Aretha Franklin: Two Financial Lessons We Learn From Her Legacy

“Most people don’t plan to fail: they fail to plan.” John L. Beckley

Two weeks ago we lost one of the greatest voices, arguably the greatest, this world has ever heard Ms. Aretha Franklin.  I have always been drawn to Aretha Franklin for three reasons, first we share the same birthday March 25. Secondly, she was born in Memphis, TN where both sides of my family are from and finally she was a Preacher’s kid like me. A child prodigy, gifted musician and activist Aretha Franklin used her God given abilities for nearly seven decades to bless the entire world.

As the tributes, memorials and her music continue to be shared on all media platforms since her transition, I admit I was shocked when the news regarding her finances and estate were released publicly.  Multiple news outlets have reported that Aretha’s Net Worth was estimated to be $80 Million Dollars and that she died intestate (the legal term for dying without a will). The reported value of her net worth and dying without a will provides all of us, two financial lessons we can learn from Aretha Franklin.

Stop Paying So Much To Your Managers– How does The Queen of Soul who sold 75 million records, is credited as a songwriter on hundreds of albums by other people and a performer for nearly seven decades only have a net worth of $80 Million at her death? To me it is unfair that a talent who was an icon to millions for so long doesn’t even rank on modern lists of the richest people in her own industry, let alone the world at large. Here’s why:

Top stars in Aretha’s imperial period didn’t earn as much as they do now. “Management” was often aggressive and took a huge share of every dollar that came in from album sales, concerts, media appearances, you name it. Talent management was the career to pursue if you wanted the big money. Being the talent was where you went if you were happy to get a bigger piece of your overall compensation in applause.[1] So we can see how talent “managers” impacted the overall value of Aretha’s compensation then and her net worth now.  If we are not careful, investment fund “managers” can take a huge share of every investment dollar we contribute to our retirement accounts.

Many investments we use for our retirement are laden with hidden fees from investment fund managers that derail our overall investment goal.  We trust these managers to provide us the best advice, management and returns but yet they make more money on fees than sometimes we do on our own money.  Do you know how much you are paying for your investment advice?  Do you know all the fees that are deducted from your investment and retirement accounts?  If now, I am offering to you a no-obligation complimentary Fee Analysis on your investment accounts. Call our office today at 615-678-6603 so we can ensure you are not overpaying your fund managers.

Have An Estate Plan- What hurt the most surrounding Aretha Franklin’s death is not that she had died, but she died without an Estate Plan. Estate planning is the process of anticipating and arranging, during a person’s life, for the management and disposal of that person’s estate during the person’s life and at and after death, while minimizing gift, estate, generation skipping transfer, and income tax.[2]

The biggest focus on Aretha’s lack of an Estate plan has been on the fact she did not have a Will, but in my professional opinion the fact she did not have a Trust is more alarming.

What is a Trust? A trust is a fiduciary arrangement that allows a third party, or trustee, to hold assets on behalf of a beneficiary or beneficiaries.[3] Among the chief advantages of trusts, they let you: Put conditions on how and when your assets are distributed after you die; Reduce estate and gift taxes; Distribute assets to heirs efficiently without the cost, delay and publicity of probate court. Probate can cost between 5% to 7% of your estate; Better protect your assets from creditors and lawsuits; Name a successor trustee, who not only manages your trust after you die, but is empowered to manage the trust assets if you become unable to do so.[4] For the aforementioned reasons a trust could have potentially saved Aretha’s heirs from losing over 40% of her $80 Million Dollar Estate in inheritance, federal and state taxes.  Here are three specific Estate Planning vehicles I wished Aretha Franklin had utilized:

Irrevocable Life Insurance Trust- If you don’t want to leave your family members in a difficult financial situation after you die, it’s a good idea to buy life insurance. Life insurance proceeds generally aren’t taxable. But after you pass away they could be included in your estate, which would be subject to taxation. To avoid having your life insurance proceeds taxed, you can create an irrevocable life insurance trust. You’d essentially be setting up a trust and transferring the ownership of it to another person. The trust is irrevocable because in the future, you wouldn’t be able to make adjustments to it without the consent of the trust’s beneficiary.

By transferring over your life insurance policy, your death benefits wouldn’t be included in your estate. It’s best to do this sooner rather than later, however. If you die within three years of making the transfer, your life insurance proceeds would still be considered part of your taxable estate.

Family Limited Partnership- If there are any family-owned businesses or assets (such as music) that you want your children to own after you’re gone, you can set up a family limited partnership. Typically, this involves establishing a general partnership and then making heirs and family members limited partners.

As the general partner, you’ll still be able to call the shots. But your partners (whether they’re your children or another relative) will have a stake in your company or own a portion of your assets. As a result, the size of your estate will be smaller.[5]

Special Needs Trust- Aretha Franklin’s oldest son Clarence has special needs and will need financial and other forms of support for his entire life.  If you want to leave money or property to a loved one with  special needs, you must plan carefully. Otherwise, you could jeopardize your loved one’s ability to receive Supplemental Security Income (SSI) and Medicaid benefits. By setting up a “special needs trust” in your will, you can avoid some of these problems. Owning a house, a car, furnishings, and normal personal effects does not affect eligibility for SSI or Medicaid. But other assets, including cash in the bank, will disqualify your loved one from benefits. For example, if you leave your loved one $10,000 in cash, that gift would disqualify your loved one from receiving SSI or Medicaid. A way around losing eligibility for SSI or Medicaid is to create what’s called a special needs or supplemental needs trust. Then, instead of leaving property directly to your loved one, you leave it to the special needs trust. You also choose someone to serve as trustee, who will have complete discretion over the trust property and will be in charge of spending money on your loved one’s behalf. Because your loved one will have no control over the money, SSI and Medicaid administrators will ignore the trust property for program eligibility purposes. The trust ends when it is no longer needed — commonly, at the beneficiary’s death or when the trust funds have all been spent.[6]

You may or may not need a Trust, but everyone should have an Estate plan.  I write about Legacy and Estate Planning in my new book, click here to get your free copy. I believe everyone should work with a qualified estate planning attorney to guide you in your Estate planning.  When you call our office we will connect you with reputable estate planning attorneys in your area and town.

We will miss the gift in the form of Ms. Aretha Franklin. As we continue to celebrate her life and legacy, we should also remember these two financial lessons from her life: Stop paying so much to your “investment” managers and have an estate plan. Rest well Queen, we are all the better because you came our way.

[1] https://www.thewealthadvisor.com/article/aretha-franklins-estate-almost-criminally-undervalued-even-80-million?mkt_tok=eyJpIjoiTnpobE1XUTNPRGhoWlRJNSIsInQiOiI4ekRFdndcL1Q5VXhmWU5vYVFlTkVXMXlhWHRtRVNJRUt5bVNiUWR4YVF3VjFFK1Q2U3p6aXdcL1dRUFwvWkY0UDAwNzJwMzBseHgybUtBR3FJNDgxQ1FsN05vSTdhY2sxcEd0aytKeUN2S3oycjVpdjRyYlZxKzJyZGdaWm5OU1NmSCJ9

[2] https://en.wikipedia.org/wiki/Estate_planning

[3] https://www.fidelity.com/growing-managing-wealth/estate-planning/trusts

[4] https://money.cnn.com/pf/money-essentials-trusts/index.html

[5] https://smartasset.com/taxes/5-ways-the-rich-can-avoid-the-estate-tax

[6] https://www.nolo.com/legal-encyclopedia/special-needs-trusts-30315.html