Aretha Franklin has passed on, but her 1968 song “People, get ready” has everyone wondering how she herself was unprepared for the administration of her estate, reportedly worth US$80 million. She died intestate – with neither a will nor trust in place. One of Franklin’s lawyers, Don Wilson, has said he tried to get her to create a will or trust, but she never followed through.
It is hard to believe that anyone of considerable wealth would not have executed a proper estate plan. Yet Ms. Franklin – who was divorced and had four grown children, one of whom (Clarence, 63) has special needs – is not alone. Nineteen lawyers spent several years settling renowned painter, Pablo Picasso’s assets among his six heirs, while music icon Prince left behind approximately $300 million of intellectual property rights with no plan for how they would be allocated.
Following in the footsteps of Pablo, Prince or Aretha inevitably leads to rancour: the people and organisations you care most about may not receive their inheritances; ugly family legal battles may arise over the equitable distribution of assets; and the estate could be subjected to completely avoidable levies.
This article lays out the virtues of traditional estate planning, which include lowering taxes, eliminating probate fees, providing peace of mind and security while one is alive, as well as providing for heirs.
Creating legacy: SECURING YOUR PEACE OF MIND
According to reports on Wealthmanagement.com, The Detroit Free Press and the New York Times, Aretha Franklin’s four sons — Clarence, Edward and KeCalf Franklin, and Ted White Jr. — have already listed themselves as “interested parties” to her estate.
The Detroit Free Press also reports Franklin’s long-time entertainment lawyer Don Wilson as saying. “I just hope it [Franklin’s estate] doesn’t end up getting so hotly contested. Any time people don’t leave a trust or will, there always ends up being a fight.”
Like Aretha, estate planning is a task that people tend to delay, as any discussion of “the end” tends to be off-putting. However, those who leave this world without their affairs in good order risk leaving their heirs some significant problems along with their legacies.
Here is some of what Ms. Franklin (and Pablo Picasso, and Prince) needed to do:
Create a will: A solid, valid will drafted with the guidance of an estate planning lawyer
may prove to be one of the best expenses you ever made, as it saves heirs from the expensive turmoil that comes with ambiguity. Creating a legal will is a great start, but a few other key documents for comprehensive end-of-life planning are necessary. These often include:
Durable financial power of attorney: Determines who has authority to make financial decisions on your behalf if you’re incapacitated.
An advance healthcare directive which usually contains a “healthcare power of attorney” that designates who has the authority to make healthcare decisions on your behalf (including end-of-life decisions) if you become incapacitated. A “living will” – which outlines your specific healthcare values and wishes – may also be necessary. It makes your wishes known when it comes to life-prolonging medical treatments.
Beneficiary designations: Made directly on assets like life insurance policies, designating who inherits those assets. When it comes to life insurance, many people do not realise that beneficiary designations take priority over bequests made in wills and living trusts.
Burial and funeral instructions, which ideally should be left separately from a will.
Selecting a reliable executor: Who have you chosen to administer your estate when the time comes? The choice may seem obvious, but consider a few factors. Is there a remote possibility that your named executor might die before you do? How well does he or she comprehend financial matters or the basic principles of estate law? What if you change your mind about the way you want your assets distributed – can you easily communicate those wishes to that person? Your executor (ideally, objective and impartial third party professionals with extensive legal
and financial expertise, such as a trust corporation) should have a copy of your will, and copies of forms of power of attorney, any kind of healthcare proxy or living will, and any trusts you create.
Taking even firmer control: THE TRUST
Trusts are an important consideration in an overall estate plan, and have become the primary estate-planning vehicle because they afford so many benefits, including ease of transferring assets to heirs, privacy, helping to maximise the value of an estate by reducing taxes, making provision for charitable giving, and providing control over when heirs receive assets (this is particularly useful with respect to minor children, children who do not know how to manage money, and where parents may be concerned about future divorce of children).
Unlike a will, which merely determines who gets what when you pass on, a trust is a legal entity that can hold and control assets, either for your benefit or for the benefit of others that you designate. It can span during your life and until the trust expires, which could be generations from now.
In creating a trust, you name a trustee, who must follow your wishes in distributing the assets in trust to your beneficiaries.
Trusts can be revocable or irrevocable:
- Revocable living trusts offer flexibility to protect your privacy and avoid probate (the court process granting authority to distribute the assets of a deceased person). A revocable trust allows you access to its assets, and to make changes to its provisions. After your death, a revocable living trust bypasses the court, so a trustee can easily and quickly disperse the assets you transferred to the trust.
- Irrevocable trusts may provide tax advantages and protection of your assets, requiring you to remove assets permanently from your estate and your use, and forfeit your ability to change or terminate the trust. Because high net worth individuals are easy targets for nuisance lawsuits, an irrevocable trust is also the perfect instrument for protecting assets against claims and litigation by creditors or predators.
The beneficiaries: YOUNG, WEALTHY AND AMBITIOUS
As baby boomers (a generation the world over, currently aged between 54 and 72) approach retirement and a readiness to transfer their cumulative wealth to the younger Generations X and Y, the world is poised for a generational shift in wealth that will ripple through global business and financial markets. But baby boomers, the wealthiest generation in history, are taking nothing for granted. They are set to ensure that wealth passed on, is preserved for generations to come – by educating the young beneficiaries of their wealth.
Picture this. It’s a summer camp for 52 very wealthy millennial heirs to lavish fortunes. They luxuriate in sleek splendour at the Four Seasons hotel, sipping designer lattes, and talk is of wealth, noblesse oblige, technology, or Formula One. At lunchtime, out comes chilled rosé, with a tasting led by super rock star Jon Bon Jovi’s son Jesse.
Welcome to Camp Rich where, not far from Wall Street, Swiss banking giant UBS Group has convened its annual Young Successors Programme (YSP),
a three-day workshop for young people of means. Part tutorial and part self-actualisation exercise, attendees at the June 2018 YSP are an average age of 27, and will be exposed to chats on estate planning, amongst other subjects.
Similar workshops are held by Citi Private Bank, Morgan Stanley and Credit Suisse across cities such as Zurich, London and Singapore.
Says the aptly named Money K., who heads Citi’s global Next Gen programs from Singapore: “We want young ones to understand that, as a scion of a wealthy family with a business legacy, you have responsibilities. Eventually you will inherit, so how should you think about it, and what are the rules on estate planning in different jurisdictions around the world?”
All the informal mingling has led the young participants to become best friends, invest alongside each other, and talk about family issues. One of the participants, Bongiovi, says: “I went home and asked my parents a million and one questions about how things are set up.” He also adds that he has now met the family’s adviser a few times, and is a lot more familiar and involved with his family’s situation and their next steps.
The future belongs to those who plan for it. Estate plans, which are larger in scope than wills, are clearly important for effective wealth transfer that is meaningful from one generation to the next. The right estate plan and experienced professionals can help navigate complicated family dynamics and concerns that may accompany this process. It’s a small price to pay for the peace of mind and benefit derived.
*Disclosures: This material does not provide individually tailored investment advice. It has been prepared without regard to the individual financial circumstances and objectives of persons who receive it. ARM Investments (ARMI) advises investors to independently evaluate particular investments and strategies, and seek the advice of a financial advisor or wealth manager. The appropriateness of a particular investment or strategy will depend on an investor’s individual circumstances and objectives.
*For financial or wealth management advice, please contact ARM Investment Managers: