Podcast

I interviewed two top trust professionals this week about Michael Jackson. The interview was not about his music or what might have led to his death. Our discussion was about his business affairs and what kind of estate plan he had in place.

The audio interview, posted on this blog, brings together Martin Shenkman, a noted trust advisor, will and estate’s attorney and CPA who writes for Financial Planning Magazine and the author of The Complete Book of Trusts.

In addition to Martin Shenkman, I interviewed Christopher Holtby, a well respected wealth manager with Midand Wealth Management and president of Wealth Advisors Trust Company, headquartered in South Dakota.

Cooper: Why do so many celebrities drop the ball and pass away with no will or estate plan in place?

Shenkman: Michael Jackson did have some plan in place. Based on what I learned there are some positives about what he did, but there are more lessons from what he appears to have not done.

The problem in Jackson’s case and often common amongst celebrities is that they seem to be involved with managers, lawyers, accountants that come to them and are referred to them through their own contacts rather than getting to find known, trusted, competent and well-respected advisors that can offer a client better choices.

Cooper: Christopher – Jackson acquired the music rights to approximately the 300 Beatle songs. Based on what you’ve seen was the transaction done right?

Holtby: This is a two-pronged question. First, those rights are being administered by Sony, which adds an extra layer of complication. With respect to Mr. Jackson’s own taxes and estate planning issues it remains too early to tell whether the planning was done correctly.

Cooper: Martin can you offer any comments about the Beatle’s transaction?

Shenkman: The only thing I can comment on is based on the information I learned from the media. But, if Jackson had purchased an interest where he is entitled to royalties he should have placed the asset in what is known as a defective grantor trust. With this, by contributing the asset to the trust when it was worth under $50 million the entire value of the asset would have been completely outside of his estate.

Cooper: What is a defective grantor trust?

Shenkman: When you sell an asset that is likely to appreciate you contributed to a trust in a state like Delaware or South Dakota, Alaska or Nevada that has special trust rules. The trust is structured for what we call a grantor trust which basically avoids capital gains or income tax on the ultimate sale but the gross and the value of that asset post sale would have been outside Mr. Jackson’s estate. In this case had he of done this he could potentially safe a half a billion dollars in estate tax.

Cooper: Are there any other celebrity cases that you have found similar things happen than in Jackson’s case.

Shenkman: We see similar things across the board. In each case there are valuable lessons to learn. One thing interesting Michael did do a couple of things right that other celebrities didn’t do. For example Michael did a very good job in his will listing his family members. He indicated who his children were. He indicated who his spouse was not. That was something for example that James Brown, the noted celebrity really didn’t clarify and created an opportunity for a will contest from Tammy Ray, Brown’s estranged wife.

Many celebrities do not bother to use institutional trustees, in other words use trust companies to serve as trustee to their estate plan with an institutional trustee or institutional co-trustee. The family members are better protected because they have the independence and the oversight of an institution helping to monitor and protect the family. That traditionally is better because it can avoid all kinds of problems not only for someone like Jackson but for many people coming out of the woodwork claiming rights as beneficiaries.

Cooper: So you are saying that an institutional trustee provides more professional responsibility?

Shenkman: Absolutely. Especially if the client is well know or has any notoriety. So the client wil receive full professionalism and the people who are attempting to contest a will or trusty may be dissuaded because of the placement of an institution.

Cooper: Christopher let me ask you a question about the unruly client — Based on what we have read and learned about Michael Jackson it would seem as though he was unruly in other areas he might have been a difficult client and unwilling to accept advice. How do you get a client to listen to you?

Holtby: Well the first thing that a client needs to understand is that it is one thing to get wealthy and it’s another thing to stay wealthy. Then all too often celebrities and many successful business people spend more than they make without doing the math so an advisor has to give tough advice. You have to be willing to be fired and if you are a yes man then the press will eventually talk about you as though you were a stooge.

Shenkman: I think he single most important point for a celebrity is they need a board of advisors or family office or some other arrangement like that that may be in a place to tell you what you may not want to hear. I don’t think this happens most of the time because when you look at Michael Jackson there are simple things. A man of stature somebody should have advised him every year to have his will rewritten. Even if there were minor changes so that he was continually enforcing what he wanted to do. It eliminates the possibility of a will contest.

Holtby: What celebrities forget is that they are actually a business. I recall a client that fired me several years ago because I wasn’t telling him what he wanted to hear. He was spending more than he was making. His net worth was about $700 million but he was spending money as if he had $1 billion. I told him that you can either prove a Harvard University theory true that if you spend more than you make you are going to wind up broke. He wound up firing me and today I heard that he only has about $10 million left.

Again you can listen to the interview by Podcast posted on this website. The comments are interesting and they may apply in your business.

In summary the major points are:

• Consider using a special purpose trust when you client acquires an asset that may go up substantially in value by the time of his death.
• Be as complete as possible when advising a client on a will. Be sure to include exactly who your children are, who the beneficiaries are and who your spouse is or is not.
• Use the specialist with the best expertise. Celebrities and well-known people often garner connections through referrals and really don’t connect to the best people.
• Use an institutional trustee whenever possible to ensure professionalism, accounting and monitoring of your client’s estate.
• Have a client review his will annually. Make even small changes to confirm that his wishes contained in the will, will continue to remain.
• Don’t be afraid to offer tough advice. Be willing to be fired if you feel that you are right. You will eventually be talked about in the press as if you were a stooge.
• Create an inner circle of professionals for your client so that he has more than you to offer advice to discuss an important problem.
• Make sure that your clients know how much they are spending and be careful they are not spending more than they are making.