Why Won’t Michael Jackson’s Children Inherit His Money Until They Are Forty?

When the King of Pop died, he left behind him not only a musical legacy but also a legacy of debt. Poor financial decisions left him debt ridden near the end of his life. Nevertheless, Michael Jackson didn’t die a pauper. As with many celebrities, even after his death his estate continues increasing in value. Continued record sales will bolster his estate, leaving a considerable amount of money to his heirs after his debts are paid. His young children could become billionaires before their eighteenth birthdays, but they won’t.

Many parents hope their children won’t make the same mistakes that they made in their youth, and Jackson must have hoped his children would not be as reckless with their money as he was. In his trust he set out to ensure his children would learn from his financial mistakes. How does Jackson’s trust ensure his children won’t squander their money and end up as debt ridden as their father?

In his will, Michael Jackson left the entirety of his estate to the Michael Jackson Family Trust, and it’s within the trust that the actual breakdown of his estate occurs. He has designated a committee of trustees, including his mother Katherine, to handle the distribution of his assets. (Katherine is guardian of his children, and she is to inherit forty percent of his estate.) A closer look at the trust will reveal why Jackson’s children won’t be spending their entire inheritance any time soon.

Jackson’s trust lays out a very specific timeline for the distribution of money to his children. The Michael Jackson Family Trust specifically stipulates that his children will not receive their full inheritance until the age of forty. Until that time the children will receive an allowance, which is determined by the trustees. Upon turning twenty-one each child can appeal to the trustees for money. When they turn thirty, the children will receive one third of the remaining share. At thirty-five, they will get half their remaining share. It is not until they are forty that Jackson’s children will receive their full inheritance.

What if one of his children requires extra funds before they are forty? The trust stipulates that a child’s distribution may be accelerated in the following situations: if the child wishes to start a family, buy a home, or engage in a business venture. Nevertheless, the trustees are under obligation to ensure any business venture or investment is sound. Jackson’s trust allows for some flexibility, but even the parameters of flexibility are designed to ensure his children won’t carelessly spend their money.

In addition to financial responsibility, perhaps Jackson also wished to teach his children a little bit about generosity. Though he left his estate to be divided amongst his three children and mother, Jackson also left twenty percent of his estate to be distributed amongst children’s charities.

Is this breakdown the best way to ensure Jackson’s children will learn financial responsibility before inheriting billions? It is hard for us to determine whether this is the best breakdown or not, for each family’s situation is unique. It is up to each family to decide what is best for their children after they’re gone. Jackson sought to ensure his children won’t receive their full inheritance until they have matured into adults, and have hopefully learned how to handle their finances. For his family, this may indeed be the best breakdown.

A qualified estate planning attorney can help you find the best way to distribute your assets after you’re gone.  Helping families determine the best estate plan for their needs is what we do at the Law Offices of Daniel O. Hands, P.C. For some families, an inheritance distributed over the course of time is the best choice.

Upcoming Seminar!

We will be holding a FREE estate planning seminar this month.

Saturday, September 25, 2010

10 am- 12:00 noon

The Law Offices of Daniel O. Hands P.C.
Oak Brook, IL

Topics covered will include:

• Avoiding probate court
• Planning for long term nursing care
• Protecting your estate from the IRS
• Planning for your special needs relatives

How can I register?

Register online: http://www.handslaw.com/seminars.aspx

We hope to see you soon.

How Do I Divide My Assets Fairly When My Assets Can’t be Evenly Split?

Or What Does William Shakespeare Have to Do With My Trust?


Though we may wish otherwise, sometimes sibling rivalries can last long into adulthood. As a parent, you may want to leave your children equal shares in your estate. But what if your estate can’t be evenly split? How do you fairly divide your assets amongst the children to avoid increasing tension between the siblings?

We can learn a lot about what not to do from William Shakespeare’s play “King Lear.” In Shakespeare’s play, the King decides he is ready to retire and offers the largest share of his realm to the daughter who loves him best. Sparing you the gruesome details the play can be summed up as follows: Lear goes insane, bitter sibling rivalries become deadly, war erupts, and betrayals abound. Had Lear consulted with an estate planning attorney, he may have been able to avoid the messy end; instead of tearing his family apart he may have been able to leave his daughters with a peaceful, comfortable existence.

So what should you do if your assets can’t be evenly divided amongst your children? Imagine that you, like Lear, have three daughters: Gina, Rebecca, and Christine.

You also have a piece of land that has been in the family since your grandparents were first married. Neither you nor your daughters want the land to be sold outside of the family. The land is worth $1.5 million and your total estate is worth $3 million. You consider the options:

• You would like to divide the land into three equal parts and leave one part to each of your daughters. There are a few complications, however. Firstly, there is a huge grove of crab apple trees on the west end of the property, making it difficult to build on this part of the land. Whichever daughter received that third would have the difficult task of bulldozing the grove. Moreover, a manmade swimming pond in the northeast corner is highly desirable, but impossibly placed to be shared amongst all daughters. Most importantly, Christine works at a hospital in the city and she is not interested in inheriting the property.
 

• You could give each daughter an undivided 1/3 of the property. However you are skeptical of this option. Gina and Rebecca have never been able to agree on anything, and especially with Christine in the city you can’t see the three girls agreeing on plans for the property. You’re worried that after your death rather than a peaceful inheritance your daughters would end up with sibling warfare only slightly less brutal than Lear’s daughters.
  
• What if you don’t divide the land at all? Gina and her husband are still renting property while Rebecca already owns property with her husband. You could give the land to Gina. Nevertheless this still isn’t a fair division. Gina will inherit $1.5 million of property, leaving Rebecca and Christine with $750,000 each. Though they may not want the land, they may still feel jilted by the uneven division.
  
• You’re starting to wonder if there’s a fair way to divide your assets at all. Perhaps like Lear you will have to leave your daughters to fight over the estate.

There is a solution, and it’s one a qualified estate planning attorney could help you arrange. A $1.5 million life insurance policy would increase the estate to $4.5 million, leaving Gina with a $1.5 million property but also leaving Rebecca and Christine with $1.5 million of assets. Each child would inherit a fair share in your legacy, and you would finally be able to relax knowing that you’ve helped spare your children a potentially ugly rivalry.

Life insurance can be fairly inexpensive, especially if you get a “second-to-die” policy which pays off after you and your spouse are gone. If you own that insurance in a properly designed Irrevocable Life Insurance Trust, it would not be estate taxable. (For more information on an Irrevocable Life Insurance Trust, go to our website http://www.handslaw.com/daURL/EP/estate-planning-news.aspx.)

Helping families avoid a fate like Lear’s is something I have been doing for over 30 years. If you think this solution would be best for your family, or if you want more information on dividing your assets, you should contact your estate planning attorney to help you find the best solution for your family.