Non-Tax Reasons for Leaving Property in Trust: Control and Protection
In my last couple of posts I explained that if Michael Jackson left assets to his mother Katherine in trust, a trust with certain specific rules, then upon Katherine’s death, those assets would not be subject to the estate tax a second time. If Jackson engaged in proper estate planning, then he could accomplish his goal of taking care of his mother for the rest of her life, without losing millions of dollars to the government upon her death.
This is something that could, and should, be done by almost everyone, and not just the super wealthy. Most people do not have to worry about the estate tax because their assets are far below the minimum threshold of the lifetime exemption. Even so, there are a number of important non-tax reasons why people should leave their assets in trust — these involve protection and control.
I know I am starting to sound like a broken record, but everything I write here is pure speculation. The Michael Jackson Family Trust has not been released. However, if a client told me that they wanted to take care of their mother if they should die first this would be one of the methods that I would suggest.
CONTROL. As I’ve written previously, I am sure that Jackson wanted to be able to support and provide for his elderly mother in the event that he died before she did, and left a sizeable amount of his assets for that purpose. However, what he did not want was to give his mother the ability to determine what happens to those assets after she died. If Michael left the 40% (or any percent) of his estate to his mother outright, then upon her death, there would be nothing preventing her from leaving those assets to LaToya, Reebee, Tito, or her husband Joe, who Michael has accused on more than one occasion of beating him. But by leaving the assets to her in trust, then Michael Jackson retains control from the grave over the disposition of the assets. This is how it might work:
The assets are held for Katherine Jackson’s benefit in a trust. An independent trustee, probably John Branca, John McClain, or Barry Siegel, controls the distribution of assets to Katherine Jackson. They will most likely be very liberal with this decision, giving her anything she needs to continue a lavish lifestyle. However, there is no reason to give her more than her expenses. In fact, they might just pay her bills directly. When she dies, the remaining trust principal will be distributed pursuant to the Trust’s terms. Most likely, it will go to Michael’s children, or to be more accurate, will be added to the trusts established for them.
ASSET PROTECTION. The second non-tax reason why the property should be transferred in Trust and not outright is for asset protection purposes. I want to be careful and point out that I am a Florida attorney and not a California attorney. The laws regarding asset protection are generally state law based (with some federal bankruptcy law mixed in too). But the basic premise is that if the assets are owned by the Trust, and if someone sues Katherine Jackson personally, then the person suing her can not collect against the trust’s assets. There is no minimum or maximum that can be placed in trust.
A well planned estate is not just about avoiding taxes, and is not just for multimillionaires. Through proper estate planning anyone can have the peace of mind that after their death their assets will go to benefit the people they want, and be protected from their beneficiaries’ creditors.
Q: These executors and executives are up in age, what happens to the trust as they die offzzzzzz/
Q: If the trust protect Katherine from estate tax what about the children?
Q: is this trust that will go on to the end of time?
Hi and thank you for reading. All excellent questions. Before I answer I want to point out that (1) I have not seen the Trust, only the pourover will, and (2) I am not a California attorney. The answers to these questions may be dependent on California law.
1. The Trust itself may provide for successor Trustees if the original trustees are unable to serve. If not, it should provide a mechanism to appoint successor trustees. If it doesn't, then the court could point successors. At some point, instead of a person, it's possible that a financial institution, such as a bank or a trust company will serve.
2. There is almost certainly going to be an estate tax applied upon Michael Jackson's estate. It's not paid by the children (although it does reduce what they will eventually receive). The question is whether or not the children will have to pay estate taxes upon their deaths (which could be 70+ years from now), the answer is I don't know. It's possible to draft a trust to accomplish that, but I haven't seen the trust, so I don't know if that's what was done. I hope so.
3. The trust will go on until the end of what's known as the "Rule Against Perpetuities." The number of years is a question of state law. It can certainly last during the lifetime of all of his children, and possibly of his grandchildren.
yes a few years back my father died. and left the house he lived in trust to his wife and me and my sister. it states that she may live in or sell if she got remarried. splitting the money with us. my question is. can she leave her share to anyone if she dies? this was are gradparents home.
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While the answer is "probably' not, that depends upon a number of issues. First, what state was this in? Second, precisely do the documents say? This isn't necessarily a yes or no question.
-David