Planning for the Unexpected: A Review of Whitney Houston’s Estate Plan
The recent tragic death of Whitney Houston’s daughter, Bobbi Kristina Brown, creates an opportunity to review Ms. Houston’s estate plan to determine what she did right and where there was room for improvement.
Whitney Houston died on February 11, 2012, at age 48. With the surge in popularity of her songs as the result of her death, various news agencies put the value of her estate at between $20 million and $115 million.
In 1993, Whitney Houston executed a Will. At the time she drafted her Will, she had no children but she was pregnant with her only child, Bobbi Kristina. The Will left her entire estate to trusts for the benefit of her children. The children’s trusts provided for discretionary distributions of income and principal to her children. The trustee was authorized, but not required, to make distributions, for her children’s health, education, maintenance, engagement, marriage, birth of a child, purchase of a home, and commencement or continuance of a business enterprise.
Ms. Houston’s Will further provided that Bobbi Kristina (as her sole child) would receive one-tenth of the trust assets at age 21, another one-sixth of the trust value at age 25, and the balance of the trust estate at age 30. Bobbi was 22 at the time of her death.
If Bobbi were to die before age 22, the trust was to be distributed to her siblings, if she had any. Given that Ms. Houston had no other children, the alternate distribution is for the trust to be distributed equally between Ms. Houston’s mother (Emily Cissy Houston), father (John R. Houston), ex-husband (Bobby Brown), and brothers (Michael Houston and Gary Houston). The shares for John Houston and Bobby Brown have lapsed under the terms of the trust, due to Mr. Houston’s prior death and Bobby Brown’s divorce from Ms. Houston.
Whitney Houston provided for trusts for her brothers similar to that she provided for her daughter, except without the provisions for distributions at designated ages. Upon a brother’s death, his trust is to be distributed to the then living heirs at law of Ms. Houston under New Jersey law, but specifically excluding her brother, John R. Houston III.
She named her attorney, Sheldon Platt, as the executor of her Will, but in a Codicil to her Will in 2000 she replaced him with her mother. She named her sister-in-law (Donna Houston) and her attorney as trustees, but in the Codicil she replaces Mr. Platt with her brother, Michael.
She named her ex-husband as the guardian of her minor children. She never changed this provision after her divorce from Bobby Brown, perhaps because of Bobbi Kristina’s age at the time of her divorce or the desire to avoid a legal battle over custody of her daughter.
Whitney Houston is to be complimented for creating an estate plan at such a young age, apparently motivated by the impending birth of her daughter. Many experts would also commend her for withholding distribution of the majority of her estate until Bobbi Kristina attained the age of 30.
Given the privacy concerns of many celebrities, one might question why Ms. Houston chose to use a Will as her primary estate planning document. A Will mandates a probate of the estate, which means its contents, as outlined above, become public record. There is also the concern of the cost of the probate administration (for legal and executor fees, court costs, and publication costs), which varies from state to state. A study by the American Academy of Estate Planning Attorneys found the average cost nationwide is approximately 2% – 4% of the gross value of the estate, although it can be much more, especially for smaller estates. Given that Ms. Houston desired a trust for her daughter, it could have been much more efficient for Ms. Houston to utilize a revocable living trust as her primary estate planning vehicle. This would have provided greater privacy (a trust is not a public document like a Will) and the costs of administration would generally be much less than a probate.
Outright distribution to a child or other beneficiary is not always the best strategy. In Ms. Houston’s case, she provided for Bobbi Kristina to get her inheritance at age 30. While many individuals are ready to receive an inheritance at age 30, some individuals, especially those with addictions to alcohol, drugs, or gambling, may not be. Whitney Houston left the inheritance for her brothers in trust for them for their lifetimes. It is unknown why she might have done this, but perhaps it was because her brothers had tax or creditor issues or were suffering from lifelong battles with substance abuse. Persons with mental illness or special needs will generally require a lifetime trust to protect their inheritance and to prevent them from losing whatever government assistance they may be receiving.
Ms. Houston’s estate, whether it is $20 million or over $100 million, was subject to federal estate tax. Had Bobbi Kristina lived to be 30, she would have received her entire inheritance and it would have been subject to estate tax again at Bobbi Kristina’s death. The money that is distributed to Ms. Houston’s mother and brothers may be subject to estate tax at their deaths. Having Whitney’s estate subjected to estate taxes on multiple lives over a relatively short period of time will severely deplete the estate. Estate taxes could have been minimized by leaving the assets in lifetime trusts for her daughter, mother, and brothers that are designed so as not to be includible in their taxable estates at their deaths. This planning strategy could have saved millions of dollars in estate taxes.
Depending on the type of asset protection required, Bobbi Kristina, Emily Cissy Houston, Michael Houston, and Gary Houston could have served as trustee or co-trustee of their own trust. If maximum asset protection were desired, another person or entity could be appointed trustee, or perhaps co-trustee with the beneficiary. Flexibility of planning can be achieved with lifetime trusts by giving the beneficiary the ability to remove and replace the trustee with an independent trustee and by giving the beneficiary a limited power of appointment. A power of appointment provides the beneficiary with the ability to designate who receives the remainder of their inheritance at their death, if that type of flexibility is desired. The list of potential appointees can be narrow, such as children or spouse, or much broader, such as more distant relatives, friends, or even charities.
Our office focuses on all types of estate planning. We can provide plans ranging from the simple to the complex. We work with married and unmarried individuals. We have knowledge of the common planning pitfalls to avoid. As a member of the American Academy of Estate Planning Attorneys, our firm is kept up-to-date with information regarding estate planning. You can get more information about scheduling a complimentary estate planning appointment for you or your clients by calling our office at (408) 356-9200 or (831) 476-2400.
ABOUT ROY W. LITHERLAND
Roy W. Litherland is an attorney whose practice emphasizes estate planning, estate administration and elder care. Roy has practiced law in the greater Bay Area for over 35 years. He regularly conducts public seminars on estate planning and related topics, and can be reached at (408) 356-9200 or (831) 476-2400. Roy W. Litherland is a member and designated Fellow of the American Academy of Estate Planning Attorneys, an organization that fosters excellence in estate planning.