I'm taking a break from my review of Michael Jackson's Trust to highlight an article on Dan Duncan, the first billionaire to die in the year with no estate tax. I wrote about Mr. Duncan back ini April, and now the New York Times has picked up the story two months later.
See New York Times: Legacy for One Billionaire: Death, but no Taxes.
Today I continue my in depth review of Michael Jackson's Trust. Part 1 is here, and you can download a full copy of the Trust here. Today we start talking about the real meat of the trust -- the dispositive provisions. In other words, who gets what?
Article Three of the Trust provides that upon Jackson's death, the Trust estate is to be divided as follows:
I will begin discussing the Trusts set up for his children and his mother in the next post.
I don't want people to think that I'm obsessed with Michael Jackson.
I'm not.
However, I am very interested in proper estate planning, and I think that others should be too. The Michael Jackson case is useful because it can show "ordinary" people what to do and what not to do with regards to their own planning.
Many people do not know what a Revocable Living Trust is, or how they work. The purpose of a Revocable Living Trust (which I'll refer to as an "RLT") is to avoid probate when you die, and to avoid a Guardianship if you become incapacitated. That's it. An RLT does not protect you from creditors. It does not save you taxes. It does not do many of the things that non-attorney Trust mills and hucksters claim that it does. But used correctly, and, if you need one, it can be a powerful tool that is an essential part of estate planning. In brief, a person will transfer ownership and title of their assets while they are alive to their RLT. Then, upon their death, and if the RLT was properly funded, the RLT will be the owner of the assets and not the individual. Because the Trust owned the property and not the individual, there is nothing to probate (again, if the RLT is properly funded).
In a series of posts, I will examine Michael Jackson's Revocable Trust in depth. Feel free to download the trust document so you can follow along.
Article One of Michael Jackson's RLT (which I will refer to as the Trust) sets forth some basic information about the Trust -- i.e., it's name, when it was established, that Michael Jackson has the power to amend or revoke it at any time, that Michael Jackson has the power to add or remove property from it at any time, and other general principles. Michael Jackson is the creator (often referred to as the "Settlor," "Grantor," or in this document, "Trustor"), and he is also the Trustee. That means that while he was alive and able to make his own decisions, he was the only person in control of the Trust.
Article Two of the Trust provides how the trust property will be managed during Michael Jackson's lifetime. The Trustee (who is Michael Jackson) shall pay to the Trustor (who is also Michael Jackson) the net income of the Trust and the Principal of the Trust, as needed or on request. But, if Michael Jackson were to become incapacitated, then a successor Trustee would be appointed in his place to manage the property for his benefit.
The real meat of the Trust starts in Article Three though, which provides how Michael Jackson's estate will be distributed upon his death.
I must have missed the news yesterday, but thanks to Julie Garber's Wills and Estate Planning Blog I found out that Michael Jackson's Revocable Living Trust was posted yesterday at the News of the World site. As I have previously written, MIchael Jackson had a "pourover" will that was filed with the Court back in June of 2009. A pourover will provides that all of his assets pour into his revocable living trust, and the real disposition of his estate is governed by the Trust.
I wrote at the time that, "A will is public and is filed with the court. A trust is not. There is no obligation to disclose the terms of the trust to the public. Certain beneficiaries are entitled to copies of the trust however, and it’s possible that one of them might leak it at some later point in time," which is exactly what appears to have happened.
In a series of posts, I speculated as to what Michael Jackson's Revocable Trust provided. Let's see if I was right.
On July 1, 2009, I wrote, "For example, there may be a trust that provides Katherine Jackson with all of the income from the trust, plus principal for her health support and maintenance for the rest of her life. When she dies, the contingent remainder beneficiaries may inherit what is left (probably also in trust)." Now, let's look at the actual Trust document:
I was sort of right. The Trust does provide for Katherine Jackson's "support and maintenance", but in addition, also provides for her care, comfort, and well being. These standards are much more liberal than support and maintenance and will allow the Trustees to make large distributions to her, if they feel it is appropriate.
But I was absolutely right on the main point -- that whatever Michael Jackson left his mother, he left it to her in trust and not outright. In my July 4, 2009 post, "How Michael Jackson and his mother will avoid paying estate tax twice (and how you can too), I wrote, "if the property is distributed to a trust in which an Independent Trustee is responsible for determining when, and for what purposes, the trust assets are distributed to her, then upon her death, the property in the Trust will not be subject to the estate tax a second time. " As we can now see, that's exactly what happened.
I'll write more about what the Trust provides, and whether or not I correctly guessed what would be in it over the next few days.
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