On June 26, 2009, the King of Pop, Michael Jackson, died suddenly and shocked the world. CNBC reported that his 2002 will designated everything to his Family Trust. Smart Money magazine said that his reported $500 million estate had $400 million in debt. If his reported $100 million estate is taxed by the IRS immediately at a 45% rate, his estate may owe $45,000,000 in cash by March 26, 2010.
When he walked out, in walked his attorneys, accountants, bill collectors and everyone else wanting a handout. Did anyone walk in with cash when he needed it most? With all those high-paid attorneys and CPAs, do you think he was adequately insured?
The legendary Ben Feldman said, “The basic purpose of life insurance is to create cash ... nothing more ... and nothing less. Everything else confuses and complicates.” Mr. Feldman also said, “It costs something to do something, and it costs something to do nothing. Doing nothing costs much more.” What did Michael Jackson do that was smart in his planning that we can learn from?
Michael Jackson’s “pour-over” will is now public record posted all over the Internet. You can view a copy here.
Jackson’s “pour-over” will is a comprehensive transfer document designed to transfer everything he owned to the Michael Jackson Family Trust. Apparently, he had a Revocable Living Trust.
Here is what the actual will said: “I give my entire estate to the Trustee or Trustees then acting under that certain Amended and Restated Declaration of Trust executed on March 22, 2002 by me as Trustee and Trustor which is called the MICHAEL JACKSON FAMILY TRUST giving effect to any amendments thereto made prior to my death. All such assets shall be held managed and distributed as a part of said Trust according to its terms and not as a separate testamentary trust.”
You and your clients can avoid the publicity of the probate process by doing some smart planning while you are alive. Revocable Living Trusts don’t “die” when you do. The trust “lives on” under the direction of the successor trustee.
Probate is a slow and expensive process. These expenses and time delays may be avoided by having all of your assets titled to a Revocable Living Trust or by having assets pass by operation of law such as a beneficiary designation or payable on death asset titling. Life insurance policies and annuities pass by operation of law through a beneficiary designation and avoid probate’s publicity, expenses and time delays. Don’t think for a minute that I said a Revocable Living Trust avoids taxes. They only avoid probate on assets that are titled to the trust.
Tax-saving strategies will be discussed next month as we explore ways to accommodate often overlooked valuation discounts. In two months, we will conclude this three-part series by exploring charitable estate planning strategies.
Leveraging your assets through the acquisition of permanent, investment-grade life insurance provides the cash you need, for pennies on the dollar, when you need it most. Congress granted life insurance with tax benefits in order to help take the burden off the social systems in America. Mr. Feldman used to say, “It takes a smart person to make money. But it takes a genius to keep it. Uncle Sam has a first mortgage on everything you own.” Use the liquidity, tax benefits and leveraging qualities of life insurance in your clients’ plans — they’ll be glad you did.
Brent Welch, CFP, ChFC, CLU, started as a financial planner in 1984 and is founder and managing member of Welshire Capital, LLC, a firm specializing in private wealth management, retirement and estate planning. He is a past president of The International Forum, a past board member for the AALU, a 17-year MDRT member and an 8-year TOT member. You can reach him through his Web site at www.welshirecapital.com.