Media mayhem surrounded Michael Jackson throughout his life - and now, his death. As the man behind Thriller, the top-selling album of all time, exits stage left, he leaves the world one last legacy: insight into estate planning.
The Gloved One showed the world that savvy (and wealthy) businesspeople, parents and children need to take control of their affairs while they can. "You have to have a will to make things work well, and it has to be professionally prepared. One that is not professionally prepared is not any better than no will at all," said Peter Lockie, a senior partner with Ogilvy Renault LLP in Toronto.
"A huge percentage of the population," he added, "does not have a will... Lawyers need to remind clients to make a will."
For many clients, a will is only one element in an effective estate plan. "A properly drafted will, alone or in tandem with properly structured and drafted trusts, are usually the foundation of a strategic estate plan," noted Josephine Nadel, a partner in Borden Ladner Gervais LLP's Vancouver office.
"It is fundamental that the individual formulate a clear intent, which is tax effective and takes into account legal obligations to heirs and potential heirs," she stressed. "The individual's wishes and intentions should be properly documented in a legally binding and enforceable fashion. This is key to avoiding disputes and challenges."
The King of Pop is unlikely to be so lucky, despite the presence of a last will and testament. Indeed, his five-page will, signed in 2002, may be out of tune with his life wishes and his business needs as they were in 2009. Those needs should be spelled out in a succession plan, said Martin Rochwerg, a partner with Miller Thomson LLP's tax and private client services group in Toronto.
"There are a series of questions that need to be asked," he noted. "These include is the business active, are there investment assets, how diversified is the business - and how risky?"
Clearly, expertise is essential.
"The question of who's in charge should be clear," said Lockie. "It may have ceased to be the most appropriate person, but it should be clear who it is."
"If it really is unclear who is responsible for assets," he noted, "then that is a poorly drawn will."
Executors need a specific skill set, or the ability to get that skill set, said Nadel. Among the must-haves: understanding of financial and tax matters and a basic knowledge of estate administration.
"It is beneficial to choose executors who are familiar with the estate of the deceased and also [their] personal values and wishes, in the event that they have discretionary duties," she noted. "Essentially, it is the responsibility of the executors to safeguard the assets of the estate for the benefit of the beneficiaries, so first and foremost the executors must be trustworthy and capable of discharging their duties."
Given the complexity of Michael Jackson's estate, those duties would be diverse and multi-dimensional. There are numerous issues to consider with respect to how the business assets should be handled. Topping the list is selling or keeping assets, noted Rochwerg. "What is the likely return on investment if you retain assets? What do you do with the money if you sell? The executors will have to answer those questions to the satisfaction of the will's beneficiaries."
Billie Jean's singer, of course, will live on in his music - and that music will continue to earn royalties. "If owned outright that needs to be dealt with by the executors," said Lockie. "It's very complicated."
Part of the complications arise not from what is about to be earned in the future, but what is owed now. In Michael Jackson's case, the IOU is said to be as much as US $500 million. "Most of us die with debt of some kind," noted Lockie. "Capital gains are in the United States estate tax. If executors have to sell valuable assets to pay tax, then you've left them in a very unfavourable position."
In Michael Jackson's case, as with many wills, the executors' duties go well beyond business to include family. "Of primary concern, is the custody, care and guardianship of children," said Nadel. "The selection of the appropriate individual or individuals is paramount, keeping in mind the best interests of the children," she added. "Disputes with divorced parents, natural parents, custody arrangements, agreements vis a vis guardianship appointments and the like should be settled while the individuals are alive."
That, of course, will not happen in Michael Jackson's case - despite his best efforts to curtail court cases and legal wrangling. Included in the entertainer's will is an in terrorem, or "no contest" clause. "They're trying to scare people out of a lawsuit," said Lockie. "In many cases, they're void. The law says they're really just a threat.
"To make them effective," he added, "you have to designate where [someone's] share would go. Still it is unlikely to be effective if there is a blanket prohibition against challenging a clause."
The world may be about to find out. Jackson's mother, Katherine, is considering a legal challenge to remove the two executors in charge of her son's estate. First, however, she is asking a California judge if such a challenge would invoke the in terrorem clause and affect the money allocated for Jackson's three children.
Interestingly, the friction between Mother Jackson and her son's executors may have sparked before the in terrorem clause ever came to light. According to the Stratton Law Firm, which is based in Tampa, Fla., immediately in the wake of Michael Jackson's death his mother filed a petition to be named as the person in charge of his estate, claiming he had no will. That claim was disputed when Branca and McClain stepped forward with a copy of the will in hand.
The world may have been wondering if Michael Jackson had a will and where it was, noted Rochwerg.
"But the only people who really need to know where the will is are the executors."
And it appears they did.