Maurice Laboz was a NYC real estate investor worth $37 million when he died earlier this year. He left $10 million in trust for each of his daughters and provided that they will receive their inheritance when they reach 35. However, they may receive funds earlier if they abide by his wishes of signing a pre-nuptial agreement prior to marriage ($500K) and graduating from an accredited college and describing the use of trust funds distributed early ($750K). They will also receive a distribution of 3x their annual salary each April 15 and distributions for staying at home with children born in wedlock (3% of the trust value annually). He also disinherited his wife whom he was in the process of divorcing.
Several quick points:
1. Funded trusts are a great vehicle for disinheriting a spouse in the midst of a divorce proceeding. Otherwise, the estranged spouse is entitled to a percentage of the estate at death (1/3 in Ohio).
2. Incentive trusts such as Mr. Laboz’s are good for imposing one’s wishes and values from the grave upon one’s descendants.
3. Personally, I favor a trust clause that distributes 10% of my children’s inheritance to charity for each tattoo that they have, visible or not.
Now that Bobbi Kristina Brown has died after six months in a coma, let’s revisit what will happen to her estate and her mother’s estate, while also covering what she should have done differently. To recap, Bobbi Kristina was a month shy of 19 years old when Whitney died. Whitney’s 1993 will created a trust solely for the benefit of Bobbi Kristina. The trust distributed 10% of Whitney’s estate to Bobbi Kristina when she was 21 with the remainder to be distributed at the ages of 25 and 30. Bobbi Kristina received approximately $2 million on her 21st birthday. After Bobbi Kristina was found unconscious, her father (Bobby Brown) and grandmother (Cissy Houston) made her medical decisions for her somewhat contentiously.
What should have happened?
1. Whitney should have provided that her estate be distributed to her daughter at an age later than 21. I never draft trusts with such a young age for principal distribution.
2. When Bobbi Kristina received her first distribution from her trust, she should have created a will of her own which would have enabled her to leave her $2 million to her “husband”/adopted “brother”, Nick Gordon.
3. Upon turning 18, Bobbi Kristina should have executed a health care power of attorney, living will, HIPAA release, and financial power of attorney designating a specific family member to handle her affairs if she were disabled. I always recommend this for my clients whose children are heading off to college.
4. None of this was done. Of course, I doubt that basic estate planning was a priority for a family prone to alcohol and drug use while bathing.
A 22 year old rising college senior recently called into a radio advice show because she had exhausted the $90K college fund her grandparents had left her. She does not have funds to pay for her senior year after using some of the funds for a trip to Europe, college breaks, and clothes. Some of her comments included the following:
1. “Maybe [my parents] should have taught me to budget or something. They never sat me down and had a real serious talk about it.”
2. “[My parents] said there was nothing they could do for me. They’re not being honest with me saying they don’t have [money] because my dad has worked for like a million years and they have a retirement account.”
3. “Then my parents suggested I go take out a loan at a credit union and I’m, like, how am I supposed to do that?” coupled with “I have to go inside a bank to get a loan?”
4. “I know they’re trying to teach me a lesson and blah blah blah and character building but, like, I hope they realize [working part-time] could have such a negative effect on my grades and as a person.”
Several quick estate planning points:
1. The grandparents would have better served their delicate (and irresponsible) granddaughter by funding a 529 plan which would have allowed them to ensure that distributions were only made for tuition and other direct college expenses.
2. If she received the funds as an inheritance, the grandparents should have left them in trust for her and provided that the funds could only be disbursed for education related expenses.
3. This young woman is emblematic of many contemporary college students who are supporters of Obamacare, Big Government, and campus speech and sex codes because they are incapable of providing for themselves and need an authority figure to do that for them.
William Davidson was the owner of the Detroit Pistons, Tampa Bay Lightning, and Detroit Shock (WNBA). When he died in 2009, he was listed as the 62nd richest man in the U.S. His estate recently settled litigation with the IRS over the amount of estate taxes owed. The IRS claimed that the estate owed an additional $2.8 billion (yes, with a B) in estate taxes. The dispute involved the value of closely held stock transferred to various trusts. The estate settled for $388 million.
Points, if I must:
1. I would call this a victory for the estate given that the IRS was seeking 7X more than the settlement amount.
2. Of course, it is never a victory for the family when they had already presumably paid more than $1 billion in estate taxes and were fighting over the incremental taxes.
3. All of this begs the question about how much estate tax is enough from one individual. If Democratic candidate nee Socialist Bernie Sanders were president, Davidson’s tax bill would have been $1 billion more.
4. Last, if one owns a professional sports team, or three, good estate planning advice is essential.
Paul Daugherty of the Cincinnati Enquirer allowed me to guest write his The Morning Line blog today. I wrote about his book “An Uncomplicated Life” in addition to the usual sports topics. I hope you enjoy it.
Just returned from two weeks in Ireland and Iceland. Post to follow soon. Meanwhile, here is a picture of Blair and Jack from Kinsale, Ireland.
On Father’s Day, let’s briefly recap the will of fashion designer, Oscar De La Renta, who died last Fall. It was recently reported that he snubbed his adopted son, Moises, in his will because he was upset that his then 20 year old son had tried to compete with him in the fashion design business by producing five or six pieces under his own name 10 years ago. De La Renta left $18 million of real estate to his second wife of 25 years, then put the rest in trust for her, her children, and his son. That amount likely was $5.34 million.
1. Funds left to his wife will not be subject to estate taxation until her death while leaving anything in excess of $5.34 million in trust or to his son will be taxed at a rate of 40%.
2. Context is everything. I doubt De La Renta was so insecure as to have been threatened or annoyed by his son’s attempt to follow him into the business. Reporting that the son was disinherited for that reason makes for a nice narrative, albeit false.
3. After 25 years of marriage, it is not unusual to leave a significant portion of an estate to a spouse, even if there are children from a prior marriage. Leaving a football team worth $1 billion to a third wife of 10 years is questionable, though, Tom Benson.
Anthony Marshall was the son of socialite Brooke Astor. He was convicted of elder abuse of his mother and served two months in jail for stealing $14 million from her. In his will, which was recently admitted to probate court, he left all of his assets to his second wife and her children. He specifically excluded his son, Philip Marshall, who was the individual who notified authorities of his father’s treatment of Ms. Astor. The younger Marshall will not contest his father’s will.
Three quick points:
1. The will would be difficult to challenge unless the younger Marshall could prove that his father lacked mental capacity to execute the will.
2. The purposeful omission of the younger Marshall for ratting out his father is evidence that the father was mentally competent.
3. If a man steals from his mom, it is not beneath him to vengefully disinherit his son.
The children and widow of Robin Williams are continuing to fight over his estate. His widow is seeking items left in the house even though Mr. Williams’ will left his jewelry, clothing, memorabilia, and awards to his children. The list of 300 disputed items reportedly includes underwear, slipper, and t shirts. More importantly, the widow will receive in trust an undetermined amount of money to care for the house he left her. Of course, the parties cannot agree on this amount.
1. Williams and his attorney should have determined a specific amount for the upkeep of the house and erred on the high side. Vagueness in a will/trust only leads to disputes.
2. Fighting over underwear etc. proves that some people want to fight simply because the probate process is their last chance to fight with their siblings or step-parent.
3. Even though the parties both claim the underwear, rumor has it that they left the Patch Adams memorabilia at the curb for the garbageman.