Estate Planning Lessons from Whitney Houston’s Legacy: Why a Living Trust is the Preferred Option to a Last Will
07/01/12 | WealthCounsel Quarterly | Maria C. Schmidlkofer, JD
Whitney Houston’s Last Will and Testament is a prime example of the problems that arise when insufficient estate planning is in place. Whitney Houston left her entire estate to her 19-year-old daughter, Bobbi Kristina Brown. Various news reports state Bobbi Kristina turned to drugs to cope with her 48-year-old mother’s premature death and the public pressure of constant media attention. In addition, she will also need to cope with becoming a multi-millionaire over the next few years. This article reviews Whitney Houston’s will and suggests ways in which estate planning could have aided Bobbi Kristina and the legacy Whitney Houston left behind.
Privacy
It is amazing that a simple Google search allows anybody in the world to print out Whitney Houston’s 18-page will. On top of dealing with grief and sticky family dynamics, Bobbi Kristina is subject to public scrutiny of her mother’s will and the public court probate process. This is a result of Whitney Houston executing a Last Will instead of a Living Trust. Americans have always demanded the right to privacy, yet evidently even the most famous do not realize that in death, their personal estate affairs become public if they do not transfer inheritance using a Living Trust. A Living Trust is akin to a private contract that transfers property to beneficiaries without being subject to public scrutiny or the court process. For example, Michael Jackson had a Living Trust in place and the public knows very little about the final disposition of his estate.
Asset Protection
Some news reports estimate Whitney Houston’s estate values around $20 million, with royalties accruing over the next year for an additional $50 to $100 million that will be added to her probate estate. Bobbi Kristina will be the sole beneficiary to an extremely large inheritance. Under Whitney Houston’s will, Bobbi Kristina receives her inheritance outright and free of trust as follows: 1/10th at age 21, 1/6th at age 25, and the entire balance at age 30. Assuming that the estate and royalties over the next year amount to $100 million and no interest accrues, this translates to handing Bobbi Kristina $10 million at age 21, $15 million at age 25, and $75 million at age 30. As soon as the inheritance and future royalties pour out of the trust, there is no protection from creditors, predators, lawsuits, addiction, divorce, or anything else.
We would have advised Whitney to leave her daughter’s inheritance in a personal asset protection lifetime trust, rather than forcing funds out at age-based steps. This would have protected the inheritance, provided stewardship and values, and granted Bobbi Kristina access to the funds to enrich her life in a way her mother both would have encouraged and approved.
Tax Savings
From the will, it appears that no tax planning was done for estate tax purposes. As a result of this, her estate will be subject to the current federal estate tax of 35% on anything over $5,120,000. There is a small consolation that her resident state of Georgia (unlike Oregon with its very low $1 million dollar exclusion) does not have a state estate tax on top of the federal tax.
In addition, because Bobbi Kristina receives her inheritance outright at age 30, the same inheritance that she received from her mother will be subject to federal estate taxes at Bobbi Kristina’s death when it is in Bobbi Kristina’s estate. This results in an estate tax haircut on the inheritance at every generation. Millions of dollars could have potentially been preserved from estate taxes if Whitney Houston had set up a generation skipping dynasty trust for the benefit of her daughter instead of handing her the money outright. A dynasty trust would be out of her daughter’s estate and avoid estate taxes at Bobbi Kristina’s death.
Guidance
While unsubstantiated news stories that report Bobbi Kristina as a “troubled child” or a drug user may be false, it is true that she is a very young woman. There are few, if any, young adults these days ready to deal with multi-millions of dollars at age 21 or 25 or even 30. Yet ready or not, that is what Bobbi Kristina is faced with under her mother’s will. In a recent interview, her Aunt Patricia Houston told Oprah, “She just has to remember everything that she’s been taught.” There are so many estate planning strategies that could have guided Bobbi Kristina and helped her remember what her mother taught her.
Here are a few examples that come to mind. Her mother could have left her the inheritance in a personal asset protection lifetime trust and named a professional Trustee to help her manage the assets as well as provide her discretionary distributions as needed. Her mother could have included addiction protection language to her trust. This would authorize the Trustee to stop discretionary distributions if there was a suspected drug or alcohol problem and spend trust money for counseling and rehabilitation. Her mother could have added inspirational distribution guidelines into the lifetime trust that explained the best manner in which to responsibly use the legacy left behind. Her mother could have named financial, faith or family mentors to guide her daughter as she matures. Unfortunately, the 18 page will does not do any of these things. It just pushes the money out to Bobbi Kristina over the next 11 years.
Review and Update
The last time Whitney Houston amended her will was in 2000, 12 years ago when her daughter was 7 years old. Probably back in 2000, it was hard to envision what it would mean to hand a young woman such a large estate. Perhaps if she had revisited it every few years, she would have updated her estate plan and avoided the current fallout.
Leave a Legacy
Bobbi Kristina told Oprah Winfrey that “I’m her daughter. I have to carry on her legacy.” It is too bad that Whitney Houston did not have the opportunity to express to her daughter what that legacy meant, how to protect it, or how it should be carried on.
