Death and Taxes Blog

I posted a link to Mr. Jackson's Will yesterday.

A few thoughts:

-This is what's known as a pourover Will. Mr. Jackson has a trust called the Michael Jackson Family Trust (the "Trust"), and any assets owned by him in his own name at death pass to (pour over into) the Trust. This is the same setup that many of my clients have, for a couple of reasons:

It's private. The Will is a public document, and must be filed with the court. The Trust isn't. We've heard rumors about the beneficiaries of the Trust (his children and charities), but those are just rumors. In most cases, no one will EVER know the identity of trust beneficiaries (although I suspect we will get confirmation of the terms of the Trust in Mr. Jackson's case).

If Mr. Jackson took steps to put his property into the Trust (by changing title and beneficiary designations), then no probate proceeding will be needed.

-Mr. Jackson nominates his mother (and if she can't act, Diana Ross) as guardian of his minor children. The word "nominates" is there for a reason -- a judge has final control over who becomes guardian. From what we currently know, a successful challenge to this Will seems unlike (as I'll explain below), but the guardianship will be one potential area of litigation. Mrs. Jackson as guardian will need to work with the trustees of the Trust to get money for the children -- will this relationship work?

-John Branca, John McClain, and Barry Siegel are appointed as co-executors, but the rumor is that Mr. Siegel at some point signed a document by which he declined to act. (Note: that's music executive John McClain, NOT John McCain, and NOT John McClane, the character Bruce Willis portrayed in the Die Hard films. John Branca is an entertainment lawyer; Barry Siegel is an accountant.) I would assume that Mr. Branca and Mr. McClain will be trustees under the Trust as well.

-I really, really hate provisions like Article VI, which reads:

Except as otherwise provided in this Will or in the Trust referred to in Article III hereof, I have intentionally omitted to provide for my heirs. I have intentionally omitted to provide for my former wife, DEBORAH JEAN ROWE JACKSON.

What in the world does this mean? Under California law, Mr. Jackson's heirs are his children (see Section 6402 here -- "the entire intestate estate if there is no surviving spouse or domestic partner, passes as follows:... To the issue of the decedent"). By all accounts, he is not seeking to disinherit them. Why is this here?

-From what I've read thus far, I'm having a hard time figuring out how anyone could mount a serious Will contest or trust contest. According to Time, the Trust assets are to be "shared between his mother, who gets 40%, his three children, who together get 40%, and charities for children, which would receive 20%."

As I've said previously, you can challenge a Will on two basic grounds: incapacity (you lacked the ability to execute a Will) or undue influence (someone made you sign a Will that doesn't reflect your wishes).

An undue influence claim is hard when the beneficiaries of your Will or trust are what you might call the "natural objects of your bounty" (the people to whom a typical person would leave money). Set aside that this is Michael Jackson, and just say he's a random 50-year-old single person with three kids. Is it reasonable for him to leave his property to his mother, children, and charity? Yes. Contrast this with a Will contest case I once brought, where my client's grandmother left my client nothing in the Will, and instead left everything to her deceased son's best friend. Hmmmm. Now THAT is suspicious. I'd be equally suspicious if Mr. Jackson's Will left everything to one of his many "advisors," but it doesn't seem as though that's what happened.

You could also claim lack of capacity. That makes sense -- it strikes me that Mr. Jackson could have been mentally ill for quite some time -- but there's an "action" problem here. If Mr. Jackson was incapacitated from at least 2002 on, why didn't you (the person contesting his Will) step in and seek a guardianship for him? Why did you do nothing, but then come forward only when you were disinherited?

We also need to know more about prior Wills, if any. If the 2002 Will gets thrown out, what does the prior Will say? If there is no valid prior Will, then Mr. Jackson's property would pass solely to his children as his only heirs.

Hey, I like the internet as much as anyone (really!). But one problem I have is that there are very few places to turn in order to really understand an issue. A lot of the problem is reliance upon secondary sources. So, when my client asks, "can I take advantage of this new $8,000 credit for first-time homebuyers," I run across 100,000 websites providing a vague summary of the law. But I have actual, specific questions -- where is the ACTUAL law?

So, let me offer some links to primary sources on this issue:

1. The credit is found in the American Recovery and Reinvestment Act of 2009 (the "2009 Act"), which is here as a PDF. More specifically, it's in Section 1006 of the 2009 Act. The above PDF has 407 pages; Section 1006 is on pages 202-203.

2. The credit found in the 2009 Act is really just an extension of the $7,500 credit for first-time homebuyers found in the Housing and Economic Recovery Act of 2008 (the "2008 Act"), available here as a PDF. The credit is discussed in Section 3011 of the 2008 Act, found on pages 235-238 of this PDF (which has a total of 260 pages).

3. Both the 2008 Act and the 2009 Act amend the Internal Revenue Code (the "Code"), in large part by (essentially) creating a Section 36 to the Code. Here is a link to a new PDF of how Section 36 should now read, with the provisions of both Acts integrated into it. Deletions from or additions to Section 36 by the 2009 Act are indicated by a strikethrough or bolding, respectively.

4. You use Form 5405 to apply for the credit.

It's here. Analysis to come.

This blog may morph (just like the "Black or White" video!) into the Michael Jackson's Estate Blog in the coming months (or years). The latest: there appears to be a 2002 Will, according to this WSJ article.

Usually a Will starts out by stating that the person signing it hereby revokes all prior Wills, so the last valid Will is the one that is used in probate. If people are unhappy with the 2002 Will, then they'll seek to have it found invalid (or try to locate a more recent one).

The executor situation in the 2002 Will:

This will names as executors lawyer John Branca and a veteran music executive named John McClain who was also a friend of Mr. Jackson. Mr. Branca, who served as Mr. Jackson's primary attorney between 1980 and 2006, wrote the will. Mr. Jackson had rehired Mr. Branca the week before his death last Thursday.

Is it OK for an attorney who drafts a Will to also be named as executor under the Will? My answer is yes, as long as the attorney explains to the testator the ramifications of that decision. (I send out a long letter explaining all the reasons the client might NOT want me to act, and then have the client sign the letter.) My concern here is that Mr. Branca had to know, when he drafted the 2002 Will, that Mr. Jackson's estate was going to be a huge mess. What are the potential fees for an individual acting as executor of an estate and (presumably) as attorney for himself as executor, in an estate like Mr. Jackson's? I don't know -- $5 million? $10 million? More?

Another concern: Mr. Branca does not appear (from his website) to be an estate planning or probate attorney. Did he in fact draft the Will? Hopefully not -- hopefully it was drafted by someone at his firm with knowledge of estate planning and probate issues. We all remember what happened in the Anna Nicole Smith case.

According to this LA Times article, Mr. Jackson's family is already hinting that the 2002 Will is not valid.

I'm currently reading James W. Loewen's Lies Across America: What Our Historic Sites Get Wrong. It's a follow-up to Mr. Loewen's book Lies My Teacher Told Me: Everything Your American History Textbook Got Wrong. I recommend both books.

One section touches on Thomas Jefferson and his quotes featured on the Jefferson Memorial. (Mr. Loewen finds these quotes misleading.) As background, Mr. Loewen states the following:

Thaddeus Kosciusko, the Polish hero of the Revolutionary War, made Jefferson the executor of his American estate. His will directed Jefferson to sell about $17,000 in government securities and use the money to buy, free, and educate young African Americans. According to historian John Miller [in his book The Wolf by the Ears: Thomas Jefferson and Slavery], Jefferson "refused to execute this project," so the money went "to other purposes which had nothing to do with furthering the education of blacks."

Here is the language from Thaddeus Kosciusko's Will.

The Wills, Trusts & Estates Prof Blog has this post about a case involving contingent fee arrangement in an estate. 40% of $100 million. Wow.

The court couldn't decide, without additional facts, whether the 40% fee was unconscionable? Gosh -- I don't know how many additional facts you'd need. The "typical" contingent fee amount is either 30% or 33%, and that's for contested matters.

I've got two problems with contingent fees in probate:

1. The value of the estate rarely bears ANY relationship to the amount of time required. Or, to the extent there is a relationship, it's an inverse one. I've had huge probate estates, with millions of dollars in assets, that required little of my time. That's because we'd done a fair amount of planning before death. And I've had a lot of tiny probate estates that required a ton of time. (I've got a bunch of those right now, it seems.)

2. How much of your typical estate is contested? In a PI case, you can argue that every dollar you as plaintiff receive is due to your attorney. That's not really the case in the estate context, where you are just collecting assets, is it? A few years ago, I took over as attorney for two estates (husband and wife). The previous attorney had charged a contingent fee of 30% for collecting estate assets! Yes, that involved some negotiations with insurance companies, but the arrangement always struck me as questionable (especially given the facts of the case, and the identity of the executor).

Note: I do occasionally agree to accept litigation cases on a contingent fee basis (Will contests, claims, etc.).

For many people from my generation (I was 12 when the album Thriller was released), the death of Michael Jackson is a pretty big deal. My family has always listened to a lot of his music, from the Jackson 5 days through his solo career. (Five favorites: "I Want You Back," "Don't Stop 'Til You Get Enough," "Scream," "PYT," and "Human Nature.")

As this morning's New York Times makes clear, we're also going to be hearing a lot about Mr. Jackson's estate. Because -- as you might expect -- his affairs are very complicated. (Harkening back to this post, I'm invoking the James Brown Rule: messy life, messy estate.) Here is a link to the NYT article, by Tim Arango and Ben Sisario. More specific questions:

1. Will the estate be solvent? Mr. Jackson had lots of assets (and I would anticipate that his death will cause a huge increase in income -- everyone I know is downloading his songs from iTunes like mad right now). But he also had lots of debts.

2. What happens to his children? (See this article)

3. Did Mr. Jackson have a Will?

[Alvin] Malnik [an advisor and godfather to Mr. Jackson's children], for example, said that in 2004 he agreed to be the executor of Mr. Jackson’s estate. “I said yes, but I never inquired further, and I don’t know what’s happened since then,” he said. Mr. Malnik said there was still a chance that he was an executor, but had not heard anything since the death. Other advisers said that Mr. Jackson left behind at least two wills.

Mr. Jackson may have also established one or more trusts, which may be harder for creditors to reach.

One other note: I think the saddest thing about the last years of Mr. Jackson's life is that he appeared to be mentally ill. (This is the main subject of Margo Jefferson's book On Michael Jackson. You can read an excerpt of that book here.) I wonder why no one around him did anything about this -- like seek to have a guardian appointed for him. I also wonder whether, if Mr. Jackson did have a Will or a trust, he was competent to execute those documents.

Recently I posted (here) a summary of a recent Illinois Bar Journal article about potential problems with the Five Wishes directive. I almost immediately received an e-mail from someone affiliated with Five Wishes, saying "stay tuned for a rebuttal." The rebuttal has now been published in the Illinois Bar Journal -- I'm publishing it here as well (with permission):

May 18, 2009

Dear Editor:

We’re flattered that authors Koenig and Hyde (“Be Careful What You Wish For: Analyzing the Five Wishes Advance Directive,” IBJ May 2009) pored over our document, and as would a law student studying a model contract, found areas that might-could-maybe-potentially become a problem. While we can all be grateful for detail-oriented attorneys, their article falsely suggests Illinois residents’ health care decisions won’t be honored if not written on the state form.

Acknowledging the legal intricacies of advance care planning, in 1997 we consulted with the American Bar Association’s Commission on Law and Aging in developing the national version of Five Wishes. Some 13 million copies of Five Wishes later, there have been zero cases of litigation in Illinois or elsewhere. Indeed, Illinois ranks among the top five states where Five Wishes is distributed. What few complaints we receive about Five Wishes generally come from people in non-Five Wishes states (currently fewer than 10) who don’t understand why they must use government words and forms to express their own personal wishes.

Even in the states that still have statutorily required language, mandatory warnings and forms, some people have pointed out that state advance directive laws are intended to complement and enhance fundamental constitutional and common law principles that affirm patient autonomy and that any authentic expression of a patient's wishes should be respected. Nevertheless, in the non-Five Wishes states, we have taken the more conservative position and advise people to complete Five Wishes and attach it to their completed state form. It would be unfortunate for Illinoisans if they were now told to add that cumbersome layer of formality to what is now a simple and understandable process, both for the public and health care providers.

Five Wishes is immensely popular precisely because it is easy to understand and use and is written in clear, everyday language (23 languages). Five Wishes, unlike state forms, addresses personal, family, spiritual, dignity and comfort issues, which are the things people say would matter most to them if they were seriously ill or near death. Five Wishes has thus helped shift the focus to what the patient wants or doesn’t want so that his comfort and dignity are honored. We’re proud of the many Illinois health care providers, employers, businesses, places of worship and attorneys that are among our 15,000 partner organizations nationwide and that are themselves part of a larger engine driving change in America. For our part, we continue to consult with the ABA Commission on Law and Aging to keep current on all legal matters related to advance care planning.

Koenig and Hyde conclude that because Five Wishes is popular, lawyers and the General Assembly should go back and make the Illinois state form more user-friendly, sort of like trying to build a rounder wheel. A more sensible option would be to simply affirm patient rights and honor their wishes, not to perpetuate the notion that their decisions will not be honored unless the words they use are endorsed by the Illinois General Assembly.

Sincerely,

Paul Malley

President, Aging with Dignity

Aging with Dignity is a national non-profit organization

Here's my take on the letter:

I'm not crazy about the snotty tone. Mr. Malley isn't "flattered" by the authors of the article poring over the Five Wishes directive; rather, he's ticked off that the authors are pointing out what they see as flaws in the document. As a result, he belittles their efforts.

Does Mr. Malley belittle their efforts because he thinks their conclusions are incorrect? I have no idea. Mr. Malley is not interested in debating the merits of the conclusions, and I can't tell from his letter whether he understands or has even read these conclusions. Instead, he is interested in PR -- there are appeals to authority ("we worked with the ABA on this!"), and platitudes about how everyone has a right to express their wishes.

You could, I suppose, read the original IBJ article as criticizing the Five Wishes document or its creators, although I doubt that was the intention of the authors. Or you could think carefully about what the article says, and consider whether the points it raised are valid. Is Aging With Dignity trying to make a better document? From this letter, it sure doesn't seem like it.

I usually think of estate planning as either basic or advanced (Estate Planning 101 and 102, as it were), and I spend most of my practice (and this blog) talking about the basics of estate planning. However, Estate Planning 102 is important as well.

Most advanced estate planning is done for tax purposes -- you have to navigate income tax, gift tax, and estate tax issues. If you do so correctly, there are major benefits to this type of planning.

In the coming weeks, I'm going to focus on some of the concepts and planning vehicles used in advanced estate planning. I'll be discussing gifts to individuals as well as gifts to charity, and both outright gifts and gifts to trusts.

I previously blogged about George Allen Smith IV's mysterious death and the probate proceedings surrounding it here and here.

The case is still in the news (here). Basically we're talking about a battle between the deceased honeymooner's wife and his parents. Note that, in Illinois, we wouldn't be talking about such a battle, assuming Mr. Smith died intestate (without a Will). In that case, he would leave only one heir: his wife. But in Connecticut, under this statute, the decedent's surviving spouse receives the first $100,000 and then 3/4ths of the rest of the probate estate, with the decedent's parents evidently receiving the other 1/4th. As a result, the decedent's parents have a very clear interest in the estate.

A couple of weeks ago I recorded an hour-long video presentation on "Handling Your First Illinois Probate Estate" for the mentorcle website. This site has a great business model: anyone can watch a video for free -- attorneys only pay if they want CLE credit for watching. A link to my presentation is here. I've tried to make it accessible to attorneys as well as laypeople.

Professor Beyer has this post about Judge Sotomayor's decisions in a few cases affecting trusts and estates. One case in particular is of interest to me, as it relates to a discussion I had with David Giacalone (detailed here) a few years ago about whether personal representatives should be able to handle a probate without hiring an attorney (that is, pro se). Judge Sotomayor's take is the same as I've heard in the Cook County probate court:

“[A]n administratrix or executrix of an estate may not proceed pro se when the estate has beneficiaries or creditors other than the litigant.”