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Madison Wisconsin's Estate Planning Blog

Sunday, March 18, 2012

Whitney Houston's Estate Plan Illustrates Use of Testamentary Trust

 

Whitney Houston's Estate Plan Illustrates Use of Testamentary Trust

 

Whitney Houston's tragic death provides an example of how a trust that takes effect upon death can work as part of an estate plan. But Houston's estate plan has some surprising aspects as well, including why she used such a trust.

The late singer's will leaves everything to her 19-year-old daughter, Bobbi Kristina, but Kristina can't access her mother’s estimated $20 million fortune right away because it is in a trust.

According to news reports, Houston's will sets up what is known as a “testamentary trust” for her daughter. A testamentary trust is a trust created by a will. The will names a trustee and specifies what property will be put in the trust. Such a trust has no power or effect until the will of the donor is probated (processed through the legal system). Although a testamentary trust does not avoid the need for probate and becomes a public document because it is a part of the will, it can be useful in accomplishing other estate planning goals, such as providing for a child or reducing estate taxes in certain circumstances.

The person creating the trust may want to prevent a beneficiary who is a child or young adult from inheriting a large amount of money before he or she can handle it. One option is to pay the beneficiary in stages when the beneficiary reaches a certain age or achieves a specific goal.

This is what Whitney Houston's trust does.  It reportedly allows Houston’s daughter to receive a 10 percent payout when she turns 21, another one-sixth when she turns 25, and the remainder of the trust's assets when she turns 30. In this type of trust, the trustee usually has the discretion to distribute trust funds to the child at any time prior to attaining these ages, if needed for education or other reasons.

Will Never Updated

Now to the surprising parts of Houston's estate plan.  First, as Forbes magazine columnists note, Houston could have accomplished the same goals through a "living trust," which would have kept the provisions of the trust private because it would pass outside of probate. Second, Houston was relying on a will that was created in 1993, when she was married to Bobby Brown, and it apparently was never updated, even after she and Brown divorced in 2007.  The will names Brown as the suggested guardian for Bobbi Kristina.  Although Bobbi Kristina is no longer a minor, Brown could still gain control of Kristina through a conservatorship, as was done in the case of Britney Spears.  Finally, the will provided that if Houston had no living children at the time of her death, her fortune would be split between Brown and several family members.

Perhaps all this is what Houston wanted, even after her divorce from Brown, but that should have been made clear in an updated will.  As it stands, it appears that Houston simply neglected to do something elder law attorneys urge all clients to do: update their estate plan after a divorce or other major life change. 


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