Avoid the Fight at the Funeral


The Importance of Original Estate Planning Documents: “The Wet-Ink Still Matters”

The importance of keeping track of your original estate planning documents was hammered home to me early in my career by a story I heard at an “estate and trusts round table” for young lawyers.  The presenter that day was a seasoned and successful practitioner that we all aspired to emulate.   I was at that awkward place in my career where everyone around me assumed I knew what I was doing, but I was not yet convinced.  So, I took every opportunity to soak in as much knowledge as I could from the veterans.  The story he told was simple, but compelling, and I have adopted it as my own on many occasions when trying to explain to my clients the importance of keeping track of their original estate planning documents.  Here’s how I remember it:

I was once engaged to handle what promised to be a simple estate administration.  The decedent, we’ll call her Greta, was the quintessential grandmotherly widow—always smiling and sweet.  She had three children—two daughters and a son—and a gaggle of grandkids.  She loved them all.

Greta and her late husband had been successful ranchers in eastern Arizona and they had made wills that left everything to their three children.  However, after her husband passed, Greta conveyed over half the ranch property to her son as an advance of his inheritance.  As part of this transaction, she prepared a new will that provided only for her two daughters.  She had good legal counsel when she prepared her will and there was no question about her intentions or competency.

As it turned out, the son was not as good a rancher as his father had been; soon he had mortgaged the land to cover his losses.  A few years later, he lost the ranch to the bank.  When Greta finally passed, the main assets were her home and what was left of the ranch property.  Her daughters found a copy of Greta’s will in her desk drawer, right where she said it would be.  It had a sticky note on it where Greta had written “my originals are in my deposit box.”  The daughters were unaware of any “deposit box.”  Was it a safe deposit box at a bank?  If so, there was no bank identified and no key to be found.  Was it a safe or strong box somewhere on the property?  If so, the daughters had no knowledge of it.

The daughters contacted me for assistance.  I assumed that we would find the will and the administration would be simple.  I made inquires of every bank in town, but there was no safe deposit box anywhere in Greta’s name.  The family made a diligent search of the property, but they were unable to find a safe or strong box.  In the end, we never found Greta’s original will.  So, instead of a simple administration, I had a full blown formal probate on my hands with only a copy of the will.

Not surprisingly, when we petitioned the court to probate the copy, the son objected.  He argued that because the original could not be found, the law presumes that the decedent  destroyed and revoked it.  In that case, the prior will, which left him a third of the estate, would be controlling.  Unfortunately, he was right.  Of course, I knew that the presumption could be overcome, but only if I could clearly show that Greta had not revoked her will.  Think about that for a second . . . the standard requires you to prove a negative!

To make a long story short, we litigated that case for over a year.  In the end, we prevailed, but the legal costs were significant and the daughters’ share of the estate was greatly diminished.  More importantly, the family relationships were destroyed, even between the daughters, one of whom favored settling with the son.  The law of estates and trusts is old-fashioned.  The wet-ink docs still matter.   You and your clients should be careful to keep track of them.

So, if you don’t do anything else this month, send me a note and tell me where, exactly, you keep your originals.  Don’t leave us searching.

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A Cautionary Tale

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.

Here’s the article.

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.

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