Planning, valuation could have saved Aretha Franklin’s heirs $20 million

September 20, 2018

By Jimmy J. Williams at AICPA on September 17, 2018

Aretha Franklin, the “Queen of Soul,” passed away last month in her birthplace of Detroit after six decades reigning the music industry. The first woman inducted into the Rock and Roll Hall of Fame, Ms. Franklin leaves behind legendary hits and performances and a legacy many entertainers only dream of achieving. What she didn’t leave behind, however, is a will.

Without a will in place, it’s now up to the state of Michigan to determine how her reported, yet unconfirmed, $80 million net worth is divided among her four children. And that amount could rise as her estate is valued. In hindsight, with some tax and financial planning, and a quality valuation—even just a few months ago—Ms. Franklin’s beneficiaries could have saved more than $27M in estate taxes.

Tax and financial planning

First of all, avoiding this type of situation is exactly why CPAs should mention the importance of an estate plan if they sense a client’s resistance to writing a will. When faced with an estate challenge, the family of the individual (or, in this particular case, the entertainer’s agent) should become involved to protect the client’s interest. One of the first steps to take is the review of titles to property, employing any state laws that allow the passing of real property through transfer-on-death elections on deeds. This is one of the simplest, yet most effective, means of transferring real property to heirs without the need for probate.

Also, it is imperative to account for the net worth of the client annually. By maintaining accurate records that reflect cost basis, it is far easier to initiate a valuation after the owner is deceased. That’s where the need for experienced professionals in valuation, a growing advisory service, comes into play.

Valuation

Assigning an estimated value to intangibles like publicity, brand, image rights and music royalties can be very complicated. More and more, firms of all sizes rely on valuation experts like Accredited in Business Valuation (ABV) credential holders to play a key role in determining the value of these assets, but it’s important they do so in a justifiable manner that will prevent the IRS from challenging its value.

Intangible assets are typically the most significant assets owned by an entertainer’s estate. From a financial planner’s perspective, the values of such assets are necessary to assist in creating cash flow that may be required to liquidate estate taxes. This cash flow could also help continue the function of the artist’s business ventures as well as the payment of any business debts triggered for repayment upon the death of the entertainer.

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