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Neal Frankle
Neal Frankle
What You Can Learn From Michael Jackson

A very important lesson on estate planning.

July 23, 2009
by Neal Frankle, CFP

If you take the right steps you can do your clients and yourself a big favor. Just like Michael Jackson did.

I live in Los Angeles. A few days ago, the city shut down to pay tribute to the controversial Mr. Jackson — but maybe — for the wrong reason.

The media are in frenzy and the tabloids are full of wild stories. They tease us by suggesting they know who is going to get what portion of Jackson's assets. And more important – who isn't going to get anything. Of course the media are lying to us because they need to sell their magazines.

The truth is they don't know anything about Jackson's estate. Very few people know that Jackson created a living trust in 2002.

Michael, wherever you are, ya done some good estate planning.

You can, and probably should, consider doing the same thing for yourself and your clients.

Living Trusts

A living trust is different from a will. If your clients use a will, it will get "interpreted" by the courts once they pass away and it will be argued about by the attorneys. This is probate. As you already know, it is a very costly, lengthy and public process — at least in California.

A living trust can help your clients avoid the cost, time delays and publicity associated with a will.

"Wait just a minute" your clients say … "Michael Jackson had a will!"

That's true. He did. But he, like most everyone who has a trust, created a "pour over will." Its only purpose is to provide for any assets that were mistakenly left out of the trust he created.

So when your clients read the tabloids' claim that so-and-so was left out of Jackson's will … they may be right but it doesn't necessarily mean that same person was left out of the estate. The trust could still award that person a great deal of money. The only difference is … we'll never know about it.

Benefits of Living Trusts

So a trust provides much greater privacy than a will. What other benefits does a trust offer?

Any assets your clients put into the trust go to the beneficiaries that they name. No lawyer or judge gets involved. Because of that, it's much less expensive and takes a lot less time to wind up an estate that has a trust versus an estate that doesn't.

In some cases, a trust can be used to save big bucks on estate taxes but we're not going to get into that subject right now. Your clients can consult with you on that issue.

Another very important benefit of having a trust is that it usually includes setting up a health power of attorney. This gives legal authority to another human being to make medical decisions for your clients in the event that they are unable to do so. Keep in mind that your clients don't have to set up a trust to get such a document in place. They can usually get their local hospital to give them a blank health power of attorney form and just fill it out. I strongly recommend everyone consider getting such a document in place — whether or not they set up a trust.

Problems With Trusts

First, your clients have to actually create a trust. While that could cost them anywhere between a few hundred dollars to a few thousand dollars, it's well worth it. They have worked all their lives to build up assets. Doesn't it make sense to spend some money to protect those assets?

Next, they have to move assets into the trust. Keep in mind that a trust is only a shell. It creates the opportunity for your clients to have the benefits of the trust. In order to realize those benefits they have to rename their assets so that the trust is the owner of the assets. The renaming process is not difficult or costly.

Now, before they get into a big fuss, keep in mind that they don't have to give up control of the assets. By naming themselves the trustee of the trust, your clients still call the shots. They don't have to give up anything. They can invest the money, sell the house … do anything they want. Nothing changes.

Another issue can be children. Some people say that a trust can't guarantee what happens to minor children if both parents pass away. That is true. But a will doesn't solve this problem either. As far as I know, there is no written document that you can create that will guarantee what happens to minor kids. Clients can make their wishes known by expressing them in the trust or will and the court usually carries that out.

Conclusion

The last lesson we learn from the Michael Jackson School of Estate Planning is that it's never too soon to take care of this issue. Nobody knows when his or her time is up. If your clients are responsible for other people or have assets they'd like their family to inherit without wasting lots of time and even more money, they should consider looking into setting up a living trust.

Have you ever been involved with winding up an estate that did not have a trust? What was it like? Send Neal an e-mail.

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Neal Frankle, CFP, is the author of Why Smart People Lose a Fortune: 5 Steps to Restoring Your Wealth and Sanity. If you would like to receive updates on other topics of interest, please register for my free e-mail newsletter here.

The material in this article is general information and not meant to provide specific investment, tax or legal advice. The article reflects the views and opinions of the authorís and in no way reflects the views of the AICPA or the Wealth Management Insider.