is your best option.

Published edited September 30, 2018 in The Times Herald newspaper Port Huron, Michigan as: Is your Estate plan like the rich and famous?

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