Michael Jackson’s estate could be liable for paying more than $500,000 in legal fees if a Los Angeles County Superior Court judge rules in favor of concert promoter AEG. The promoting giant was sued by Jackson’s mother for wrongful death stemming from his demise from a fatal dose of propofol  by former cardiologist Conrad Murray in preparation for a stint of concerts in London, dubbed the “This Is It” tour.

Attorneys for AEG initially sought $1.2 million for fees in defending the suit; claiming that it should have never been brought. The trial lasted five months and ended up in a ruling in favor of AEG. In a tentative ruling issued this week, the court found that Jackson’s mother is liable for $800,000 in legal fees. Jackson’s lawyers have vowed to appeal the ruling after it becomes final. 

The ruling is significant because it would ostensibly be paid through Jackson’s estate. It is estimated that the estate has earned hundreds of millions of dollars since the King of Pop’s death in 2009. It is also reported that his debts have been paid off. With a new album release this week, Xscape, it is estimated that the estate will continue to earn money.

 However, the well-publicized battle with the Internal Revenue Service is still being litigated. The IRS seeks hundreds of millions in unpaid estate taxes based on inaccurate assessments of the value of Jackson’s estate. If Jackson’s lawyers prevail in tax court, little if any, taxes. However, if the IRS wins, there could be some financial turmoil with the estate.

Source: Nbclosangeles.com “Judge: Michael Jackson’s mom should pay costs,” Anthony McCartney, April 14, 2014

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 In a number of our posts we have noted that estate planning is helpful for people at just about any age. You don’t need to have millions in liquid assets, multiple real estate holdings or tax shelters in order to have a basic estate plan. In fact, just having an idea about how you would want to be treated medically if you are unable to speak, or who you would want to make decisions on your behalf is enough. With this in mind, we offer this post to introduce the basic things you should have in your estate plan.

A Will – At its core, the purpose of a will is to establish directions for how you want to distribute your assets in the event of your passing, and to appoint someone to handle your affairs. This includes how outstanding expenses will be paid, and how ceremonies will be handled, among other things.

A Durable Power of Attorney – This document allows you to appoint someone to act as your agent to make legal and financial decisions in the event you become incapacitated. It is different that appointing an executor because that person does not become effective until the testator passes away.

A Living Will – This document, also known as a healthcare directive, specifies how you wish to be taken care of with regard to end-of-life care. It can specify how what medical treatments should be eliminated, such as continued artificial respiration or feeding tubes if you experience a critical, permanent life event. This could be made in conjunction with a medical power of attorney.

Source: WSJ.com “Four estate planning documents everyone should have,” Tom Lauricella, April 20, 2014

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To those who are retired, have plenty of money and are entering their golden years, the importance of an estate plan may be an afterthought. After all, they probably have managed their money and assets well up to this point, and may feel that creating an estate plan invites morbid thoughts of their own mortality.

The same could be said for young people who are just entering adulthood. They may feel as if they are indestructible, and are destined to live into their eighties. Because of this, they may believe that they are too young for estate planning and have plenty of time to do so later in life. 

Both notions are problematic given that no one can predict the future with reasonable certainty. Also, both may be overlooking important, and troubling implications of passing away without a will, trust, power of attorney or transfer on death deed.

For instance, you may not realize that without a will, your assets may not be distributed according to your wishes, and they may proceed through a lengthy and costly probate process. Additionally, California’s probate code, and not you, may end up deciding who is entitled to your assets. This could create further angst and conflict if you have family members who do not get along or believe that they are entitled to more than others in the family.

Further, the tax burdens that can be potentially created without a will should be of particular concern. Not only may federal taxes affect the state, but other costs and fees may compromise the estate.

Source: WSJ.com “When a client does not have an estate plan,” Austin Kilham, April 18

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There is various tax saving strategies that can be put into that will prevent finances in an estate from being depleted. Unfortunately, many people do not understand just how much taxes can affect one’s finances in the long-term.

These strategies can be somewhat complex because every investment is taxed in a different manner. Money that’s put into a Roth IRA, a taxable brokerage account or a 401(k) will require different handling. Helping boost the after-tax investment returns, however, is still a matter that we can retain some control. This can be done by placing the right kind of investments into the correct type of accounts to reduce or eliminate tax consequences.

However, while thinking out such a strategy we still need to make certain that we are putting money away.  Tax efficiency is only one portion of long-term financial planning.  The money that we place into an IRA could grow substantially in any case.  We just wish to have the money in the IRA grow with the least number of tax consequences.

The goal in estate planning is to maximize the amount we can give away to our heirs without subjecting that inheritance to taxation or penalties.  Protecting that money can be difficult, however, and subject to a number of regulations.  

Trusts that are properly drafted can allow assets within to avoid probate.  California residents can also avoid a number of legal requirements by having these trusts set up. Still, there are legal requirements that come along with trust administration and it’s good to consult with an experienced estate planning attorney to make certain the trust is structured correctly.

Source: NASDAQ, “Boost Your After-Tax Investment Returns,” April 15, 2014

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The U.S. Supreme Court’s decision in a bankruptcy case may have long-term implications on estate planning strategies. Essentially, the question before the court is whether a debtor who has sought bankruptcy protection and then inherits a loved one’s retirement account is compelled to turn over the proceeds from such an account to creditors.

There is a difference of opinion between federal appellate courts in regards to this question. The U.S. Court of Appeals for the Seventh Circuit held that inherited retirement accounts that are inherited do not have the same protections as the same accounts that are held by bankruptcy debtors themselves. Meanwhile, similar appeals courts in the Fifth and Eighth circuits have held that the status and protections that come with retirement accounts do not change simply because a debtor inherits them. As long as an inherited account is not disbursed, the protections remain in place.

As the U.S. Bankruptcy Code is currently construed, debtors must report inheritances received within six months of the meeting of creditors to the bankruptcy trustee. At that point, the trustee may seek to collect available funds to distribute them to creditors. This is especially important for retirement accounts that call for funds to be disbursed within a certain amount of time after the owner passes away.

With that, a comprehensive estate plan may help in protecting such assets so that beneficiaries may not be hamstrung by bankruptcy rules. Perhaps a provision to transfer retirement funds to a trust that calls for proceeds to be distributed in a way that protects beneficiaries in bankruptcy may be appropriate.

Source: WSJ.com “Shielding inherited IRAs from creditors,” Arden Dale, April 2, 2014

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Everyone should write a will. There is no doubt about that. A will can clarify your end-of-life wishes on a wide variety of matters, not the least of which is how you want your assets handled after you die. An attorney can help you prepare a will to make it most effective. However, depending on your particular situation, a will alone may not be the best way of ensuring that your assets are protected and ultimately distributed according to your wishes.

In terms of time-cost and fee-cost, probate can be a headache for some families. One way of largely avoiding probate is to establish a trust. Unlike a will, a trust isn’t overseen by the probate court. If a trust is properly funded and properly addressed in the will, then the trust beneficiaries can avoid probate fees and tax burdens.

A trust is also what we call a “living document,” meaning it can provide you with funds during your lifetime.

Of course, preserving assets for yourself and your loved ones is important, but assets are only one aspect of a comprehensive plan. Health care decisions also have to be made. In particular, it is important to ask what will happen if you become incapacitated and thus unable to made decisions on your own.

In California, we have a document called an advance health care directive, which allows you to name someone to make medical decisions on your behalf. In this document, you can address a range of issues, including whether you do or do not want to undergo particular treatments.

All in all, this sort of estate planning becomes less about planning for the future and more about creating it.

Source: FOX Business, “The Biggest Estate Planning Mistakes You Can Make,” Kelly Trageser, April 7, 2014

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Famed fashion designer L’Wren Scott reportedly has left her entire estate to her longtime boyfriend, Mick Jagger. Scott was found dead in her Manhattan apartment on March 17, and her death has been ruled a suicide. Her death was a traumatic surprise to those in the fashion industry.

According to court documents, Scott’s will indicated that she wanted to leave all of her “jewelry, clothing, household furniture and furnishings” to Jagger. It is estimated that her estate is worth $9 million. Arguably the most valuable asset is her Manhattan apartment.  Noticeably absent from her will were Scott’s two children, Randy Bambrough and Jan Shane. 

A CNN report reveals that Scott signed the will in May 2013 in Beverly Hills, California.

Scott’s will, and the transfer to Jagger, brings up a number of estate tax issues. Given the value of the estate, there could be significant taxes to be paid, if there is no applicable exemption to help in saving money that would otherwise be paid to the federal government. Estates with a value of less than $5 million can avoid federal taxation, which could be as much as 40 percent. Since she and Jagger were not married, he would not be able to take advantage of the unlimited exemption afforded to married parties.

Additionally, the State of New York may seek its share of the estate, where taxes apply on estates worth more than $1 million. It remains to be seen whether Jagger will argue that a particular exemption applies, or whether California law controls.

Source: CNN.com “L’Wren Scott leaves $9 million estate to Mick Jagger,” Rande Iaboni, March 28, 2014

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The overriding purpose of a will is for someone to communicate their wishes as to how their assets will be distributed after they pass away. Essentially, a will establishes the rules for distribution, including who is responsible for administering the estate, and it identifies beneficiaries. Without such a document, a person’s belongings may be distributed according to California law, which may prevent a person’s preferred beneficiaries from being able to receive them.

The importance of a person’s intent cannot be overstated. After all, a will is a manifestation of a person’s wishes. A story out of London, England is a prime example of the critical nature of a will. A 98-year-old woman reportedly left her fortune to her window washer, while leaving out her estranged nephew who had previously been slated to receive it. Through his counsel, the nephew claimed that he and his aunt had a “long-established understanding” that he would receive her fortune. However, a falling out between the aunt and nephew reportedly led to her changing her will.

Despite the story being based in England, will challenges are common in California, especially among family members or caretakers who may not be specifically denoted to receive something after a person passes. Because of this, it is prudent to have an estate planning attorney draft the will so that the proper questions can be asked of the testator (the person for whom the will is established) and accurate language can be incorporated to ensure that the proper beneficiaries are accounted for.

Source: Telegraph.co.uk “Woman, 98, leaves fortune to window cleaner – not nephew,” James Edgar, Feb. 17, 2014

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Not long ago, a world record was broken in the state of California. No, it wasn’t something as flashy as a land-speed record, but it is a smart one according to observers. By purchasing a life insurance policy worth $201 million, a California tech mogul smashed the previous record by $101 million.

Even though the specific identity of the insurance policy holder hasn’t been revealed, observers have been able to offer some insight. Including an insurance policy in a trust can prove to be a very effective estate planning tool, as it provides financial assets to beneficiaries while minimizing the tax burden.

There may be a perception that trusts are an estate planning instrument only useful for wealthy individuals and their beneficiaries. The reality, however, is that anyone could potentially stand to gain from including a trust funded by a life insurance policy in his or her estate plan. Beyond tax advantages, trusts also allow individuals to administer assets to loved ones in a specific, controlled manner.

It’s worth noting that a life insurance policy might be among a person’s most valuable assets. In fact, this might be true for people who aren’t considered to be “wealthy.” Keeping this in mind, people may want to make sure this type of asset is protected for the benefit of loved ones who are named in an estate plan.

Setting up a life insurance trust certainly might be good idea, but it can also be very complicated to arrange. As such, it may be helpful to discuss this option with an experienced attorney and ensure that it’s created in the most effective and clear way possible.

Source: CNBC, “Tech billionaire buys $201 million insurance policy,” Robert Frank, March 17, 2014

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Michael Jackson’s estate is embroiled in more controversy. It was recently revealed that the King of Pop could have fathered a child, who is now 31 years old. Brandon Howard, who is the son of famed R&B singer Miki Howard, is rumored to be the son that Jackson sung about in his 1983 hit “Billie Jean.” Miki Howard apparently went by the nickname “Billy”, and in an example of art potentially imitating life,  Jackson’s song, interestingly enough, has the lyrics, “Billie Jean’s not my lover, she’s just a girl who claims that I am the one, but the kid is not my son.”

According to the International Business Times, Brandon Howard’s DNA is a 99.9 percent match to Michael Jackson. A Beverly Hills dental surgeon allegedly had a sample of Jackson’s DNA from an earlier procedure, then conducted a test with Howard. According to a video Howard released on his Facebook page, Howard wanted to end speculation about his connection to Jackson.

Nevertheless, the test reportedly has proved otherwise. Now speculation abounds as to the real reason behind this latest revelation. Most believe that Howard is angling at a piece of the King of Pop’s fortune. However, Jackson’s will, which has been hotly contested, specifically denotes who is heirs are, as well as who is entitled to his fortune. In essence, his children, Paris, Prince and Blanket were the only heirs mentioned besides his mother. Also, the will had the language, “Except as otherwise provided in this will…I have intentionally omitted.”

Source: Ibtimes.com, “Michael Jackson has a secret child? DNA test of singer Brandon Howard is a 99.9% match to the King of Pop,” Suman Varandani, Mar. 7, 2014

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