Someone has observed: "Death is more universal than life. Everyone dies but not everyone lives."
Although there are many opinions about how the late Michael Jackson lived his life, no one can say he didn’t live – and live large. But one of the many headlines after The King of Pop died last week told of what may be a sad and expensive story: "Estate Has Piles of Assets but Loads of Debt"
What a Mess
"It’s all a mess," said an unnamed executive involved in Jackson’s financial affairs. "No one really knows what is going on, but these are early days."
Mr. Jackson’s business life, like his private and public life, was a mass of contradictions. Administering an estate such as Jackson's requires a military-style operation with scores of lawyers, pro and con, reviewing over reams of contracts.
Shrewd but Sloppy
Unlike many show business performers, Michael Jackson was a shrewd negotiator and investor; in 1985 he pulled off one of the great deals in music business history when he bought the publishing rights to the Beatles songs catalog for $47.5 million. Today it is part of a larger collection of songs worth more than $1 billion that he owned in partnership with Sony.
But it was no secret that his personal finances in recent years were a mess. He spent millions of dollars on frequent art and shopping sprees. Neverland, his California ranch, had a zoo, an amusement park and as many as 150 employees, costing millions annually. He nearly lost it last year when he defaulted on a $24.5 million loan.
Millions Spent, Scores Advising
Worse still, he burned through financial advisers almost as swiftly as cash, with a revolving door of characters coming in and out of his life, several of whom were hired only weeks ago, in Jackson’s latest round of managerial housecleaning. And he was the defendant in numerous personal and business lawsuits, some of which he was forced to settle for millions.
"Michael never thought his personal finances were out of control," said Alvin Malnik, a former adviser who is godfather to the youngest of Jackson’s three children. "He never kept track of what he was spending."
What’s Next
The big question now is what happens to whatever remains of his assets. So far, that is unclear even to Jackson’s closest advisors. They say it could take years to sort through the financial and legal mess left after his death, with a predicted price tag for legal fees alone in the double digit millions.
It is also unclear how much will be left for his heirs. The estimate is that Jackson earned about $700 million as a performer and songwriter from the 1980s on, much of it already spent. His debts have been estimated at form $400 million to $500 million or more.
To complicate things further, the rumor is that Jackson left behind at least two wills. (In such cases, the law usually recognizes the latest will as controlling if it can be shown to be valid).
Lesson for Others
Now why have I gone into such detail about the King of Pop’s untimely passing?
Because some day we all will die and the question you should ask right now, today, is whether you’re going to leave behind a financial mess for your heirs?
If you're even modestly wealthy, an important component of a successful life is planning what happens to your wealth when you "shuffle off this mortal coil," as Shakespeare said in Hamlet.
Trillions & Billionaires
Forbes magazine estimated that in 2007 there were 482 billionaires in America. A record nine million U.S. households had a net worth of US$1 million or more in 2006, numbers that likely have been reduced considerably by now. Yes, the richest people have gotten poorer, just like the rest of us. In 2009 the world's billionaires had an average net worth of $3 billion, down 23% in 12 months.
Estate Draining Death Taxes
There are many good reasons why you should pay close attention to your estate planning. -- Reducing taxes has to be a major consideration.
A big portion of the federal income tax burden is paid by a small group of the richest Americans. The wealthiest 1% of Americans earn 19% of the income but pay 37% of the income tax. The top 10% pays 68% of the taxes. The bottom 50%, those below the median income level, now earn 13% of the income but pay just 3% of the taxes. In other words, the rich pay almost double their share, based upon the income they earn. Add to those numbers the fact that about 120 million Americans, 40% of the population, pay no federal income taxes at all because of exemptions, deductions or income level.
Both "wealthy" and the "middle class" Americans get socked with high income taxes in life – and then more taxes in death, but these can be lowered with smart estate planning. Indeed, you can reduce the death tax just by using trusts or gifts during your lifetime. You can give away $13,000 a year to each individual free of any federal gift tax, thus reducing the size of your taxable estate at death.
Death Tax Muddle
Keep in mind that the present U.S. estate tax law is a major muddle. By law, estate taxes have been declining since 2001 when the Bush administration and a Republican Congress authorized a gradual phase out of the tax. But estate taxes could be snapping back to the old high rate levels in 2011, especially with Democrats in control of both the White House and Congress.
The amount each individual can leave to heirs free of federal estate taxes in 2009 is $3.5 million (up from $2 million in 2008). For any estate valued over that amount, the IRS gets a flat tax of 45 cents of every dollar. Die next year if you want to save taxes for your heirs because from, January 1st through December 31, 2010 the federal estate tax is repealed – zero! But if Congress fails to amend the current law, on January 1, 2011, the old, pre-Bush federal estate tax will be reinstated with an estate tax exemption of only $1,000,000 and a maximum estate tax rate of 55%.
Still, with retirement accounts, homes and life insurance death benefits thrown in, it's easier than you might think for a working couple to be hit by the federal estate tax. And this tax can be brutal.
Nobody’s Business
Privacy is another major reason for estate planning now.
Jocko Jackson was almost fanatical about his privacy and his lawyers are likely to try to preserve that legacy. As a California resident, the singer may have left a revocable trust, the administration of which can keep many details of the estate secret, compared to a last will and testament that must go through probate court with detailed publicity and accounting.
But while you, too, should consider a creating a trust, it's difficult to place all the assets in a huge, complex estate into a revocable trust. Contracts, royalties, partnerships and other elements of the estate may get left out.
A few years ago a study examined travelers' attitudes and behavior. The study concentrated on individuals from the top 5% of U.S. households with annual incomes of over US$150,000. The study listed these wealthy individuals' tastes and meticulous demands. According to the findings, these wealthy travelers seem to know exactly what they want when it came to service and comfort.
So one must wonder why so many wealthy people are not so meticulous when it comes to their personal estate planning. Perhaps they think they’ll live forever if they just don’t think about it.
Post Mortem Messes
Jack Kent Cooke (below) was a leading U.S. businessman in the 20th century. He grew rich in life, but created financial chaos in death.
The Wall Street Journal reported that when "...he died of a heart attack in April 1997, the 84 year old Mr. Cooke...had amassed a US$1.3 billion collection of media companies, sports teams and real estate. But he also left a convoluted will, amended eight times, that named seven executors..." The dust finally settled seven years later, after numerous lawsuits and US$64 million in lawyers' fees.
If ever there was another convincing case for prior estate planning, Anna Nicole Smith's notorious death should be a clincher. She left behind a poorly drafted "last will and testament" for her young daughter, Dannielynn Hope. It's a classic example why all of us should act now to avoid such a legal swamp.
On Thursday of this week the 9th U.S. Circuit Court of Appeals will have the honor of hearing the latest episode of the long-running (14 year) litigation saga that's become the legacy of Anna Nicole. Smith, the former model and reality show star, had been fighting for years over the estate of her late second husband, Texas billionaire J. Howard Marshall, when she died in February 2007.
Act Now - Before It's Too Late
These sad examples call for good estate planning advice and prompt action. After all, you've worked hard all your life. Why not devote that same energy to making certain your wishes are followed after you're gone?
At the very least, you should have a will or other means to transfer property to protect your loved ones. Otherwise the state law where you live will decide who gets what. A "means of transferring property" could be a trust, family foundation or jointly title property or financial accounts. (If you're the young one in the family, talk to your aging parents!)
Otherwise, assuming your business and other assets are worth more than US$3 million; your family could be stuck with a considerable estate tax burden. In fact, your heirs could be forced to hand 55% of your total estate over to the IRS just to pay income and estate taxes.
Protection Offshore
By all means, when you create your estate plan, consider an offshore solution.
By taking part of your estate offshore, to some degree you increase asset protection from domestic U.S. creditors and lawsuits. Your estate can grow safely offshore for your heirs to use later in life. More importantly, your assets can remain confidential offshore; none of the glare and hassle of the U.S. probate process.
If you set up an offshore vehicle like an annuity or life insurance, you can easily pass the title of those vehicles onto your heirs at your death. Best of all, both of these vehicles allow you to defer taxes during your lifetime.
An offshore asset protection trust (APT) is another device that both protects assets during life, and provides for heirs afterwards.
Better Dead Than in the Red
Michael Jackson could be richer in death than he was when he his life ended. In the last few days his songs have generated millions of dollars in record, CD and DVD sales, downloads and radio and TV royalties. Elvis Presley hadn't had a hit in years and was worth just under $5 million when he died at the age of 47 in 1977. Today his name and music earn as much as $50 million a year. Together, the sales from Jackson’s own recordings, plus income from Sony/ATV and his own song catalog would be worth $30 million a year. And the amounts he spent on his lifestyle would be gone.
Quite frankly, he may be worth more dead than alive," said Jerry Reisman of the Hit Factory recording studio, where Michael Jackson produced Thriller, his 1982 best-selling album (109 million sold).
May Michael rest in peace -- even if his estate cannot.
**In THE TRUST REPORT, Bob Bauman demystifies the process of creating and maintaining an offshore trust, outlining its many benefits.In addition, you'll automatically receive a FREE subscription to the world’s most popular offshore e-letter, The Sovereign Society Offshore A-Letter. With more than 160,000 readers worldwide, it will keep you in touch with global events that can affect your wealth and safety.
** For a valuable consultation on your estate plan contact: N&C International Wealth Consultants, LLC. 777 E. Atlantic Ave, Suite C2-295, Delray Beach, FL. 33483 Email: info@nolan-crouch.com Web: http://www.nolan-crouch.com/
This article has many important points. The Michael Jackson estate will go on for years and will have lots of problems. See my thoughts on this at www.wealthcounsellors.bogspot.com in June of 2009. Roger McClure
Posted by: Roger McClure | October 26, 2009 at 08:15 PM