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Jackson saga not the only legal thriller in estates

Jackson saga not the only legal thriller in estatesMichael Jackson’s untimely exit from the global stage has sparked an outpouring of grief from around the world. But for the family of the late King of Pop, issues surrounding his estimated US$1 billion estate are posing a real legal thriller, with his mother Katherine Jackson already having challenged the will’s executors and creditors waiting in the wings.

Sadly, legal battles over estates are not restricted to superstars like Michael Jackson, or in Australia’s case, former INXS lead singer Michael Hutchence. Brisbane has seen long-running disputes involving the well known Mayne and Sinnamon families, while earlier this year Queensland cattle baron Jock Logan settled out of court a lawsuit by his twin sons over his $60 million beef empire.

Estate planning is all about making sure that the appropriate assets end up with the appropriate people at the appropriate time. It is much more than just about simply making a will; careful thought must be given to what you own and how you own it, and your wishes and intentions must be balanced against the needs of your surviving family members and dependants.

Michael Hutchence probably failed to give adequate thought to his estate planning before he passed away in 1997, with the result being years of protracted litigation over his estimated $20 million estate, and a result which probably would not resemble his true wishes.

In the media recently, there has been much discussion around Michael Jackson’s estate and it is apparent that he too may not have given sufficient thought to his estate planning. He had not reviewed or updated his will since 2002, and his estate is structured in such a way that it is crippled with debt and involves a family trust as the major beneficiary.

While the ongoing royalties from the superstar’s music should eventually see significant benefits flow through to his family, the next year or two will be very difficult and Michael Jackson’s creditors will demand repayment of the monies owed to them in priority to any benefits flowing through to his three children and family.

Fortunately, not everyone has to face the kind of issues that arise from the premature departure of superstars. However, if careful thought is not given to your estate planning, the result will be traumatic for those family members left behind, with the only people benefiting from your lack of thought being the lawyers fighting over your will and estate.

For small business, there is the additional issue to consider of how best to pass control of the company or family trust to the appropriate persons, given that you cannot through your will, gift assets which are owned by your company or trust as those assets remain the property of the respective entity.

Generally speaking, the trustee of a trust has the immediate control of the trust, in the sense that it can, depending on the terms of the deed, distribute income and capital and handle the day to day affairs of the trust.

However, the principal or appointor of a family discretionary trust generally has ultimate control of the trust in that they have the ability to appoint and remove the trustee of the trust and name the vesting day.

Obviously this is the most important role in the succession plan of the family trust and should be passed on to the appropriate persons through your will (subject to the terms of the trust deed). You should also consider the impact of beneficiary/loan accounts with the trust as they may become an estate asset on your death.

With the standard company, there are two levels of control. The first is control that lies with the officeholders. Just like trustees, they generally have the immediate ability to deal with the day to day affairs of the company. However, the ultimate control lies with the shareholders.

Control via shareholdings can normally be dealt with easily by a simple gift of shares to a beneficiary. You should however, always read the company constitution to check for any powers that relate to different classes of shares and any restrictions on who your client can give their shares to.

If the assets of the family business are held by you personally as opposed to by a trust or company, you might consider having those assets distributed to a testamentary trust for the use of your intended beneficiaries. A testamentary trust is essentially a gift in a will entrusted to someone to carry it out.

The emotional cost and time delay for the surviving family of not properly considering estate planning is significant. Often an estate which is in dispute will be delayed by up to two years while the lawyers argue issues of capacity or adequate provision in the will through the courts.

Much of this emotional cost and time delay can be avoided through some careful estate planning and by making sure that your affairs are properly in order. Some basic steps to make sure your affairs are in order are as follows:

  1. Make sure your will is properly drawn up by a solicitor and avoid wherever possible homemade will kits;
  2. Carefully consider the financial needs of your family members and dependants. A will favouring one beneficiary over another or cutting one family member out of your will altogether, may create a recipe for litigation following your death;
  3. Work out exactly what you own and how you own it. Today, many people have more complex affairs and they often own assets through superannuation funds, family trusts and companies;
  4. Consider the tax implications associated with the disposal of your estate and the true value of the assets gifted to particular beneficiaries; and
  5. If your estate has significant debt or the assets are insufficient to adequately provide for your surviving family, then consider life insurance as a means to deal with those deficiencies.

To reiterate, estate planning is about making sure that the appropriate assets, being the assets you actually own, pass to the appropriate people, being your family and dependants and not lawyers or creditors, at the appropriate time. This is to stop 18-year-old Johnny going and blowing his inheritance at the local Ferrari dealership.

There are many options available to assist with estate planning, including the use of testamentary trusts. It is recommended that appropriate legal advice be sought over such issues before proceeding further with your estate plan. For while it’s great being a superstar, it’s even greater being able to ensure those left behind continue to benefit from your stardom, and not the legal zombies.

– Scott Whitla is a partner for McCullough Robertson, specialising in estate planning and litigation issues (www.mccullough.com.au)

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Scott Whitla

Scott Whitla

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