Last Updated: July 13, 2009
You may not have a lot in common with Michael Jackson, or so you think. However, in the case of America's most favorite icon, all chaos could follow in the wake of your death if you're not careful about your estate plan.
Consider this: Jackson's mother was named the guardian of his children, but apparently also thought she should be the executor of his estate. And that, said FPA member, Michael Finer, CFP®, of Major League Investments, "creates an interesting dynamic." While it is not unusual for a client to want experienced financial advisers to handle the money and a nurturing family member to raise the children, conflicts can rise out of unfulfilled expectations. In Michael Jackson's case, an additional conflict may arise if the mother of his three children decides she wants custody. Unless clearly unfit, being a mother will normally trump being a grandmother.
Although most people don't have estates the size of Jackson's, nor the complications that come with it, there are universal lessons to be learned. They apply to small and large estates and everything in between. So what are some of these lessons?
Review Your Estate Plan Annually
For starters, financial planners suggest establishing a comprehensive estate plan and reviewing it as least once per year as a part of your annual planning. You might have a will in place, but when was it last updated? In Jackson's case, his last will and testament was reportedly signed in 2002. And, given the size and complexity of his estate, his family situation and changes in tax law, he probably should have updated it more often.
Reviewing your will once per year gives you the chance to reexamine your desires — your bequests, the guardians of your children and the executor or executors of your estate — as things change in your life. In Jackson's case, in 2002 he named his mother as the temporary guardian of his children and Diana Ross as an alternate guardian in the event that Jackson's mother cannot or will not serve. But it's quite possible that his wishes may have changed in the ensuing years. Unfortunately, what he might have done has no legal relevance.
Guardianship of the Minors
"Choosing a guardian for minor children can be a difficult," according to FPA member, Denise Wilcox, CFP®, with Financial Solutions, Inc. That's why it's important that you consult with financial professionals and other advisers who can help you evaluate your choices and select the guardian that's right for you, your minor children, and the guardian you select. In Jackson's case, Wilcox questioned how his children will fare with his mother and his father. "Will Mr. and Mrs. Jackson's lifestyle be suitable for the children?" she asked. "Do they have the energy and patience needed? What experience has Ms. Ross had with children? Are either of the guardians willing to make changes in their current lifestyle to devote their time and strength to the children?"
Wilcox states, "choosing a guardian should be the result of careful consideration and should always be driven by how to give the children the greatest possibility for a healthy, happy and productive life." Besides naming a guardian of your minors, you'll also need to name a guardian of the estate, someone who will have the responsibility to invest your children's money until the children reach, typically, the age of majority.
Decision Makers for Incapacity
As important as it is to name the decision makers in the will, it is equally as important to name those responsible for making medical and property decisions if you are incapacitated. Can you imagine the conflicts that would have occurred if Michael Jackson had become incapacitated without naming someone to hold his Power of Attorney? FPA member, John J. Scroggin, J.D., LL.M., AEP notes, "It is amazing how many people fail to contemplate their incapacity and as a consequence create tremendous heartache, costs and conflicts for their families. Having Medical Directives and Durable Powers of Attorney are as important as having documents for the disposition of your assets when you pass."
The Need for Privacy
Having a will typically means probate. That's the process where your estate, or at least the parts don't get transferred by contract such as life insurance, death benefits and retirement accounts, will be administered and processed through the legal system after you die. There are advantages with the probate process. However, there are also disadvantages including:
- For the average estate, probate can be a complicated and a lengthy process.
- Costs can be onerous, and — as has happened in Jackson's case — there's a lack of privacy.
For those who do not want their estate to become a public matter, FPA member, Randy Gardner, JD, LLM, MBA, CPA, CFP®, a professor of tax and financial planning and director of the Certificate in Financial Planning Program at the University of Missouri, Kansas City suggests the use of a revocable trust rather than a will as a key testamentary instrument so you do not end up with the publicity.
According to Scroggin, "a revocable trust is any trust in which the grantor (i.e., creator of the trust) retains the right to amend, modify or revoke the trust at any time until his or her death or incapacity. Such trusts generally have no income tax or estate tax advantages."
"There are many different types of revocable trusts," according to Scroggin. If you need help trying to determine trusts that fit within your estate plan, consider contacting a financial planner. Financial planners typically work with estate planning attorneys who can help you establish an estate plan.
Learn more about estate planning.