Michael Jackson's Estate Plan

I don’t know if an estate plan has ever received as much media attention as Michael Jackson’s. Yet, the way he set up his estate plan the media are left to speculate, at least for the time being, on the identity of his beneficiaries. I hope he finally does get some privacy.

Michael Jackson set up a trust during his lifetime. A trust agreement is a private document. It does not need to be filed in court. I assume that he held substantial assets in the trust, but because it is private, I don’t know what assets are in it.

His will was made public. You can look at it here. It tells us the names of his executors, and the names of the people he wished to appoint as guardians of his children. But according to the will, any assets he held in his name at death will go to his private trust. This is sometimes called a “pour-over will.” So we don’t know who the ultimate beneficiaries are.

How well would this plan have worked if Michael Jackson were a British Columbian, instead of a Californian?

Probably not as well.

We do of course have trusts in British Columbia, and well developed trust laws (with the same antecedents in English law as California). You could also do a pour–over will naming the trust as your beneficiary.

The difficulty is with the Canadian income tax system. In Canada if you transfer assets into an inter vivos (or living) trust, you are deemed to have disposed of those assets at fair market value. This may trigger capital gains or other taxes if the assets have increased in value. Furthermore, if you hold the same assets in the trust for twenty one years or more, the trust is deemed to have disposed those assets every twenty one years, again triggering taxes.

There are some exceptions to these tax rules such as alter-ego and joint partner trusts, but you must be at least 65 to set up one of these trusts. Sadly, Michael Jackson was only 50 when he died.

I am not saying that Michael Jackson couldn’t do similar estate planning in British Columbia. He could of course pay the taxes when he transferred the assets into the trust, and as well any deemed dispositions every twenty one years. He could also have transferred assets that do not appreciate much, or perhaps he could have transferred just a nominal amount into the trust. He could leave the other assets in his own name, and do a pour-over will. He might have thereby been able to keep the identity of his ultimate beneficiaries confidential.

But if Michael Jackson’s will were probated in British Columbia, the assets he owned in his name flowing to the executors would have to be listed in a disclosure document exhibited to an affidavit filed in court. This disclosure document would be public.

Furthermore, his executors would have to pay a tax in British Columbia, called probate fees, of about 1.4 percent of the value of the assets passing to the executors when the court issued the grant of probate. (The probate fees would not necessarily apply to all of his assets, but if he were a resident of British Columbia they would apply to his shares of any companies holding his substantial copyright interests.)