Whitney Houston’s death provides an example of how a trust that takes effect upon death can work as part of an estate plan. The late singer’s will leaves everything to her 19-year-old daughter, Bobbi Kristina, but Kristina cannot access her mother’s estimated $20 million fortune right away because it is in a trust.
Various news outlets have reported that 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 into the trust. Such a trust has no power or effect until the will of the deceased person 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.
Interestingly, Houston’s will was created in 1993. In 2007, she divorced her husband Bobby Brown, but never updated her will to reflect this life change. In fact, reports say that the will names Brown as a contingent beneficiary in the event that her daughter had died before Houston. What if that had occurred?
Since an updated will was not done by Houston after her divorce, it appears that she failed to do what everyone should do after a life changing event such as a divorce. All elder law and estate planning attorneys recommend that a thorough review of a persons will and estate planning be done to accurately reflect a person’s wishes.
Another estate planning tool that many people utilize is a “living trust”, which Houston did not have. A living trust, when assets are properly retitled into the trust, avoids the need for probate. Further, the terms of a living trust are kept private because a living trust does not need to be filed with the Court and become a matter of public record.
Trusts can be set up for many different purposes. Consult with an estate planning or elder law attorney to discuss whether a trust may be best for your situation.
*Tony DelGiorno is a shareholder attorney with Rammelkamp Bradney Law Firm with offices in Springfield, Jacksonville, and Winchester practicing in Elder Law, Medicaid planning, Guardianships, and Estate Planning. He can be reached in Springfield at 522-6000.