Do you remember the sad story of Whitney Houston’s death, and the subsequent untimely death of her 22-year-old daughter, Bobbi Kristina Brown? The situation has been made even worse by some unfortunate estate planning. Even with high profile, high wealth individuals, the most basic estate planning principles still apply, including planning for contingencies that may be unlikely, but still can be foreseen. One of the jobs of an estate planning lawyer is to ask what would happen in situations that, while statistically unlikely, are still possible. Now this case has become a morass of sticky wickets. There is likely to be expensive, lengthy litigation that will have to wind its way through the legal system. Even when the lawsuits are resolved, the results are likely to be nothing like what Whitney Houston would have wanted.
This is a cautionary tale for lawyers and their clients: Do the planning. Plan for all contingencies, no matter how unlikely. Keep the plan up to date.
Planning ideas, in hindsight:
- The idea that a trust should be distributed and eventually terminated in stages as a child becomes more mature and responsible, is very common. It makes sense in many smaller estates. However, when the estate is large, the trust is likely to throw off so much income that there is no reason that the child should ever need to get mandatory distributions of principal. According to the article, Whitney Houston’s estate was around $200,000,000. After estate taxes, the amount left in the trust could be somewhere around $127,000,000. If a bank or trust company made conservative investments which produced, say, a modest 3% yield, then Bobbi Kristina would have had a lifetime income of around $3,800,000 a year. Many people would find that sufficient to live on, without ever needing a mandatory distribution of principal. If there were a massive national or worldwide economic dislocation, or if Bobbi Kristina just couldn’t get by on a mere $317,000 a month, then she could always ask the trustee for a distribution of principal.
- One of the nice things about leaving children their inheritance in trust (even in amounts much smaller than $200 million) is that inherited trusts are creditor-resistant. (Nothing is creditor-proof, but inherited trusts provide a lot more creditor protection than inheritances paid outright.)
- Because Bobbi Kristina received an outright distribution of 10%, her father, Bobby Brown (Whitney Houston’s ex-husband), stands to inherit around $20,000,000 (less any estate taxes). Based on their very public violent marriage and acrimonious divorce, we might expect that Whitney Houston would not be pleased about that. Had she simply left her estate in trust for her daughter, without those staged distributions, this would not have happened.
- Houston’s mother and brothers will inherit the remaining 90% — subject to the claims of their creditors, distributed to their beneficiaries, taxed in their estates. (Here’s a planning tip: don’t leave large, taxable amounts to elderly people.) If Houston had named lifetime trusts for her mother and brothers as the beneficiaries, then the IRS would not have gotten those extra bites at the estate taxes, and Whitney Houston could have set up multi-generational trusts that would have supported her nephews or nieces for many generations to come. If she didn’t care that much for her nephews and nieces (not to mention her brothers’ wives or girlfriends), she could have left trusts to support her mother and brothers for their lifetimes, with the remainder going to her favorite charities. Houston was known to have many personal problems, including drug use, so maybe her lawyer struggled to keep her mind focused on her estate planning. However, it seems a shame that there is going to be so much aggravation, litigation, taxes and probate (on Bobby Kristina’s intestate $20 million) that could have been so easily avoided.
Bottom line: Don’t “blow off” the contingencies. Don’t just rely on boilerplate planning; spend the time to think through all the possibilities for your specific family circumstances.