Posted by: Heinz Brisske
We’re hearing a lot about how Michael Jackson died, and learning the role of his physician in his death, but what was the legal fallout resulting from his death? Apparently, for someone who is considered by many to have been a bit “out there,” Michael Jackson did something surprisingly sensible before his death.
He set up a smart estate plan.
Jackson’s will provides for the care of his loved ones. A revocable living trust gathers his assets – said to be over $500 million, exceeding his debt by about $200 million – ensuring that his affairs stay (for the most part) out of the courts and (to the extent such a thing is ever possible for a superstar) out of the public eye.
Far from being wacko, the arrangements set the stage for an orderly disposition of his chaotic empire, according to Kiplinger’s Personal Finance. Here’s what you can learn about estate planning from the King of Pop.
Write a will.
About two-thirds of Americans neglect to undertake this most basic estate planning obligation, and instead allow a judge to divide up their assets according to state law. Had Michael Jackson allowed that to happen, his estate would have been split among his three children, as dictated by California law. Instead, he divided it the way he wanted to, reportedly leaving 40% of his estate to the kids, 40% to his mother, Katherine Jackson, and 20% to charity.
Consider a living trust.
Along with a will, Jackson established a Living Trust, also called a revocable trust. This estate planning tool allowed him to transfer all his property, including bank accounts, real estate and other assets, into a separately owned entity, while maintaining control as Trustee. At his death, control transferred to his designated successor Trustee. Most people, including Jackson, set up their will to “pour over” so that whatever property remains outside the trust at their death eventually is added to it.
The beauty of a living trust is that the assets it holds at the time of death avoid probate, a time-consuming, expensive and public process. Avoiding probate can also make sense for regular folks with significant assets or property in more than one state because it spares their heirs the aggravation of a prolonged legal process, called ancillary probate. Overall, it can save a lot of money, time and hassle. Unfortunately, although many people set up Living Trusts, they often forget the next necessary step to making them work as designed: they neglect to transfer their assets to the trust. In that case, probate is NOT avoided, and many of the benefits of a Living Trust are lost.
Name a guardian.
When he wrote his will, Jackson named a guardian for his children, all of whom were minors. Without that document, the state – not Jackson – would have made the ruled on who would raise his children. Jackson selected his mother as primary guardian and singer Diana Ross, his longtime friend and mentor, as backup. Although the court has to sign off on the selection, most judges abide by a parent’s wishes unless there is a compelling reason not to do so.
In most states, the surviving biological parent will demand, and receive, custody. Unless he or she is deemed unfit or has given up parental rights, “the court is going to favor the surviving biological parent,” says Richard Barnes, an estate-planning attorney and author of Estate Planning for Blended Families (Nolo, $35).
Assemble a good team.
Known as an astute businessman, Jackson named a top-notch lawyer, John Branca, and a savvy business executive, John McClain, as co-executors of his will and co-Trustees of his trust (a third representative dropped out before Jackson died.). By relying on these and other experts, Jackson improved the odds that his wishes would play out.