Bob’s Journal for 1/11

Lessons About Estate Planning in 2023 from Celebrity Deaths

The rich and famous have a lot of resources available to them and should know better. Yet, they often provide the best examples of estate planning missteps to avoid.

Some celebrities who passed away years earlier had longstanding problems with their estates that weren’t resolved until 2023. I have examples to share with you.

After she died in 2018, Aretha Franklin’s survivors found two handwritten documents in her home purporting to be wills. Neither document followed the formalities of a will. The two were written about four years apart and had very different provisions.

In 2023, a jury concluded that the handwritten document found in her couch cushions was Franklin’s valid will.

In the meantime, the estate and heirs spent a lot of money on litigation expenses. The estate is estimated to be worth considerably less than it was at Franklin’s death, and it hasn’t been managed aggressively to maximize royalties from her recordings.

James Brown passed away in 2006 with a detailed will. But he had numerous children and grandchildren who didn’t receive much under the will. They filed lawsuits challenging the will, as did a woman who claimed to be his widow.

A settlement between the disputants was rejected in 2013 because it deviated too much from the terms of Brown’s will. A final settlement was reached in 2021. Brown was buried at a daughter’s home in Beech Island, South Carolina, where he also lived at one time.

The daughter had planned to turn the home into a James Brown museum, but announced that she dropped those plans because of the time and expense involved in settling the estate and the delay in distributing Brown’s personal items that would have been attractions at a museum.

U.S. Senator Diane Feinstein, who passed in 2023, was the subject of several lawsuits in 2022 and 2023. The disputes surrounding Feinstein are classic conflicts of a blended family and began after Feinstein’s wealthy second husband died in 2022.

Using a power of attorney for Feinstein, her daughter from a first marriage claimed she and Feinstein were being shortchanged by Blum’s trustees and his daughters from his first marriage.

Estate planning requires considerably more thought and planning when there is a blended family. The situation becomes especially precarious when the spouses’ assets are mingled after one spouse passes away. That creates suspicion and built-in conflicts of interest between the two sets of children.

Feinstein and Blum could have done a better job of segregating the assets that would be inherited eventually by the two sets of children.

The lawsuits filed before her death don’t appear to be resolved, and there’s potential for more conflict as Feinstein’s estate moves toward settlement.

Elvis Presley’s daughter, Lisa Marie Presley, passed away in 2023. A legal dispute quickly followed.

A 2016 amendment to Lisa Marie’s living trust removed her mother and former business manager as trustees and replaced them with Lisa Marie’s children, one of whom passed away in 2020.

The dispute was settled quickly and privately, but not before making a lot of headlines. Lisa Marie’s mother, Priscilla, said she never was made aware of the change in trustees and questioned the signature and other formalities of the trust amendment.

Communication probably could have prevented this dispute since Priscilla apparently was surprised to learn of her removal as co-trustee. There also would have been few or no grounds for a dispute if the amendment to the trust had been prepared more carefully and followed all the legal formalities.

A less-famous family was involved in a dispute over the ownership of some Norman Rockwell illustrations.

Rockwell gave the illustrations to President Franklin Delano Roosevelt’s press secretary. They were displayed in the White House for a while.

More recently, the illustrations have been in the possession of one of the press secretary’s grandsons. Other descendants argued that the press secretary, Stephen T. Early, died without a will in 1951, so all the descents owned a share of the illustrations.

The grandson claimed that before his death, Early gave the illustrations to his daughter (the grandson’s mother), who in turn bequeathed them to him.

The court ruled that Early’s estate documents didn’t show any ownership of the illustrations at his death. Also, the possession by the daughter and grandson created a presumption of ownership. The other descendants provided insufficient evidence that they had some ownership interest in the illustrations.

The dispute could have been avoided, of course, if Early had a will. The probate documents would indicate if the illustrations were in the estate and, if so, how they were distributed.

When gifts are made of valuable assets such as the Rockwell illustrations, it’s a good idea to develop some documentation of the gift and file a gift tax return even if no gift tax is due.

Required Minimum Distributions to Soar

Required minimum distributions (RMDs) from IRAs and other retirement accounts will be much higher in 2024, according to Fidelity Investments.

The investment firm tabulated the IRA balances at the end of 2023 for its clients who must take RMDs, then estimated the RMDs they’ll have to take in 2024. Fidelity estimates those clients will have to take RMDs totaling $25 billion, whether they need the money or not.

The surge in stock and bond markets at the end of 2023 pushed IRA balances higher. Balances at the end of 2023 determine the RMDs to be taken during 2024.

Though tax brackets are indexed for inflation, the inflation adjustments were much lower than the market returns in 2023. The result is going to be higher forced distributions from many IRAs and more taxes to be paid on those RMDs.

Making the tax situation worse for many is that the percentage of the IRA that must be distributed increases each year. So, IRA owners have higher balances than last year and must distribute a greater percentage of the balance.

The increase in RMDs will push a number of taxpayers into higher tax brackets and trigger or increase the Stealth Taxes, such as the Medicare premium surtax, tax on Social Security benefits, and 3.8% net investment income tax.

IRA owners who are taking RMDs or will be in a few years can act now to reduce future RMDs and the taxes on them.

If you make charitable gifts, be sure to use qualified charitable distributions from traditional IRAs to make at least some of the donations.

Also, consider converting all or part of a traditional IRA to a Roth IRA to avoid future RMDs. Alternative strategies are to distribute additional amounts from a traditional IRA, pay the taxes and use the after-tax amount to buy a permanent life insurance policy, to set up a charitable remainder trust, or to invest in a taxable account. Details of these strategies are in the March 2023 and April 2023 issues of Retirement Watch.

Digital Estate Planning is Critical for Small Businesses

Every estate plan should incorporate the owner’s digital assets. But small businesses should make digital estate planning a priority.

Small businesses have a great deal of information and assets online. Digital assets are a key part of operations, accounting, marketing, and other aspects of a business.

It is vital for a business’s continuation that there first be an inventory of all the digital assets and activities, including how to access them.

Then, the owner must designate who will have the right and responsibility to manage the different digital aspects of the business.

The decisions need to be included in business succession plans, the owner’s will and trust, and any other legal documents. All this needs to be communicated to the appropriate people involved with the business.

The Data

The Small Business Optimism Index from the National Federation of Independent Business (NFIB) increased to the highest level in five months in December, 91.9. That’s up from 90.6 in November.

Small business owners said inflation replaced hiring qualified employees as the most important problem they face.

Total consumer credit outstanding increased at an annual rate of 5.7% in November. Revolving credit (mostly credit cards) climbed at a 17.7% rate, while nonrevolving credit (mostly vehicle and student loans) increased at a 1.5% rate.

The ISM Services Index declined to 50.6 in December, the lowest level in seven months. In November, the index was 52.7.

The PMI Services Index increased to 51.4 in December from 50.8 in November and 51.3 in mid-December. The final December number is the highest for this index in five months.

The PMI Composite Index in December rose to its highest level since July, 50.9. That’s an improvement from 50.7 at the end of November.

Factory orders recovered in November, rising 2.6% after declining 3.4% in October.

Transportation accounted for a lot of the change. Excluding transportation, orders increased 0.1% in November.

And excluding transportation and defense, which is considered a good indication of business investment, orders increased 3.0% in November.

Employers added 216,000 jobs in December, according to last week’s Employment Situation reports. That compares to 173,000 new jobs in November.

Average hourly earnings increased 0.4% in both December and November. Over 12 months, earnings grew 4.1% through December and 4.0% through November.

In 2023, 2.7 million jobs were added to the economy for an average monthly gain of 225,000 positions.

The number of new private sector jobs increased by 164,000 in December, according to the ADP Employment Report. There were 101,000 new jobs created in November.

New unemployment claims declined by 18,000 to 202,000 in the latest week.

Continuing claims, which lag a week behind new claims, decreased to 1.855 million from 1.886 million.

The Markets

The S&P 500 rose 0.26% for the week ended with Tuesday’s close. The Dow Jones Industrial Average lost 0.51%. The Russell 2000 fell 2.28%. The All-Country World Index (excluding U.S. stocks) declined 0.75%. Emerging market equities retreated 1.89%.

Long-term treasuries lost 1.72% for the week. Investment-grade bonds fell 0.21%. Treasury Inflation-Protected Securities (TIPS) declined 0.46%. High-yield bonds gained 0.13%.

On the currency front, the U.S. dollar rose 0.48%.

Energy-based commodities increased 1.66%. Broader-based commodities rose 0.51%. Gold declined 1.44%.

Bob’s News & Updates

My latest book is “Retirement Watch: The Essential Guide to Retiring in the 2020s.” Learn more and order by clicking here and here. You can be among the first to write a review.

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If you’re interested in my books, check my amazon.com author’s page.

I’m a senior contributor to the Forbes.com blog. You can view my contributor page here.