As you’ve probably guessed if you’ve read much of what’s posted on this site, I’m a passionate advocate for creating a solid, well-crafted Exit Plan well in advance of the time when you might need it. So I’ve been paying close attention to the breaking news over the past ten days about Michael Jackson’s will and what will likely happen to his estate after his untimely exit. Rarely has this kind of attention been paid by the public on the details of a certain part of Exit Planning. And now that more of the story of Jackson’s will has emerged, it looks as if he made good decisions about some things – from an Exit Plan perspective – and made some not so wise decisions. Yes, Michael Jackson’s financial situation was more complicated than some, but over the years I’ve seen many cases in which the basic situation (minus the notoriety factor) was the same, if you just change the dollar amounts involved.
There has been a lot of speculation about what will happen to Michael Jackson’s estate, which has been reported as worth $1 billion, including part ownership in a Beatles music catalog, along with a speculated $500 million in debt. Early reports said that no will was made. Had Jackson, who was unmarried, died without a will or trust, all of his assets would have been subject to estate taxes (which are upwards of 46% on estates valued at more than $2 million). If the estate’s assets are not liquid (and it appears that Michael Jackson’s mostly were not), the heirs have to sell off assets, often at below-market value, to cover the huge estate tax bill.
However, a 2002 will has now surfaced which bequeathed his assets to the Michael Jackson Family Trust, benefiting his children, his mother, and some charities. So Michael Jackson did pay attention to one aspect of Exit Planning – he created a “revocable living trust.” In this type of trust, the Trustmaker (who is also at this point the Trustee and Beneficiary), funds the trust with all of his or her assets and designates the trust as the beneficiary of the estate.
But it appears that Jackson failed to fund the Michael Jackson Family Trust before his death. (Funding means to re-title your assets in the trust’s name, so that it has control of those assets at the time of your death.) This means that all his unfunded property is subject to probate in order to fund the trust. Probate costs vary, but can run anywhere from 2%-4% of the estate’s value in court and legal fees. Also, the proceedings are public in nature and will create a continued feeding frenzy for the press. Given that there are also large debts that Jackson’s estate will have to pay and, as mentioned, that his assets are not liquid, the fact that he had not already funded the trust means that significantly less will go to his beneficiaries.
The bottom line, in my view, is that Michael Jackson needed a better Exit Planning team – made up of advisers who would have made him aware of the best structures to use to ensure that his estate went to the people he wanted it to – his children, in particular. His assets should have been put in the Michael Jackson Family Trust a long time ago. Also, his Exit Plan should have provided for some liquidity to pay his estate taxes, otherwise his assets may need to be auctioned off at a time when their value will likely be less than optimal. These are common mistakes, ones that are easily avoided with a good Exit Plan and Exit Planning team – whether or not you’re a superstar!
