Aretha Franklin, Queen of Soul, Dies Intestate

Singer Aretha Franklin passed away on August 16, 2018. The 76-year-old "Queen of Soul" died at her Detroit home of pancreatic cancer, surrounded by family.

Winner of 18 Grammy awards and known for iconic songs like "Respect," Franklin was intensely private about her life and her finances. A 2016 New Yorker profile revealed that she asked for payment for a performance in cash, and would keep the money she received in a handbag onstage during her performance.

It looks like the era of privacy is over for Franklin and her family, because she died intestate (without a will). This past week, her sons Edward Franklin, Kecalf Cunningham and Ted White, and the guardian of her oldest son Clarence Franklin, filed papers in a Michigan Probate court indicating that their mother did not leave a will or trust. Her estate will be probated, and the details open to public inspection. 

The attorney who represented Franklin in her entertainment dealings, Don Wilson, has said that he repeatedly encouraged his client to create an estate plan, with no luck. "I was after her for a number of years to do a trust," he said. "It would have expedited things and kept them out of probate, and kept things private." Like many Americans, Franklin resisted dealing with the issue - even though she had plenty of time to do so after the diagnosis of pancreatic cancer that would ultimately take her life.

In addition to opening up the family's finances to public view, Franklin's failure to plan opens the door to several other potential issues for the family: 

Estate taxes: Without tax planning, Uncle Sam likely gets a bigger bite of federal estate taxes than it would if she engaged in appropriate tax planning. This will leave less for her family. The current estate tax exemption for an individual is $11.2 million; the difference between that and the $80 million currently in her estate could be taxed up to 40%. 

Distribution of the estate: Michigan intestacy law will govern how Franklin's estate is divided. She was not married at the time of her death, so the estate will be divided equally among her four sons. This seems equitable on the surface, but may actually be a negative for her oldest son, Clarence, who has special needs and may require more money than his brothers. 

Royalties may complicate the estate: Franklin had rights to an extensive song catalog, so that $80 million is probably the tip of the iceberg. Managing the estate could get more complicated as time goes on.

Fortunately, it looks like Franklin's four sons get along well, so that's a good omen for the future. Of course, time will tell.

Please see a competent estate planning attorney to create your own estate plan, so that your family does not need to deal with unnecessary complications and loose ends when you are gone!

Tax Reform Bill Presents Challenges For Clients

Effective January 1, 2018, a comprehensive tax reform bill took effect. It is the most sweeping change to the tax code in 30 years, since the 1986 tax reform legislation under President Reagan.

Will this new law have the same longevity as Reagan's law? Most experts think not, because unlike the 1986 legislation, the new law lacks bipartisan support. Therefore, any planning done relative to the new law should be approached cautiously. You should not assume the new law is a safe or permanent guideline on which to base your estate planning.

The new estate tax and gift tax exemption is doubled from $5.6 million per individual, to $11.2 million. But don't be lulled into a sense of false security. While history shows us that no tax law is permanent, this new law presents two specific issues to keep in mind and prepare for:  

• After the congressional election of 2018, and the presidential and congressional elections of 2020, there could be a substantive overhaul of the new law.     

• Even if there is no substantive change as a result of the 2018 and 2020 elections, the new law mandates that in 2026, the estate tax exclusion will revert back to its 2017 level: $5.6 per individual, along with inflationary adjustments.

Here are just two examples of what might occur as a result of these issues:

• Someone gives $11.2 million as an exempt gift in 2018 and passes away in 2026, when the 2017 exemption is again in effect. The government may "claw back" the $11.2 million gift, include it in the decedent's estate, and tax $5.6 million of the previously gifted funds ($11.2 million minus $5.6 million). 

• A married couple believes that is highly unlikely that they will have a combined estate of $11.2 million. They do not  realize that in 2026, the lower estate tax exemption is again in effect. If they do no estate tax planning, they may inadvertently leave their estate vulnerable to estate taxes in the future.

What to do now?  
My recommendation is that you have your estate plan reviewed so that it has all of the flexibility and necessary protections that you and your family need for an uncertain future. Plan defensively and do not be lulled into complacency.

Our attorneys continue to analyze how the new law may affect your legal and financial planning going forward. Be sure to check this blog, our website, like our facebook page, and subscribe to our twitter feed to keep up with developments. If you don't already receive it, you can also sign up for our monthly e-newsletter. 

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Roger Ailes' Florida homestead protected from lawsuit liabilities

Roger Ailes, the media mastermind behind Fox News, died May 17 after falling at his Palm Beach home. The medical examiner attributed his death to bleeding on the brain, exacerbated by the fact that Ailes suffered from hemophilia. He leaves behind his wife, Elizabeth and a son, Zachary. Ailes was 77.


Ailes launched Fox in 1996, leaving the network last year amid a widening web of sexual harassment accusations. Two lawsuits naming him personally were ongoing at the time of his death. An individual's debts and liabilities do not disappear when the person passes away. Instead, the estate substitutes for the decedent. Attorney Gloria Allred has said she expects the lawsuits against Ailes to continue, with his estate now the target of the proceedings. 


Newsweek estimates Ailes' fortune at $100 million. He earned $20 million annually while at Fox, and took a $40 million severance package upon leaving the network. He also owned several homes, including the $36 million Palm Beach residence he purchased just after leaving Fox. That was a shrewd legal move: Ailes had recently declared himself a Florida resident, qualifying his Florida residence as homestead property. Under Florida law, homestead property is beyond the reach of creditors. Thus, unless his wife Elizabeth has waived her homestead rights, the home will pass to her, safe from any legal judgments.


In addition to availing himself of Florida homestead law, Ailes' relocation here offers other tax advantages. Since Florida has no estate tax, his estate will owe none. In terms of the federal estate tax, what is owed will depend upon the nature of the estate planning Ailes did. (Federal estate tax kicks in for all taxable assets over $5,490,000.)


The evidence fueling the two pending lawsuits against Ailes is based on private conversations he allegedly had with the plaintiffs, Andrea Tantaros and Julie Roginsky. Ailes always denied their allegations. Without him here to defend himself, the defense may be weakened. On the other hand, the plaintiffs may need to buttress their case with evidence beyond those private conversations. It is possible that Ailes' estate may now be eager to settle out of court, in order to sew up his affairs as quickly as possible.

Services a Florida Elder Law Attorney provide you and your family

Just what does an elder law attorney do? What are our services? Why would you want to consult with an elder law attorney? Can younger people use our services? Are our services different from those that an estate planning lawyer provides? You may not know the answers to the above, because elder law is a relatively new field. Let me clarify how we can help you and your family. 

As the term implies, elder law helps people with the legal concerns they have as they grow older. And today in America, there’s a lot of concern! According to the census bureau, 40.3 million Americans were age 65 or older in 2010. That number is expected to rise to 89 million by the year 2050.

One area of concern is making sure loved ones inherit one's assets as efficiently, inexpensively, and stress-free as possible. This is estate planning, and it’s one of the services my law firm provides. We help clients set up wills and trusts and determine how to best structure these plans. Many clients want to keep their estates out of Florida probate. Others with taxable estates seek my help to minimize or eliminate the tax bite.

Some clients have additional planning concerns. They may have children who do not get along and cannot serve as co-trustees or co-beneficiaries. Or a child may have a disability, making a special needs trust and additional legal and financial planning advisable. A parent may be estranged from a child and wish to disinherit him/her, or include the child in an estate plan in a manner that does not jeopardize the other beneficiaries. Or a client may be so concerned about a child’s reckless spending habits that it is prudent to install certain controls in the plan.

Retirement plans like IRA's and 401K's often require special treatment in an estate plan. And for clients who own rental property and are concerned about potential liability, we can assist by setting up a limited liability company for the property.

Blended families, so common these days, can present particularly thorny estate planning challenges. A person in a second marriage who has children from a prior marriage often wants to ensure the spouse is taken care of, while still protecting his/her own children’s inheritance. The couple may have their own children together, too. It can get complicated!

Of course, when someone dies, my law firm helps the family with probate or trust administration. 

Even younger people need our services, making the term “elder law” unrealistically restrictive. For example, my clients include many first-time parents who recognize that they need to set up a will in order to name a guardian for their children. If they have a special needs child who will likely never be self-sufficient, they need to start planning accordingly. Younger couples come to us to ensure that the spouse is protected should one of them become ill or pass away. We even prepare health care surrogates and durable powers of attorney for young adults, since once a child achieves majority, parents are no longer able to automatically make decisions for the child. 

As you can see, elder law attorneys do what estate planning attorneys do. But they do more - because elder law is not just about death. It’s also about life. We help clients remain in control of their medical destiny and their financial affairs while they are alive. Today's longer life spans mean we have a greater risk of becoming incapacitated at some point. If you are like most people, you will probably want your health care decisions and financial decisions to be made by someone you have so authorized, not a court-appointed guardian who may not know your values or priorities. To make this happen, we will help you create a durable power of attorney, and a health care surrogate. We will also help you fashion a living will to ensure that your wishes are honored at the end of life. Of course, all of these “life plans” need to be consistent with your “estate plans.”

Another area of practice unique to elder law is long-term care planning. The incidence of incapacity is growing dramatically, especially diseases like Alzheimer’s. Alzheimer’s and other dementias are hugely expensive diseases; if a loved one needs a nursing home on a long-term basis, the vast majority of families will go broke in short order. A significant part of our practice is devoted to helping families get access to government benefits like VA benefits or Medicaid, allowing the family to preserve some portion of its assets. This is a particularly urgent issue when the patient has a well spouse whose nest egg is threatened by nursing home costs.

As you can see, we elder law attorneys have a lot on our plate. If any of these issues I've mentioned concern you, we look forward to assisting you!

What can clients expect following the 2016 election?

The most contentious election in recent memory is over. Whatever your opinion of the results (and I'd venture to say you probably have a very strong opinion), my job is to analyze the impact of the election on the issues that concern my clients, and to recommend steps they may take.

Specific predictions are impossible, of course. However, we can make some educated guesses about what a Trump presidency would look like based on (1) what was said on the campaign trail; and (2) the GOP platform, since it now controls both houses of Congress. Here are some possible scenarios that could impact clients:


Changes to Florida Medicaid Benefits for Long-Term Care?

During the campaign, Trump did not mention the growing long-term care crisis that is bringing more and more middle class families to financial ruin. Clients who do not have long-term care insurance to cover nursing home expenses often turn to Florida Medicaid long-term care benefits, and, with our help, can preserve a significant portion of their assets without going broke. 

Currently, the Centers for Medicare and Medicaid Services set the basic ground rules for Medicaid, with the states having some leeway to fine-tune the rules. Republicans have long advocated replacing this system with "block grants," whereby each state would get a chunk of money, most likely a smaller chunk than they receive now. Each state would then have the freedom to formulate its own eligibility standards and other rules. If this occurs, the potential negative implications for clients could be profound. For example, as a cost-cutting measure, Florida or any state could extend the look-back period beyond the current five years, and/or well spouses of nursing home residents could lose their current financial protections.

Recommendation: 

If you believe you have inadequate protection from long-term care costs, take action without delay.

• Look into long-term care insurance. Many types of policies are now available, other than traditional policies. Read my prior post on these new types of hybrid policies. Call our office and we can put you in touch with someone who can help you select a policy. 
• In the alternative, start doing Medicaid planning, taking the steps necessary to protect your assets. Call my office for assistance.

Medicare to be Reconfigured?

Currently, 57 million seniors receive Medicare benefits. In the months leading up to the election, Trump said little about the program. However, his website now mentions "modernizing" Medicare, with the help of Congress. We do not know what "modernizing" means, but we do know that House Speaker Paul Ryan has long supported dismantling Medicare's current configuration and replacing it with a voucher system. Under that system, seniors would get a subsidy to be used to purchase private health insurance. The new system would apply only to future beneficiaries, not to those already receiving benefits. 

The GOP has also expressed a desire to increase the age of eligibility from 65, to 66 or 67. Rep. Tom Price (R-GA), House Budget Committee chair, recently told reporters that the GOP will likely begin pushing for major cuts to Medicare within the coming months. 

Some experts also expect dismantling of other programs benefiting seniors that were put in place by the Great Society program and by the New Deal. We'll have to wait and see.




Scrap the New Fiduciary Rule for Retirement Accounts?

As I reported in a prior post, beginning in April 2017 a new Department of Labor rule requires those providing financial advice on tax-advantaged retirement accounts such as IRA's and 401k's to adhere to a "fiduciary" standard. Under that standard, the advisor's recommendations must be based solely on the client's best interest. If a more expensive or riskier investment is suggested, the advisor must explain the reasons for the recommendation. This differs from the current rule, whereby an advisor is legally obligated only to steer clients into "suitable" investments - even when the suitable investment is more advantageous for the advisor than for the person being advised. It is precisely such conflicts of interest that the new rule was designed to eliminate. 

The new rule was applauded by consumer advocates, and generally opposed by the financial industry. Trump has made no specific mention of it, but CNBC in October 2016 reported that a key Trump advisor said that the President-elect will likely push for its repeal.

Recommendation:

• If you are receiving advice on your retirement accounts from a broker-dealer, be sure to ask the rationale for any recommendations. Ask if there are other options available that may be better. Do not make hasty decisions.

• Whether or not the fiduciary rule stands, note that a Registered Investment Advisor, unlike a broker-dealer, is legally obligated as a fiduciary and must act in accordance with your best interest. If you would like to consult with one of Karp Financial Services' Registered Investment Advisors, please call 561-626-1130. 

Estate Tax to be Eliminated?

The estate tax put $18 billion in federal coffers in 2015, but affected only about 5,000 estates, according to the Tax Policy Center. Beginning January 1, 2017, an individual may pass $5.49 million tax-free (up from $5.45 million in 2016); a married couple can double that amount. The excess is taxed at 40%. Obviously, only the very wealthiest Americans are impacted by the estate tax. Proponents of the estate tax point to its role in mitigating the accumulation of dynastic wealth. Critics view it as an inherently unfair form of double taxation. Trump falls into the latter group and has specifically called for its elimination.

He has also proposed eliminating the step-up in basis for inherited assets over $10M. If this comes to pass, assets over this amount will be subject to capital gains tax of 20%, based on what the decedent paid for the asset, not on the day-of-death value which is the current rule. It is unclear whether the tax would be levied when the asset is inherited, or only when it is sold. Paul Ryan, however, has said he is in favor of retaining the step-up.

Income Tax Brackets Changing?

Under the President-elect's income tax plan, the current seven income tax brackets would be reduced to three, as follows: 

• For married couples filing jointly with taxable income of up to $75,000; and for single filers with taxable income up to $37,500: 12% marginal tax rate. 

• For married couples filing jointly with taxable income from $75,000 to $225,000; and for single filers with taxable income from $37,500 to $112,500:  25% marginal tax rate. 

• For married couples filing jointly with taxable income of $225,000 or greater; and for single filers with taxable income of $112,500 or above: 33% marginal tax rate.

Contrary to popular belief, not all middle class taxpayers are expected to benefit from Trump's proposed tax plan. The non-partisan Tax Policy Center estimates that nearly 8 million middle class families would pay higher taxes under his proposals, a view shared by the conservative Tax Foundation and American Enterprise Institute.

Additionally, it is unclear as to what tax deductions would be retained or scrapped. 

Recommendation:

At this juncture, there is little actionable information to go on. Stay alert to developments, so that you can take advantage of any possible tax benefits and avoid pitfalls. Consider using a financial advisor to help you stay current, and who can inform you of any benefits and complications of particular investments.  

We will keep our eye on all these issues and report any new developments to you. Keep up with the news by checking this blog, our website, and our Facebook page. You may also subscribe to our monthly e-newsletter here.