The Michael Jackson Thriller
In the world of music, Michael Jackson will forever be remembered as the King of Pop. His sensational career began at the young age of 5 as a member of the Jackson Five, and continued for nearly four decades as a solo artist and entertainer until his tragic death in 2009 at the age of 50. Throughout his career, Jackson released numerous top-selling hits including “Thriller” and “Beat It,” and coined one of the most legendary dance moves ever – The Moon Walk. But when it comes to the world of estate planning, Michael Jackson left a different legacy – a move you may want to avoid.
When Jackson died in 2009, his estate plan consisted of a living trust, and a pour over will that left everything to his living trust. A living trust is a way to avoid probate and avoid a guardianship proceeding. Assets in the trust are distributed to your beneficiaries upon your death, but may be used for your benefit during your lifetime, even though you become incapacitated. Assets in the trust also avoid probate. Probate is the process of getting assets out of a deceased person’s name. By re-titling assets to the name of a living trust, a person avoids probate because the assets are in the name of the trust, which is still living (e.g. a living trust), as opposed to being in the name of someone who has died. In Jackson’s case, he failed to properly fund his living trust. As a result his assets had to go through probate.
Michael Jackson’s story is important for two main reasons. First, it demonstrates the importance of properly funding your trust. Funding your trust is the process of titling assets in the name of the trust. This can be accomplished in several ways. In Florida, one can fund a trust by preparing a quitclaim deed of real estate you own from you to your trust. Another way to fund your trust is to re-title bank accounts and brokerage accounts to the name of your trust. These assets still belong to you and you control them, but they are in the name of your trust, which survives you after death and therefore avoids probate. Second, it explains how a pour over will works. The role of a pour over will is that of a “back up” or “catch all” for assets one forgets to put in to the trust while one is living. For example, if you had five bank accounts and re-titled four out of the five in the name of the trust, but forgot to re-title the fifth account, the pour over will would designate your trust as the beneficiary of the account. The advantage of this arrangement is that the terms of your trust still control the distribution of the account. The disadvantage is that the account still has to go through probate. Unfortunately, for the King of Pop, assets were left in his name and had to go through probate before they could be distributed to Jackson’s heirs.