The Elder Law Minute TM
Whitney Houston’s Estate Plan Illustrates
Use of Testamentary Trust
By Ronald A. Fatoullah and Debby Rosenfeld
Whitney Houston’s tragic death provides an example of how a trust that goes into effect upon death can work effectively as part of an estate plan. But Houston’s estate plan has some surprising aspects as well, including the reason she used such a trust to begin with.
The late singer’s will provided that her entire estate passes to her to her 19-year-old daughter, Bobbi Kristina, but Kristina cannot currently access her mother’s estimated $20 million fortune because the funds are being held in a trust.
Houston’s will established what is known as a “testamentary trust” for the benefit of her daughter. A testamentary trust is a trust that is created pursuant to the terms of a will. The will names a trustee and specifies what property will be put in the trust upon the death of the person who executed the will (the testator). Such a trust has no power or effect until the will of the testator is probated. 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. The other option is to give the appointed trustee complete discretion as to when to make payments to the beneficiary. The trustee is usually given a standard by which to make such decisions – such as for the health, education, maintenance or support of the beneficiary.
The trust created in Whitney Houston’s will provides that her daughter will receive certain percentages at different stages in her life. It reportedly allows Houston’s daughter to receive a ten 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 for other reasons.
One of the surprising aspects of Houston’s estate plan is that she could have accomplished the same goals through the creation of 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.
Trusts — either testamentary or living — can be set up for many different purposes. To decide if a trust is an appropriate vehicle, consult an elder law attorney.
Ronald A. Fatoullah, Esq. is the principal of Ronald Fatoullah & Associates, a law firm that concentrates in elder law, estate planning, Medicaid planning, guardianships, estate administration, trusts and wills. The firm has offices in Forest Hills, Great Neck, Manhattan, Brooklyn, and Cedarhurst, NY. Mr. Fatoullah has been named a “fellow” of the National Academy of Elder Law Attorneys and is a former member of its Board of Directors. He also served on the Executive Committee of the Elder Law Section of the New York State Bar Association for over 15 years. Mr. Fatoullah has been Certified as an Elder Law Attorney by the National Elder Law Foundation. Mr. Fatoullah is a co-founder of Senior Umbrella Network of Queens. This article was written with Debby Rosenfeld, Esq., a senior staff attorney at the firm. Ronald Fatoullah & Associates can be reached by calling (718) 261-1700, 516-466-4422, or toll free at 1-877-ELDER-LAW or 1-877-ESTATES.