“The Cat and the Canary”, initially done as a silent film in 1927 and then remade as a “talkie” in 1978, brings the subject of estate planning squarely into the horror film genre.   On a dark and stormy night, several relatives gather in an old mansion to hear the reading of the Will of Cyrus West, their very wealthy ancestor.  When the Will is read by his attorney, the old man reveals how much he despised his worthless next of kin.  As a result, his Will is structured in such a way as to inspire conflict among his potential heirs to see who will collect his fortune.  The heirs are locked into the mansion for the night during which strange, creepy people are roaming the halls.  Stay in your rooms and lock the doors!!

            For most people, the purpose of proper estate planning is to avoid conflict among your loved ones.  If Cyrus West came to me and said that his primary estate planning goal was to incite his heirs to plot to kill each other, I would politely send him on his way.  However, it does make for an entertaining, if unrealistic, movie. 

                        “Use of Legalzoom Results in Legal Mess.”

            This week’s story involves a young woman who died prematurely from cancer.  When first diagnosed with cancer, she decided to prepare her own Will using Legalzoom.com.  She actually succeeded in preparing a “legal Will”, which complied with all of the witnessing formalities required by Florida law and which named her brother as the personal representative of the estate.    Unfortunately, without having been counseled on important legal issues, her “legal” Will has created many problems for her family.

            This young woman left behind three minor children, ranging in age from 11 to 7.  She left her entire estate to be divided equally among the children.  The children also were named as equal beneficiaries of her life insurance policy.  She had long ago divorced the children’s father and he had not been involved in their lives.  The first legal issue which this woman did not understand is that minor children cannot legally own property or control money.

            As a result of the language in the will form she used, it will be necessary to have all of her money and property, including the life insurance proceeds, distributed through the probate court and it also will be necessary to establish a court-supervised guardianship of the children’s assets.  This will impose unnecessary expenses on the family and a delay in the children receiving the life insurance proceeds.  Additionally, when the children reach the legal age of 18, they will be handed their share of the guardianship money and property whether or not they are mature enough to handle those amounts.  With proper counseling that money could have been protected from the children making rash spending decisions.

            Because everything was left to the children equally, if one child gets sick or hurt, or another child has problems in school, the guardian will not be allowed to give more funds to the child who most needs them.  Is that the way you would raise your children?  If one child needs braces or a new pair of shoes, do you get them for all 3?  By not counseling with an attorney to learn about ways to allow the guardian to have more flexibility, that opportunity was lost.

            Another huge problem is that the Will does not clearly identify who the young woman wished to be guardian of her children’s property.   She may have thought that naming a personal representative of the estate was the same thing as naming a guardian for her children, but it is not!  This leaves open the possibility that the children’s father, with whom the woman and her children had no contact and whom she would never want to have control of one penny of her money, may become guardian of the children’s property.  Unfortunately, this could lead to a contested guardianship proceeding between the woman’s brother and the children’s father for control of the children’s money.  Such a fight would serve only to further divide the family and drain the children’s estate.   Although the father is presumed by law to be the guardian of the person of the children, (i.e. the person to raise and look after them), the mother could have named someone else, such as her brother, to control the children’s money and property, so their father could not spend it on himself or otherwise misuse it. 

            With proper counseling and at a reasonable cost, a trust could have been established for the children which would have avoided both the extra expense and delays of the probate process and which would have named specific guardians and trustees to handle the money for the children’s benefit.  The money could have been kept in one pot to be used as needed until all the children were grown and then could have remained in a trust for each child after each child reached 18, so as to prevent those assets from being squandered at an early age. 

            These issues all would have been addressed during the estate planning process at the Cramer Law Center.  As Legalzoom itself says:  “Legalzoom’s legal document service is not a substitute for the advice of an attorney”… “The legal information on this site is not guaranteed to be correct, complete, or up-to-date.”

(Link to full disclaimer:  http://www.legalzoom.com/universal/disclaimer.html )

After all, it’s NOT ABOUT DOCUMENTS, it’s about results!

This week I thought that I would share with you some comments on an interesting book I just finished:  Mrs. Astor Regrets by Meryl Gordon.  This is the story of Brooke Astor, the last Mrs. Astor, who lived one hundred and five years before passing away in August, 2007.  The book is captivating because it tells the story of one of the richest women who ever lived and is full of anecdotes about the rich and famous.  The Rockefellers, the Whitneys, Henry Kissinger, Tom Brokaw, and Oscar de la Renta are just a few of the famous names that moved in and out of Brooke Astor’s life.  These stories alone make for fascinating reading.

             However, it is the subtitle of the book “The Hidden Betrayals of a Family Beyond Reproach” that makes the book riveting.  Who really expects or plans to live to age 105?  What happens when an 80 year old son is tired of waiting for his inheritance? 

             When John Jacob Astor went down with the Titanic, he left $87 million to his son Vincent.  Vincent later married Brooke.  When Vincent Astor died in 1959, he left an estate worth over $120 million.  $60 million was left in trust for his wife and another $60 million was left to the Astor Foundation.  Brooke Astor was well known for her active philanthropy as the head of the Astor Foundation.  Over the next 40 years, she gave away $200 million to New York City charities, making her the most influential person in the City.  She also lived the “good life” and thought nothing of wearing a $250,000 necklace when dressing to go out for dinner. 

            Brooke Astor lived a vigorous and active life right on through her 100^th birthday party, but her mental and physical health then began to deteriorate.  Her last years of life became tragic because she did no disability planning.  The richest woman in America did not have a Revocable Living Trust.  Instead, her estate planning was confined to a Will and many codicils (she changed her Will 38 times). 

            As her mental health deteriorated, her only son “took over” and acted in ways that ultimately resulted in his being indicted on criminal charges of elder abuse and theft.  He cut his mother’s staff, shut her up in her Park Avenue apartment, isolated her from her friends and seriously diminished the quality of her healthcare.  As a result, her close friends, led by Annette de la Renta, filed a court petition to have a formal guardianship established.  Needless to say, the filing of this guardianship petition was heaven for the tabloids and the family tragedy was page-one news in every New York newspaper.  Eventually, Annette de la Renta was appointed as Brooke Astor’s guardian and Mrs. Astor’s last year of life was made more tolerable. 

            The irony is that the world’s richest woman could have avoided this entire spectacle had she planned for disability by establishing a Revocable Living Trust, leaving specific instructions and appointing someone she trusted to administer her affairs according to those instructions, if she became mentally incapacitated.  Her failure to do so resulted in a family tragedy of Shakespearian proportions, tabloid headlines, millions of dollars of attorney’s fees and her only son being indicted.  His criminal trial is going on right now, providing more grist for the tabloids’ mills.  see:  http://www.nypost.com/seven/07082009/news/regionalnews/manhattan/marshall_collapses_in_courthouse_mens_ro_178228.htm

All of this could have been avoided by a common estate planning technique that is readily available to everyone, not just the mega-rich.  Don’t let a similar family tragedy occur to you, your friends, or clients.  Everyone needs to plan for the potential of being alive, but mentally incapacitated.  Estate planning is not just about what happens after death.  Brooke Astor’s final years are a fascinating testament to this fact.

Recipe for Disaster

This week’s story involves a gentleman in his 50’s who recently died of cancer.  He left behind a 16 year old son and a wife, who he married 9 months before his death.  This man was injured in a serious accident many years ago which was someone else’s fault. As a result, he received a settlement in the form of an annuity which made monthly payments to him for life, with payments guaranteed to be made for at least 20 years, even if he didn’t live that long.  The lawyer who obtained the personal injury settlement prepared a basic Will, which was signed in 1995.  It named the man’s brother as personal representative of the estate.  Unfortunately, the Will never was updated, even after this gentleman remarried 9 months ago. 

The man’s life insurance proceeds and his entire estate were left to his 16 year old son. (Who, by the way, was in jail at the time of his father’s death!)  In the state of Florida, a minor cannot legally hold title to property.  When a minor receives an inheritance, it is absolutely necessary that a court supervised guardianship be established to hold any money or property until the minor reaches the age of 18.  The Will did not direct who should serve as guardian of the minor child.  This creates a possible conflict between the man’s brother, who he wanted to handle his estate, and his previous wife, who he divorced some years ago, but who is the child’s biological mother.  This likely will result in a contested guardianship proceeding that will drain away a good portion of the 16 year old son’s inheritance.

Additionally, in Florida, because the current spouse was not provided for in the Will, she is known as a “pretermitted spouse”.  When a person marries after making a Will and the new spouse survives that person, the surviving spouse (even if they have been married only 9 months) is entitled to receive a share in the estate equal in value to what she would have received if there had been no Will at all, unless provision has been made for, or waived by, the spouse in a prenuptial or postnuptial agreement; or unless the spouse was provided for in the Will.  In our case, none of the above applied.  So, by operation of Florida law, our 9 month spouse is entitled to one-half of the entire estate! 

This gentleman also owned a home in which he and his wife resided prior to his death.  The home likely will be considered to be “homestead” property under Florida law.  By virtue of the operation of homestead law, the 9 month spouse will be entitled to a life estate, meaning that she will have the right to live in the house for the rest of her life, and the son will have a remainder interest, meaning that he will receive the property only after the surviving spouse dies.

As you can see, even though the person had a “legal” Will, the estate is a mess.  The wishes he set forth in that Will, that his son receive his entire estate, are not going to be carried out.  This scenario illustrates the need for continued updating of your estate plan, so that it stays current with your life changes.  It is very important to maintain an ongoing relationship with an estate planning attorney who would have provided counseling on many issues, such as the need for a prenuptial or postnuptial agreement before he married, to limit his new wife’s claim on an inheritance he wished to leave for his son; updating the Will to mention the current spouse; or on the preparation of a trust to hold the assets of the minor child, which would have included the naming of a trustee of the father’s choice, and instructions to keep the money in a lifetime protective trust for the child (who was known to have behavioral problems) or to at least delay distribution of the proceeds for some years beyond his 18^th birthday.  The homestead property also could have been addressed by either a prenuptial or postnuptial agreement. 

These are just a few of the issues that could have been handled in a different manner by counseling and updating with an estate planning attorney at the Cramer Law Center.  Now, the son won’t receive all of the inheritance his father intended.  What is left will be available for the son to spend without any restrictions when he turns 18, whether or not he still is in jail.  So we can see having a “legal” Will was not enough to allow our gentleman to pass on his assets as he intended and, indeed, has turned out instead to be a recipe for disaster.

Redskins Owner Leaves $1.3 Billion Estate in Disarray:  Complete with a Widow’s Claim, a Son’s Unfulfilled Dreams, 7 Years of Litigation, and $64 Million in Professional Fees.

Jack Kent Cooke started business as a high school drop-out selling encyclopedias door-to-door, and grew until he owned a collection of media companies, sports teams, and real estate valued at $1.3 billion.  Most know him as the former owner of the Washington Redskins football team.  Although a successful and sophisticated businessman, his estate planning failed miserably.  Although Cooke passed away over 10 years ago, the lessons are still relevant today.

Though most of us don’t have $1.3 billion, this is a great case study on how estate planning that is not well designed and customized according to a client’s wishes can result in devastating financial and emotional costs after their death.  This is not an issue of net worth, as much as it is a counseling and planning quality issue.

Cooke had a will that was amended eight times.  It left seven executors, most former employees.  When presented with the will, most of them had never seen the will or knew of its instructions.

Cooke’s wife, whom he divorced once and then remarried signed a prenuptial agreement upon her remarriage to Cooke, waiving her claim to his estate.  A fight ensued nevertheless, which ended in a $10 million settlement to Mrs. Cooke to end the expensive litigation ($6.8 million in legal bills).

Another problem was the disagreement among executors over the Jack Kent Cooke Foundation.  An executor, Stuart Haney worked with Cooke to create the Jack Kent Cooke Foundation to help underprivileged students.  Due to a large estate tax bill, the only way the foundation could be funded was to sell assets of the estate.  Cooke’s son had worked in management of the Redskins for most of his life, shared his father’s passion for football, and dreamed of someday owning the Redskins.  John Kent Cooke was adamant that the Redskins franchise not pass from family control.

John Kent Cooke (also an executor) suggested that one of his father’s other investments, the Chrysler building in New York City, could be liquidated to pay taxes.  However, the building was losing $1.5 million a month and its market value didn’t come close to the loans against it.  The executors, therefore, with the exception of Cooke, Jr., chose to auction the Redskins team. The team went to Daniel Snyder for a bid of $800 million.

The next fight was how much the executors should be paid for their work because the will didn’t specify a fee.  The case was decided in favor of the state’s statutory 5% fee, which equaled approximately $37.6 million.  In the end, Cooke, Jr. never received the Redskins, which he dreamed about and worked towards his entire life.  The executors were divided and bitter, yet they still had to work together as they were all named on the board of directors for the Foundation.  Eventually, $64 million was spent on professional fees.