“Send lawyers, guns and money, they’d get me out of this…”

The first cassette I ever owned was Michael Jackson’s ‘Thriller’, purchased in 1982. Ten years later, my mom bought the soundtrack to the movie “The Body Guard”, which featured Whitney Houston’s rendition of “I will always love you”. ‘Thriller’ has now sold over 65 million copies and ‘The Body Guard’ has sold over 40 million, making these two albums the number one and number four best selling albums of all time, respectively. Between the two of them, Whitney Houston and Michael Jackson sold well over 250 million records during their lifetimes.

Unfortunately, selling millions of albums is not the only thing Whitney and Michael had in common. Both stars died over the last three years, both had well-documented battles with substance abuse (that may have lead to their deaths), and both were deeply in debt when they died. Whitney Houston borrowed tens of millions of dollars against the sales of records she had not yet made and Michael Jackson owed millions to a long line of creditors, including promoters, banks, and the second son of the king of Bahrain, among others.

Substance abuse and personal debt issues come up regularly in the estate planning process. Where appropriate, many parents condition receipt of trust funds on the passing of drug tests or attending counseling. A properly drafted trust may also protect your assets from the creditors of one of your beneficiaries. If you have relatives who struggle with debt or substance abuse issues, you may want to consider a trust as part of your estate plan.

If you have personal loans, documenting them properly may save your family attorney fees. The federal and state estate tax returns include schedules of the assets and liabilities of the decedent. These schedules are essentially a snapshot of everything a person owned (and owed) when he or she died. Tracking the debts of a decedent is often one of the more challenging parts of compiling the estate tax schedules, because many personal debts are informally documented, if they are documented at all. If you have personal loans, you should discuss these loans with your estate planning attorney, as properly drafted loan documents, combined with accurate amortization schedules, can save your attorney time (and therefore save your family money) during the administration of your estate.

One more note – there are provisions of the tax code which penalize parties for loans made at below market interest rates. If you have a substantial loan – whether personal or business – you may want to discuss the loan terms with your attorney.

The estates of Michael Jackson and Whitney Houston have benefited from increased record sales following the stars’ deaths. A large part of the estate income from these sales will be going to the satisfaction of personal debts. Most estates do not have this sort of income to offset debts and the debts are instead paid from the residue of the estate. For this reason, debts (including your home mortgage) should be considered when planning the distribution of your assets under a will or trust.

Most families will (hopefully) never have to deal with the sort of  substance abuse and debt problems that followed Michael Jackson and Whitney Houston through the later years of their lives. When the issues do arise, however, properly drafted documents may be the family’s best protection agaist creditors and predators who are looking to get access to the assets of the estate. The key, as always, is to communicate the specifics of your situation to an attorney who specializes in estate and business planning.