For a guy who squandered millions, consorted with chimpanzees and dressed like a Christmas nutcracker, Michael Jackson did something surprisingly sensible before his death.
He set up a smart estate plan.
Jackson's will provides for the care of his loved ones. A separate document gathers his assets -- said to be more than $500 million, exceeding his debt by about $200 million -- into a trust, ensuring that his affairs stay (mostly) out of the courts and (ideally) out of the public eye.
Far from being wacko, the arrangements set the stage for an orderly disposition of his chaotic empire, says Todd Reinstein, an estate-planning lawyer in Los Angeles. And although challenges could roll in like the California surf, this plan is so well crafted that it just might hold up, unless another will emerges.
Here's what you can learn about estate planning from the King of Pop.
Write a willA no-brainer? Actually, about two-thirds of Americans neglect to take on this basic estate-planning chore, allowing a judge to divvy up their assets by default according to state law. Had Jackson been similarly remiss, his property would have been split among his three children, as dictated by California law. Instead, he divided it the way he wanted to, reportedly leaving 40% of his estate to the kids, 40% to his mother, Katherine Jackson, and 20% to charity.
Jackson avoided potential misunderstandings by citing each of his children by name and by specifically excluding his former wife and the mother of his two older children, Debbie Rowe, from any inheritance. That exclusion may not have been necessary, because the couple were no longer married, but it makes clear that Jackson purposely omitted her, rather than committing an oversight.
Anna Nicole Smith, another dead celebrity with a tangled personal life, neglected to name her infant, Dannielynn, in her will, creating confusion as to her intent. Jackson made his choices clear.
Consider a living trustAlong with a will, Jackson established a living trust, also called a revocable trust. This estate-planning tool lets you transfer all your property, including cars, bank accounts and real estate, into a separately owned entity -- in Jackson's case, the Michael Jackson Family Trust -- while maintaining control as trustee.
At your death, control transfers to your designated co-trustee or successor trustee. Most people, including Jackson, set up their will to "pour over," so that whatever property remains outside the trust at their death eventually is added to it.
The beauty of a living trust for some is that the assets it holds at the time of death avoid probate, a public process. "People who are not interested in having the media know how much they died with or to whom the money is going to be left always do a living trust to prevent media attention," Reinstein says.
Avoiding probate can also make sense for regular folks with significant assets or property in more than one state because it spares their heirs the aggravation of a prolonged legal process. "It saves a lot of money, time and hassle," says David Shulman, an estate-planning attorney in Fort Lauderdale, Fla.