Death and Taxes Blog

I reviewed Meryl Gordon's book Mrs. Astor Regrets earlier this year (here) -- it was one of my favorite books I read in 2009.

The trial of Mrs. Astor's son, Anthony Marshall, is coming to a conclusion (barring appeals). Mr. Marshall was found guilty of "looting his mother's fortune" (another lawyer, Francis X. Morrissey Jr., was also found guilty) -- here is the story. I can't understand why the maximum sentence is only 3 years -- why is that? Because Mr. Marshall is rich? Ugh.

I'm also a little troubled by this line in the article:

The judge noted Marshall's World War II service and the possibility that the late Astor herself would have been aghast to see her son imprisoned, but he added that the law left him no choice but to impose a prison term.

1. Would Mrs. Astor REALLY have been aghast, in light of what her son did to her?

2. I realize that many people want to give members of The Greatest Generation a free pass (and unlimited free health care, free prescriptions, etc.) as a result of their actions in World War II, but I can't figure out why Mr. Marshall's heroics 60+ years ago have any bearing on this case.

A couple of things have happened recently in the Michael Jackson case, both of which favor his mother, Katherine (a link):

1. Katherine (individually and as guardian of the minor children) was given a monthly allowance of more than $86,000 (yes -- you read that right). That breaks down as $26,804 for her and $60,000 for the children. Surprisingly, the biggest line item ($4,722 per month, about $57,000 per year) for Katherine relates to her assistant -- curious that someone without a job or any visible means of support (besides her son's largesse) would need "assistance."

2. The Judge also ruled that Katherine may contest Michael's appointment of executor (that is, such a contest does not violate the Will's "no contest" clause). I would typically agree that a no contest clause shouldn't be enforced (or should be enforced rarely), but we aren't really talking about a dispositive provision here. Furthermore, Michael named the co-executors AND left most of his estate to his mother in his trust. It seems to me that either the entire estate plan is invalid, or none of it is. Why does Katherine get to cherry pick, keeping the provisions favorable to her and challenging the provisions that aren't favorable?

Probate takes time, especially a probate a complicated as Michael Jackson's. And when probate lasts a really long time, the spouse and/or dependent children of the decedent are at risk of being unable to reach money that they will (hopefully) inherit. In these cases, you have to proceed a little differently than you would typically, where you collect assets, pay all claims, and then (only then) make distribution to the beneficiaries.

Enter the concept of an allowance, or what's know in Illinois as a child's award or spouse's award. This is what attorneys for Katherine Jackson are discussing in this article.

In Illinois, spouse awards and child awards are discussed in Article XV of the Probate Act. Note the amount to pass to the surviving spouse:

a sum of money that the court deems reasonable for the proper support of the surviving spouse for the period of 9 months after the death of the decedent in a manner suited to the condition in life of the surviving spouse and to the condition of the estate...

Two other points:

1. Illinois law doesn't allow for an award to a dependent parent of a decedent (the above article seems to indicate that, to the surprise of no one, Katherine Jackson was dependent on her son for support). But it would allow Katherine to receive money as guardian of the minor children (and for their benefit).

2. A spouse or child award is considered a 2nd class claim against the decedent's estate under Article XVIII of the Probate Act. A 1st class claim is a claim for "[f]uneral and burial expenses, expenses of administration, and statutory custodial claims" -- those are the only types of claims that would take precedence over a spouse or child award.

I don't often link to TMZ, mostly because I don't often think that TMZ has anything perceptive to say. But they do on the Katherine Jackson potential contest of Will situation (link here). Just to explain: Michael Jackson's trust evidently has a "no contest" clause, which disinherits anyone who attempts to contest its terms. Katherine Jackson is now asking the Court if an attempt to challenge the appointment of the co-trustees would be viewed as a "contest."

Here's the quote from the article:

Here's what's bugging some family members and the lawyers representing the estate ... the will gives Katherine 40% of Michael's estate, so she can't be upset about that. The will names Katherine guardian for the children .. again, that's what she wants. And the named executors -- John Branca and John McClain -- are Michael's longtime, trusted advisors and friends.

So why would Katherine object to the will or the executors? A lot of people who are in the middle of it all feel Katherine is being manipulated and doesn't really understand the implications of mounting a legal challenge.

A few notes:

1. The article talks about provisions of the Will (the "no contest" clause, the fact that the Will gives Katherine 40% of the estate). But those provisions are actually in the trust. (The Will does, however, name Katherine as guardian.)

2. Judges tend not to like "no contest" clauses. The concern is that such clauses could be used to "fireproof" a Will signed under suspicious circumstances. Because there is a public interest in making sure a Will is in fact valid, Illinois courts typically don't enforce "no contest" clauses.

3. That being said, the sentiments in the TMZ article appear to be correct. There's simply no good reason for Katherine to contest her son's Will or trust. The concern is that she doesn't know what she's doing, or that she some (false) sense of entitlement. This TMZ article focuses on the latter concern, mentioning that Katherine wants a "seat at the table." Barring other information, I don't know of any judge who would agree with her.

This CBS News article talks about the tax burden on Michael Jackson's estate. The estate has to deal with a few problems:

1. Determining the amount of all of Mr. Jackson's debts.

2. Determining the value of all of Mr. Jackson's assets. This is particularly hard to do because the value of some of these assets fluctuates with Mr. Jackson's popularity (which is currently high). And how do we value Mr. Jackson's public image?

3. Liquidating Mr. Jackson's assets so that debts and any taxes (including estate taxes) can be paid.

The article notes that Mr. Jackson also set up an insurance trust. From the article:

Jackson's estate may have planned for a big estate tax bill. He had an insurance trust in his name as of Aug. 26, 2003, according to a financial document addressed to the singer and obtained by the AP. Insurance trusts are often set up by estates to pay federal estate tax.

I think the statement that the insurance trust is "in his name" is misleading; they probably mean just that Mr. Jackson set up such a trust with his children or others as beneficiaries (and someone other than Mr. Jackson as trustee). There are a couple of major advantages to creating such a trust:

-because the trust wasn't owned by Mr. Jackson at his death, the trust assets (typically this would be the proceeds from one or more life insurance policies on Mr. Jackson's life) are not included in his estate for estate tax purposes.

-because the life insurance proceeds are liquid, the trustees of the insurance trust can purchase illiquid assets from Mr. Jackson's estate or trust, so that the estate or trust has money it can use to pay bills.

I talked more about insurance trusts in a four-part series a couple of years ago:

Part One
Part Two
Part Three
Part Four

Today there was a court hearing in Michael Jackson's estate. Some details, from MSNBC:

1. There's a 1997 Will as well as a 2002 Will. The 1997 Will only comes into play if the 2002 Will is found to be invalid.

2. Given the temporary nature of the appointments of John Branca and John McClain, as well as the fact that they are referred to as "administrators," I have to believe that we are talking about a scenario involving what are known (in Illinois, at least) as "administrators to collect." This is a special kind of personal representative, appointed when assets are in danger of wasting and time is of the essence.

3. In choosing a temporary administrator or administrator to collect, courts usually honor the wishes of the decedent in choosing his or her own executor. That's why the court appointed Mr. Branca and Mr. McClain and didn't appoint Mr. Jackson's mother.

4. Mr. Jackson's mother is concerned about Mr. Branca and Mr. McClain's "financial leadership" and potential conflicts of interest, but the fact of the matter is that Mrs. Jackson and the other beneficiaries have a lot of safeguards in place. Mr. Branca and Mr. McClain must post a bond and ask for court approval of transactions they undertake.

Why would Debbie Rowe seek to become guardian of her two children with Michael Jackson? (Article here) Three words: follow the money.

Mr. Jackson's trust is (in part) for the benefit of his children. I would presume that he wanted them to be supported in the lifestyle to which they've become accustomed. As a result, becoming guardian of Mr. Jackson's children means joining them in their posh lifestyle.

It also seems unlikely that a judge will allow it. Why?

1. Judges don't like to separate children. Would a judge really grant guardianship of two children to Ms. Rowe, and guardianship of the other child to Mr. Jackson's mother? Doubtful.

2. My understanding is that Ms. Rowe, as part of her divorce settlement, agreed to relinquish all rights to raise the children.

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:

1. 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).

2. 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.

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.

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.

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.

The New York Post has the details, here.

The Velvet Touch is a Michigan chain of adult bookstores/massage parlors/etc. The owner and founder, Terry M. Shoultes, passed away in 1998, but the battle over his estate is still continuing. Here is the full story.

Isn't it funny how some people seem to be magnets for probate disputes? Anna Nicole Smith had a dispute during her life (over her husband's estate), and now there's a dispute following her death. The same is true of Nina "Little Sweetie" Wang. I blogged here about the controversy surrounding her husband's death. Now there is a fight over the estate of "Little Sweetie" herself. This article has the juicy details. The dispute pits Mrs. Wang's father-in-law, Wang Din-Shin, against "Tony Chan, a married feng shui master who claims to be Ms Wang's secret lover, [and who] says she wrote a new will in 2006 in which she named him as the sole heir."

I'm currently reading Nudge: Improving Decisions About Health, Wealth, and Happiness, by the U of C professors Richard Thaler and Cass Sunstein. I'll probably post a review later, but I found one part (on page 77) particularly interesting. The authors are using a Shel Silverstein poem called "Smart" as the basis for an example, and they ask the reader to Google the poem and read it before continuing in the book.

Why not just print the poem? The answer is in a footnote:

Silverstein had originally given Thaler permission to use the poem in an academic paper published in 1985... but the poem is now controlled by his estate, which, after several nudges (otherwise known as desperate pleas), has denied us permission to reprint the poem here. Since we would have been happy to pay royalties, unlike the Web sites you will find via Google, we can only guess that the managers of the estate (to paraphrase the poem) don't know that some is more than none.

There's a lesson here, for executors and anyone involved in a negotiation: you better know what the other party's options are. The people in charge of Silverstein's estate (this guy?) apparently didn't.

This ain't no party, this ain't no disco this ain't no fooling around This ain't no mudd club, or C. B. G. B. I ain't got time for that now

-Talking Heads, "Life During Wartime"

The famed NYC club CBGB is in the news in a probate context, according to this New York Times article. The dispute -- between the estate of Hilly Kristal and his ex-wife, Karen Kristal -- centers on rights to the club's name and property. (The club closed in 2006, but the CBGB brand does big business selling merchandise to poseurs.)

The probate issue involves lack of capacity and undue influence, but the twist is that Karen is taking these positions with respect to her own signing of a agreement with Hilly:

In court papers the estate says that Ms. Kristal voluntarily signed over ownership to her former husband in January 2005, just as CBGB was beginning to have troubles with its landlord over unpaid rent, which ultimately led to the club’s closing.

Ms. Kristal said that she had no memory of signing this document, which is also signed by Mr. Kristal, but not by any lawyers or witnesses.

Ms. Kristal suffers from hydrocephalus, according to her lawyers, which can affect short-term memory, and in an interview she repeated many of the same anecdotes numerous times.

Her lawyers argue that even if Ms. Kristal did sign the document, she had been manipulated by her daughter and former husband.

Posted by Joel A. Schoenmeyer | Permalink | Email This Post

Posted In: Estate Plans of the Rich and Famous , Probate Litigation

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Copies are online here. A few things of note:

-Paragraph 1.1 requests that the executor sell Mr. Newman's race cars and planes. When someone has a hobby like Mr. Newman did with racing cars, this is a great idea -- you let everyone know what you want to happen to your hobby-related property upon your death, so there's no confusion.

-Section 4 is new to me, as it relates to "Publicity and IP Rights."

-One of the things I like about living trusts is the privacy protection they afford. We can read Mr. Newman's Will online, which I'm sure horrifies some people. But Mr. Newman's Will is a public document. Mr. Newman apparently has a living trust, but it doesn't get invoked until much later in the Will (see Section 6). Obviously it's up to each attorney and client to decide, but my preference is to get as much stuff out of the Will as possible, so that the only substantive Will provisions relate to the residue of the estate (payable to the trust) and, if the testator has minor children, guardianship. That way the public is kept in the dark about what happens with Mr. Newman's Oscars, the loans he made to his daughters, and the like.

What's your favorite Paul Newman movie? I haven't seen them all, but I'm partial to Butch Cassidy and the Sundance Kid and The Sting.

This is a sort of slimy story about William F. Buckley, his son Christopher (the author, about whom I've previously blogged), and Christopher's son Jonathan. Evidently Christopher cheated on his wife with a woman named Irina Woelfle, and she got pregnant. Christopher hasn't had much, if anything, to do with the son since his birth, although he does pay child support. Now Christopher's wealthy father has died, leaving language in his Will that explicitly disinherits Jonathan.

Is that fair? The article seems to think it isn't, although I would disagree. There seems to be a blurring of the lines between William's duty to a grandchild he may never see, and Christopher's duty to his son. We can believe that Christopher owes the child more (emotionally and financially) than $3,000 per month, but I don't have a problem with the disinheritance language in William's Will. Although it does sound a bit cold, especially if you read it in William's ridiculously affected voice. Maybe I should do an MP3 of my imitation?