The Estate and Trust Litigation Blog – New Jersey and New York

A fiduciary will be removed for breach of fiduciary duty in mishandling the assets of an estate or trust, failing to account,  or for engaging in self-dealing

As a fiduciary, an Executor of Trustee is guided by the following duties to the beneficiaries:

  1. duty of undivided loyalty;
  2. duty of impartially, a fiduciary is precluded from favoring one beneficiary over another;
  3. duty to act within the scope of his powers, to inform the beneficiaries of matters which effect the trust or estate and to administer the trust or estate solely in the interest of the beneficiaries;
  4. duty to make a full disclosure to the beneficiaries upon request; and
  5. fiduciaries must take all steps reasonable necessary for the management, protection and preservation of the estate in their possession.

The Court has authority to remove a fiduciary if he fails to account or embezzles, wastes, or misapplies any part of the estate for which the fiduciary is responsible, or abuses the trust and confidence reposed in the fiduciary.   The Court may also remove a fiduciary for acts done in breach of the trust or detrimental to the welfare of the trust, for lack of honesty or reasonable fidelity to the trust, for acts done which diminished or endangered the trust, or even to protect the trust against possible future jeopardy.

The Court is not required to wait until misconduct has actually been found, but may remove a fiduciary where it finds that such action is necessary or warranted to protect the estate or trust from future harm.  A fiduciary may also be removed where there is clear and definite proof of fraud, gross carelessness or indifference.

The Court may also remove a fiduciary where there exists mutual animosity or hostility between the fiduciary and beneficiary which interferes with the proper administration of the estate or trust, or where the confidence of the beneficiaries in the fiduciary is undermined.

While the mere existence of a conflict of interest as a fiduciary and a beneficiary does not warrant removal, if the conflict causes the fiduciary’s conduct to substantially threaten and become inconsistent with his obligations to the estate or trust, removal is warranted.  Generally, a conflict of interest justifies removal when a fiduciary obtains a financial gain from the assets he manages or misappropriates trust assets for his own use.  Removal is also justified where a fiduciary uses trust or estate assets for personal or financial gain.  The trustee is required to exercise good faith and refrain from actions which may threaten or be inconsistent with his fiduciary obligation to the estate or trust.

Ultimately, a fiduciary needs to keep in mind his obligations to the beneficiaries, must properly account to them, and must ensure there is no self-dealing.  His failure to do so subjects him to removal and surcharge.

An Undue Influence Case Often Turns on Whether There Exists a Confidential Relationship between Donor and Donee

While the Multi-Party Claims Act (N.J.S.A. 17:16I-5) creates a presumption of validity of the naming of beneficiaries of a joint, POD or in trust for account, the terms of the statute can be overcome upon establishing that the naming of beneficiaries of the account was the product of undue influence.

Courts have found that once a confidential relationship is established between the owner of the account and the named beneficiary, the burden of proof shifts to the beneficiary of the account to establish that the account was the product of the owner’s free will.

In analyzing the question of a confidential relationship, the Ostlund decision is directly on point.  Estate of Ostlund v. Ostlund, 391 N.J. Super. 390 (App. Div. 2007).  And the factors to be considered in analyzing whether a confidential relationship exists include:

  1. whether trust and confidence between the parties actually exist;
  2. whether they are dealing on terms of equality;
  3. whether one side has superior knowledge of the details and effect of a proposed transaction based on a fiduciary relationship;
  4. whether one side has exerted over-mastering influence over the other; and
  5. whether one side is weak or dependent

Ostlund also requires a showing of a “reposed confidence and dominant and controlling position of the beneficiary of the transaction” in order to establish a confidential relationship.  Ostlund, 391 N.J.Super. at 402.  And the mere existence of a business and family relationship is not sufficient to show an inequality between the parties.  Id. at 403.

The above test proves crucial in evaluating the merits of an undue influence case in the context of joint, POD and in trust for accounts

The Benevolent Queen of Mean

When billionaire hotelier Leona Helmsley died on August 7, 2007 at the age of 87, there were no prayer vigils outside her hotels nor did the masses tearfully gather in her send off.  Instead, both big people and little people alike read the headlines which trumpeted that the wicked witch was dead.  The reflections and remembrances all seemed to vilify the “Queen of Mean,” and recounted her tyrannical behavior, her  mistreatment of employees and her stint in jail for tax fraud. Once her Last Will and Testament was made public, her dog, “Trouble”, captured the headlines.

But lost in the media blitz was an enormous act of goodwill. Leona gave back, in mammoth proportions to charitable causes  which will likely fund hospitals, health care providers, museums, schools, medical research and yes, animals, in perpetuity.  Such largess didn’t grab the headlines.  Were such acts of benevolence an attempt to curry favor with our Maker, or to spite individuals who wouldn’t inherit the motherload? Did she only seek to reduce her estate tax liability or was she truly philanthropic? In the end, only she knows. But if homeless families have shelter, if cures for diseases are discovered, if lands are preserved, animals cared for and the hungry fed –  in part from the Leona M. and Harry B.  Helmsley Foundation –  then we little people must give the devil her do.

Daughter of a hat-maker and high school drop-out, Leona Mindy Rosenthal Roberts Panzirer Lubin Helmsley started at the bottom, but with drive, smarts, determination and sheer moxie, she became one of New York’s more successful real estate brokers. That drive, that moxie that something caught the eye of real estate magnate Harry Helmsley. By 1972, Harry Helmsley already one of the largest real estate owners in Manhattan,  was smitten by Leona,   and left his wife Eve of 33 years to marry this up-and-comer.  Once on top of, and seemingly in control of Helmsley Enterprises as Chairwomen and Chief Executive, Leona ruled with a notoriously heavy hand.  Together, Harry and Leona owned, in whole or part, the Empire State Building, 230 Park Avenue, the Tudor City apartment Complex, the New York Helmsley Hotel, The Ritz Carlton hotels, The Helmsley Windsor, the Harley Hotel chain, The Carlton House hotels, the Helmsley Middletowne and as well as various Florida resorts to name only a few of the properties collectively valued at approximately $5,000,000,000 give or take.

Though prior to marriage Harry lived a quiet, humble lifestyle, after the marriage to Leona they lived a lifestyle worthy of royalty. Their residences which included a nine-room New York City  penthouse with a swimming pool overlooking Central Park;  a private estate in Greenwich Connecticut called Dunnellen Hall,  a Palm Beach getaway and a mountaintop hideaway near Phoenix. Add in the 100 seat private jet complete with a bedroom, a chauffer, a chef for Trouble, and unlimited purchasing power and, well, you could understand why she’d be wild about Harry. But good fortune, fame and power didn’t bring out the best of Leona. Instead she nickel-and-dimed merchants, stiffed contractors and publically terrorized employees. Granted, not everyone has read How to Win Friends and Influence People, and some just don’t have bedside manner – but Leona was different.

A reporter Ransdell Pierson published a book entitled, The Queen of Mean and in it he quoted His Honor, Mayor Ed Koch who called Leona, the “Wicked Witch of the West” and added, for “a billionaires to be so chintzy distresses people … the things she did are so vile”,  you know her image needed a makeover. Maybe she just needed finishing school. Even The Donald tried to show his softer side when he described her as a sick women and added, “ I can feel sorry for my worst enemy, but I cannot feel sorry for Leona Helmsley.” But Mayor Koch and Donald Trump actually echoed the sentiments of the masses,.  It was her behavior, and her tyrannical abuse of power that would cause people to come together, to get her back, to expose her and to testify against her. She made their job easy.

Apparently Leona bought $40,000 of jewelry at Van Cleef and Arpels, and was unwilling to pay New York City sales tax. That tidbit leaked into the pages of the New York Times and consequently, Leona was required to testify in front of two state Grand Juries. Thereafter, a general contracting firm which oversaw the $8,000,000 renovation of Dunnellen Hall had to sue to get paid. During the litigation it was alleged that, though his company billed the renovation costs to the Helmsley’s personally, Leona ordered that the invoices be “fixed” so the renovations would instead be billed to Helmsley Hotels or Helmsley Enterprises. Once “fixed” the renovations became deductions on the corporate income tax returns. Knowingly filing false income tax returns could be a real problem – just ask Al Capone.  Turned out that this disgruntled contractor sent a stack of “fixed” invoices to Ransdell Pierson, then a NY Post reporter who inked two articles about the way the Helmsley’s did business. It wasn’t long after these articles landed on a prosecutors desk that investigation started and eventually lead to The New York State Attorney General’s Office and the Manhattan District Attorney’s Office working together to secure indictments. Harry and Leona were in serious legal trouble with the IRS, faced jail time if convicted and their reputations were about to irreparably tarnished.

Though it took three years, eventually the Helmsley’s were indicted. In The People of the State of New York v. Leona M. Helmsley et al, she faced a 188 count indictment filed by the State and a 47 Count indictment brought by Uncle Sam. As reported in 864 F2d 266 United States of America v. Harry B. Helmsley, Leona M. Helmsley and others, Circuit Court Judge Cardamone in summarizing the facts and procedural history wrote:

“The 47 Count indictment charges Leona M. Helmsley and her husband, Harry B. Helmsley and two officers of the Helmsley Corporations with using their control of a large group of real estate, hotels, insurance and related business over the period from June 1983 to October 1986 with conspiracy to defraud the United States and the Internal Revenue Service. In addition to conspiracy, the Defendants are charged with tax evasion of approximately $1,200,000, filing false returns, mail fraud – involving an allegedly fraudulent use of corporate funds to pay for the renovation of “Dunnellen Hall” in Greenwich Connecticut – and extortion. The last charge alleges the defendant Helmsley demanded kickbacks of goods and services for Dunnellen Hall from certain contractors and vendors doing business with the Helmsley organization, threatening them that Helmsley business would be withheld unless kickbacks were paid”.

Perhaps fortunately, Harry was deemed mentally incompetent to stand trial so Leona took the brunt of the storm she created. During Trial some of the most damaging testimony came from the former housekeeper who testified that she heard Leona say “We don’t pay taxes.  Only little people pay taxes.”  It was a pompous quote, but one that unfortunately for her, helped seal her fate. In 1989 after a lengthy trial, Leona was ultimately convicted for tax evasion and was sentenced to four years in prison, though she only served eighteen months. Her sentence started on April 15, 1992 and she was released on January 26, 1994.

Freedom regained and fortunes restored, but her life would never be the same. Harry Helmsley was not well and he departed this earth on January 4, 1997.  He left a Last Will and Testament dated January 25, 1994, oddly enough,  the day before Leona was released from the big house. In Article 6th (A) of his Will, he left his residuary estate to Leona.  Leona now a widow,  resumed her place at the helm. Recognizing her own mortality she executed a new Will on July 15, 2005 and on August 20, 2007 she passed away.  Once again, Leona, this time posthumously, captured the headlines in almost every NY tabloid detailing the peculiar terms of her Will.

Her beloved husband, Harry, predeceased her. So too did her only son, Jay Panzirer. She was survived by four grandchildren and her brother, though they would not be the primary beneficiaries of her largess. She provided for two of her four grandchildren,  and her brother, threw her chauffeur a trinket, and a king size bone for Trouble, it was clearly the Leona M. and Harry B. Helmsley Charitable Trust  that  was to benefit from roughly 99% of the multi-billion fortune. But it was the bequest to Trouble, that bitch of a Maltese that captured the headlines.

Leona’s Will cut out two of her four grandchildren. Though her Estate was worth conservatively $5,000,000,000 her grandson Craig Panzirer and granddaughter  Meegan Panzirer were to receive nothing, “for reasons that are known to them,” she wrote.  The other two grandchildren, David and Walter each received $5,000,000 outright, as well as $5,000,000 in a charitable remainder unitrust  that is to pay out  5% of the trusts’ fair market value for their lifetimes after which the money would further fund the Leona M. and Harry B. Helmsley Charitable Trust. Similarly her brother Alvin received $5,000,000 outright and $10,000,000 in a charitable remainder trust  paying Alvin 5% of the trusts fair market value every year until his death, then the remainder is to add to the Charitable Trust.

But even these relatively modest provisions for her two grandchildren came with strings attached. Leona required that her grandchildren, David and Walter, must visit their father’s grave site at least once a year – preferably on the anniversary of his passing, and when visiting, they must sign into the registry. Failure to comply, failure to sign in and their interest in the Trust ends.  So Leona.

Additionally, Leona ordered that anything with the name “Helmsley” be maintained in mint condition.  She also left detailed instructions as to the disposition of her body and set aside $3,000,000 in a perpetual trust to maintain the Helmsley Mausoleum. The Trustees were required to maintain, clean, and preserve the  Helmsley’s final resting place including an acid wash or steam wash at least once a year. She wanted to be interred beside her husband with her wedding ring on, and directed that nobody else could be laid to rest except her brother and his wife, and of course, that diamond studded, nippy little fluff ball –  Trouble.

But it wasn’t the creation of two $5,000,000 charitable remainder trusts that was for the benefit of only two of her four grandchildren, leaving the other two grandchildren with ugatz that grabbed so much media attention, nor was it her leaving billions to charity for the benefit of the poor, the hungry or the sick that filled the tabloids – no, it was the $12,000,000  to for the benefit of Trouble that really got the press barking. When Leona was alive, Trouble had it all according to Leona’s former housekeeper Zamfira Sfara.  “Pampered” apparently does not even begin to describe the way the little Maltese was treated.  “I never saw a human being so in love with an animal,” said Sfara of Leona, “[she] would like the do tongue to tongue.”  But Sfara maintains that diamond-collared Trouble was trouble, and often bit people without warning.  “Everyone was bitten,” Sfara said, “bodyguards, the head of security, even customers.”  Sfara, who sued Leona in 2005 after Trouble allegedly bit her hand and caused nerve damage, also said that the dog was prepared daily meals by the hotel chef.  Once the meal was ready, Sfara was made to get down on her knees and feed the dog with two fingers.

Between cutting out two grandchildren, leaving $12,000,000 to Trouble and not clearly identifying the purpose of the enormous distribution to The Leona M. and Harry B. Helmsley Charitable Trust, it was a certainty that her Will would be subject to litigation and it would either be settled quickly or it would be a battle royale –  a real dogfight. Fortunately reason prevailed. The two disinherited  grandchildren and the Executors of Leona Helmsley’s estate agreed to a settlement which  Surrogate Court Judge Renee Roth approved on April 20, 2008.  Under the terms of the agreement, reportedly,  the two disinherited grandchildren divided $6,000,000 and other bequests were reduced.  After the details of the settlement were revealed on June 16, 2008 it became clear that the Court really screwed the pooch. The Court ordered a $10,000,000 haircut to Trouble’s trust, leaving the snappy little pooch a paltry $2,000,000. On the news the following spoof hit the internet:

“Trouble, late real estate billionaire Leona Helmsley’s pet dog, who was left $12,000,000 by the “Queen of Mean” has been found dead in her hotel suite – she got into trash and died after eating a snickers bar – according to the hotel manager – who now stands to inherit the bulk of the dogs remaining fortune.

A Manhattan Judge had switched the $10,000,000 from the nine year-old Maltese’s trust fund to Mrs. Helmsley’s charitable foundation only yesterday – however that switch is now null and void after the dogs sudden and unexpected demise – as the dog had yet to sign the legal papers.

Trouble had been living at the Helmsley Sandcastle Hotel in Florida – where according to manager Carl Lekic the dogs annual expenses came to $190,000 – the bulk of which was spent on high class hookers, cigarettes and Champagne.

“I know it sounds ridiculous” said Lekic – “but that dog loved them girls – and loved champagne and smoking – and of course the cars – well she’s dead now, so you really can’t check…can you?”

Trouble was found dead by Lekic who then produced a Will, he claims was dictated to him by the dog and signed with Trouble’s paw which left all the animals remaining assets to him.

“I suppose I was her only friend” smiled Lekic “and to think, if the dog hadn’t have eaten that chocolate on exactly the same day as the judge’s ruling I would only have gotten $2,000,000. It is very sad though – I am not sure how the chocolate got in her room…..”

However some are claiming foul play.

“Tiddles”, a 5-year-old Persian cat who also lives in the hotel claims that Trouble promised him a cut of her millions while several German Shepherds are claiming they were lovers of the dead dog – and want their cut.

Franz Hitlerberg, a sheep farmer from Bavaria told me “We were very close – intimate even – I used to take her for walks and one thing led to another. I think that she would have wanted me to have that cash.”

A funeral for Trouble was held at the hotels incinerator late last night.”*

* http://www.thespoof.com/news/spoof.cfm?headline=s3i37062

It is funny. The press had lots of fun too. But, what about Leona’s Last Will and Testament? Were her intentions honored? She wanted to cut out two grandchildren, yet they inherited millions, she wanted to be buried with her Trouble but turns out, New York law doesn’t allow animals to be buried with humans (Leona that is) and she wanted $12,000,000 held in trust for the pooch, but Trouble was thrown only a $2,000,000 bone. Point is, with all her resources, her intentions were not honored.

Even the residuary beneficiary of her Will – The Leona M. and Harry B. Helmsley Charitable Trust which was funded with billions of dollars, started in litigation. And again the question was, what did she intend. Seems Leona signed two mission statements in addition to the Helmsley Charitable Trust Agreement.

The second mission statement deleted any reference to improving medical services for indigents and children, and she omitted any reference to building a new hospital or contributing to an existing hospital to further the cause. It’s not clear why this language was removed. I don’t think even the Queen of Mean would be mad at indigents, ill children and hospitals. Right? But they’re out. Therefore, one could conclude the primary beneficiary of the Helmsley Charitable Trust should be “for purposes related to the provision of dogs,” whatever that means, and “such other charitable activities as the Trustees shall determine.”  That’s it. That’s the language that governs the distribution of what will likely be over $25,000,000 a year – forever.

Certainly the Humane Society of the United States, The American Society for the Prevention and Cruelty to Animals and Maddies Fund had high expectations. They had reasonable grounds to believe that themselves,  and like causes, would be the primary beneficiaries. The Trustees of the Helmsley Trust not wanting to be caught in the cross hairs of this dog fight, did the right thing. They petitioned the Court and asked for a determination as to the scope of their discretion in distributing monies to the charities. On a cold dog day afternoon in February 2009 the New York County Surrogate’s Court issued an Order. The Court held that the 2004 mission statement was “of no consequence” because the governing Helmsley Charitable Trust Agreement as amended on May 11, 2004 makes it clear that the “Trustees discretion to apply trust funds for charitable purposes is not limited by any mission statement settlor may have executed”, and accordingly “the Trustees may apply trust funds for such charitable purposes and in such amounts as they may, in their discretion, determine”.   The Trustees of the Leona M. and Harry B. Helmsley Charitable Trust responded with a clear exercise of discretion as follows:

“In April 2009, the Trust announced the first grants since Leona Helmsley’s death, totaling $36 million; the vast majority went to health and medical research for humans, and $1 million went to dog-related charities.”  One or more dog-related charities undertook a publicity campaign, claiming that the Trustees had acted improperly and ignored Mrs. Helmsley’s instructions—a claim widely reported in the media.

Did Leona Helmsley intend for this charitable trust to focus on the care and help of dogs, rather than people? Absolutely not. Have the trustees of this vast fortune acted improperly and ignored Mrs. Helmsley’s instructions? Again, absolutely not.

These are the facts:

  • Mrs. Helmsley died on August 20, 2007. Her will left nearly her entire fortune to The Leona M. And Harry B. Helmsley Charitable Trust, which she had established in 1999. Until her death, Mrs. Helmsley was the sole trustee of the Trust.
  • Between 1999 and her death, Mrs. Helmsley signed a number of documents relating to the Trust, including several amendments and two so-called “mission statements.” The totality of these documents clearly provided that the trustees, in the language of the document establishing the Trust, “may, in their sole discretion, distribute the net income and principal of the Trust Fund to and among such one or more Charitable Organizations and in such amounts or proportions as the Trustees, in their sole discretion, shall determine.”
  • That is the language of the Trust itself, not a characterization. Moreover, numerous other provisions of the Trust documents fully supported our belief that Mrs. Helmsley had entrusted her successor trustees with, in the twice-stated language of the Trust itself, “sole discretion” to distribute the Trust’s money to charities the trustees consider worthy.
  • Yet we chose instead to act not simply on our reading of the operative language, but with the full imprimatur of the law. There is a procedure under New York law that allows trustees to present weighty issues to the Surrogate’s Court, and to seek that Court’s guidance, or what the statute calls the Court’s “advice and direction”. We did precisely that, filing a petition in Surrogate’s Court, asking that court to review and confirm our reading of the documents.
  • The petition disclosed and presented to the Court every conceivably relevant document, the original Trust instrument, the amendments, the “mission statements,” and others. The petition presented a detailed analysis of the documents, leading inescapably to the conclusion that the “sole discretion” granted by the Trust to the trustees should be honored. Before filing the petition, we served a copy on the Attorney General of New York State — the legal authority charged with assuring that charities function with integrity to their intended purposes.
  • Before the Court ruled, the Attorney General submitted a written response to the petition, agreeing with us. The Surrogate’s Court upheld our position in a decision rendered on February 23, 2009, unambiguously ruling: [T]he court finds that the trustees may apply trust funds for such charitable purposes and in such amounts as they may, in their sole discretion, determine.”
  • Until the Court ruled, we made no grants. In the interim, because of the high probability that the Court would rule that the Trust’s language means what it says, we undertook extensive due diligence regarding a variety of charities, so that once the Court ruled we could hit the ground running. And, indeed, we did. The Trust’s grants to hospitals, medical research efforts, other healthcare facilities, and organizations providing food and shelter to people in dire need, and other grants, will substantially alleviate human suffering and create healthier and more fulfilling lives for millions of people across the globe. And the billions of dollars the Trust will continue to donate will multiply that impact enormously.
  • One final thought. Mrs. Helmsley was not known for reticence. Here, her actions spoke as clearly as the words of the Trust documents. In the eight years between the formation of the Trust and her death, Mrs. Helmsley contributed (as the sole trustee of this Trust and otherwise) over $55 million to charitable causes. Of that amount, she made only one gift to a dog-related charity, for one thousand dollars.
  • Even more telling is this: The claim that the Trust was established for dog-related purposes relies on a document entitled “Mission Statement” signed by Mrs. Helmsley in 2004. Between her signing that document and her death — during which time she alone controlled the Trust — Mrs. Helmsley and the Trust gave over $29 million to charities; of that, the amount she and the Trust gave to dog-related charities was exactly zero.”*

 

On April 21, 2009, the trustees of The Leona M. and Harry B. Helmsley Charitable Trust gave $136,000,000 to hospitals, medical foundations and homeless programs.  To animal and dog charities, the trustees gave $1,000,000 to split between 10 organizations, including the Humane Society.  Wayne Pacelle, chief executive of the Human Society of the United States, believed the Trustees’ move went against Helmsley’s express wishes, “giving less than 1 percent of the allocation to dog-related charities is a trifling amount and not consistent with Leona’s Helmsley’s expressed intention” Pacelle said afterwards.

Regardless of which charities benefitted, the Helmsley wealth is in fact benefitting good causes. The question is what did Leona intend? Were her intentions clearly expressed? You decide. Detailed below is a summary of distributions to various charitable entities from October 2010 until March 2011.

Table 4.1: The Leona M. and Harry B. Helmsley Charitable Trust Grants

 

The National Geographic Society 10/15/2010 $90,000
FasterCures – The Milken Institute 10/19/2010 $125,000
Court House, Inc. 10/19/2010 $100,000
Island Conservation 11/8/2010 $527,000
Ashley Medical Center 11/8/2010 $343,740
National Audobon Society, Inc. 11/8/2010 $697,000
Catholic Health Initiatives 11/8/2010 $2,406,933
Presentation Medical Center 11/8/2010 $488,046
St. Aloisius Hospital, Inc. 11/8/2010 $332,175
Alvera St. Luke’s Hospital 11/8/2010 $369,660
University of Iowa 11/10/2010 $987,790
St. Andrews Health Center Foundation 11/8/2010 $357,260
Campbell County Memorial Hospital District 11/8/2010 $1,892,648
Memorial Hospital of Sweetwater County Foundation 11/8/2010 $563,623
Avera McKenna Hospital and University Health Center 11/8/2010 $719,343
Dells Area Health Center 11/8/2010 $430,503
New York Presbyterian 12/20/2010 $5,000,000
The Weizmann Institute of Science 12/20/2010 $5,200,000
Technion – Israel Institute of Technology 12/20/2010 $5,000,000
Turnaround for Children 12/13/2010 $2,750,000
Catholic Health Initiatives 12/13/2010 $493,171
Sanford Health Foundation 12/13/2010 $2,060,151
Banner Health 12/13/2010 $471,285
National Summer Learning Association 12/13/2010 $17,700
South Lincoln Medical Center 12/13/2010 $419,101
Heart of America Medical Center 12/13/2010 $432,052
Towner Country Medical Center, Inc. 12/13/2010 $311,394
Memorial Hospital of Converse County 12/13/2010 $2,378,539
The Fund For Public Schools, Inc. 12/13/2010 $1,000,000
Center For Excellence In Health Care Journalism 12/13/2010 $1,097,000
Banner Health dba Platte County Memorial Hospital 12/13/2010 $471,285
University of the State of New York, Regents Research Fund 12/13/2010 $1,500,000
Baldwin Center 1/10/2011 $350,000
Forgotten Harvest 1/10/2011 $350,000
Detroit Rescue Mission Ministries 1/10/2011 $200,000
Gleaners Community Food Bank 1/10/2011 $200,000
The Salvation Army Eastern Michigan Div. 1/10/2011 $200,000
Diabetes Hands Foundation 2/14/2011 $150,000
Defensa Ambiental del Noroeste (DAN) 2/14/2011 $300,000
International Community Foundation 3/1/2011 $46,000
Foundation for Annie Jeffrey 3/1/2011 $548,754
Brodstone Memorial Hospital 3/1/2011 $472,968
Johnson County Hospital Foundation 3/1/2011 $530,161
Litzenberg Health Care Foundation 3/1/2011 $508,421
McKenzie County Healthcare Systems, Inc. 3/1/2011 $860,264
Future Generations Health Care Foundation 3/1/2011 $339,600
St. Andrews Health Care Center Foundation 3/1/2011 $336,872

Source: As published on Helmsley Trust.org

Many good and just causes will benefit from the billions Leona preserved for the Leona M. and Harry B. Helmsley Charitable Trust. But does such generosity change Leona’s legacy? In the eyes of our Maker, does the Benevolent Queen of Mean get a pass? Maybe she was just misunderstood … or maybe she was really mean – but had a big heart. But if you asked, “Were Leona Helmsley’s last wishes carried out to a T,” the answer is categorically no. So be forewarned, if Leona should crossover into the mind of John Edwards, or should she appear in a dream like Fruma Sarah, someone’s getting fired, but the good news is – food, medical care  and housing may be available.

Legacy Lesson #14: Protect The Pooch

Many little people love their pets just like Leona loved Trouble. We too should provide for our furry friends, but naming a caretaker and providing a fixed bequest for their needs is too often overlooked in the estate planning process.  Perhaps you should start such planning by  asking the individual you’d like to nominate as the pets’ caretaker if they’re willing to assume this responsibility and give  an assurance that adequate funds will be provided so the caretaker doesn’t have any financial burden. Clearly, Leona’s bequest of $12,000,000 to Trouble was a little over the top, but there are annual costs that can be quantified over the lifetime of the pet. The flamboyant Liberace,  on the other hand was another celebrity who created a pet trust for the benefit of his fifty dogs and though his intentions were good, the trust fund was exhausted before the last dog died, so in his case, the pet trust was underfunded.

Grooming, feeding and veterinary costs can be substantial over the life of a pet, but try to quantify these costs. Then either create an outright bequest in your Will or a Trust, called a Testamentary Pet Trust funded with an amount equal to your estimated costs and name a caretaker who’s willing to care for your furry friends.  Typically, the amount devised would not warrant the utilization of a trust.  However, without a trust, such a bequest would not guarantee that the funds will be used as intended. For those who have numerous pets, needy pets, or prefer an accountability, a trust may be preferable to an outright bequest.

The New York City Bar Association issued an informative booklet called “Planning for Your Pets in Your Will” and in it are sample clauses that may be used in drafting a Will or Trust.  Detailed below are just four examples from the booklet that have been slightly  modified.

Example #1 -Friend As Caretaker And A Fixed Bequest  

I give my dog Snowy, and any other animals which I may own at the time of my death, to Leona Helmsley, with the request that she treat them with love and care. If she is unable or unwilling to accept my animals, I give such animals to Liberace with the request that he treat them with love and care.  I direct my Executor to give Ten Thousand ($10,000) Dollars from my estate to the person who accepts Snowy, and any of my other animals. I request, but do not direct, that these funds be used for the care of my animals.

Example #2 – Humane Shelter As Caretaker And A Fixed Bequest

I give my dog Snowy, and any other animals I may have, to the Humane Shelter with the following requests:

  • that the Humane Shelter take possession of and care for all my animals and search for good homes for them;
  • that until homes are found for my animals, the animals be placed in foster homes rather than in cages at the shelter;
  • that if it is necessary to keep some of the animals in cages while making arrangements to find permanent homes, in no event should any animal stay more than a total of 2 weeks in a cage;
  • that each animal should receive appropriate veterinary care, as needed;
  • that the shelter make every effort to assure that none of my animals are ever used for medical research or product testing or painful experimentation under any circumstances;
  • that, after placement, shelter personnel make follow-up visits to assure that my animals are receiving proper care in their new homes;

If the Humane Shelter is in existence at the time of my death and is able to accept my animals, I give the sum of Ten Thousand ($10,000) Dollars to the Humane Shelter. If the Humane Shelter is unable to accept my animals, I give my animals and the sum $10,000 to one or more similar charitable organizations as my Executor shall select, subject to the requests made above.

Example #3 – Trust For The Care of Pets

I give the sum of One Hundred Thousand ($100,000) Dollars and all of my dogs, cats, and any other animals of mine living at the time of my death to the trustee hereunder, IN TRUST,  for the following purposes and subject to the following terms and conditions:

This trust is created for the benefit of all of my dogs, cats, and any other animals of mine living at the time of my death (the “Beneficiaries” herein).

The trust shall terminate upon the earlier to occur of the following events:  the last to die of the Beneficiaries, or if required by law, twenty-one (21) years from the date of my death.

During the term of the trust, the trustee shall apply for the benefit of the Beneficiaries, any or all of the net income of the trust and so much or all of the principal of the trust from time to time, as the trustee shall in the trustee’s discretion determine to be advisable for the care, including veterinary care, of the Beneficiaries.  Any income accrued but not distributed for the benefit of the Beneficiaries shall be added to the principal of the trust.

I appoint Warren Buffet to be the trustee of such trust.  If such person has predeceased me or for any other reason is unable to act as such trustee, I appoint Bill Gates to be the trustee of such trust.

I designate Dr. Doolittle to be the caretaker of the Beneficiaries.  If such person has predeceased me or for any other reason is unable to act as such caretaker, I designate Dr. Seuss to be the caretaker of the Beneficiaries.  If such person has predeceased me or for any other reason is unable to act as such caretaker, the trustee shall select another person to act as caretaker of the Beneficiaries.  The Trustee, in the trustee’s discretion, may pay a stipend from the trust to the person acting as such caretaker.

I am creating this trust to provide for the care of my animals and the trustee does not need to consider the interests of the remainderpersons when making distributions.  The trustee, in the trustee’s discretion, may use all of the trust property for the benefit of my animals; even if the result is that nothing will pass to the remainderpersons.

Upon the termination of the trust, if any property remains in the trust at the time of termination, the trustee shall distribute any such income and/or principal to the Humane Shelter. If such charitable organization is not in existence at the time of termination, I give the trust remainder, if any, to a charitable organization that benefits animals described in Section 170(c) and 2055(a) of the Internal Revenue Code, to be selected by the trustee.

Example #4- Trust For Farm Animals

I give my horses, farm animals, and any other animals which I may own or have in my possession at the time of my death, and the sum of Two Hundred Thousand ($200,000) Dollars, to my trustees named hereunder,  IN TRUST, to hold and arrange for the care of such animals and to invest and reinvest such funds and to pay for the expenses of the care of such animals from such property as my trustees shall in their discretion determine.  This trust is created for the benefit of my horses, farm animals and other domestic animals.  My trustees may board my animals with a suitable boarding facility, or may rent a property where the animals can live and hire a caretaker to care for the animals.  The trustees shall make appropriate arrangements for the proper care of my animals, including veterinary care, during their lives.  The animals are not to be sold, but the trustees may place one  or more of my animals with animal sanctuary, if the trustees, in their discretion, determine that it is in the best interests of such animals.  The trustee may continue to pay for the care of such animals at such sanctuary, or make such other arrangements as may be beneficial to my animals.  I designate Pete Friendly, or if such person is unable or unwilling to act in such capacity, Haus Friendly, as the person to enforce the trust, if necessary.

This trust shall terminate upon the earlier to occur of the following events; the last to die of my animals, or if required by law, twenty-one (21) years from the date of my death.  Upon the termination of the trust, if any animals of mine are then living, or if any income and/or principal remains in the trust at the time of termination, the trustees shall distribute any surviving animals and any such remaining income and/or principal to Animal Friendly Sanctuary.   If such sanctuary is not in existence at the time of termination, the trustees shall distribute any surviving animals and any remaining income and/or principal to an animal sanctuary or sanctuaries, to be selected by my trustees, in their discretion.

Legacy Lesson #15: The Grim Reaper’s Silver Lining

When Leona Helmsley died in 2007, the federal estate tax rate was 45% on assets over $2,000,000. If her estate was valued,  after administration costs, at $5,000,000,000 less the $2,000,000 federal estate exemption amount, her estate tax liability could have exceeded  $2,200,000,000.  Instead of incurring such an enormous liability, Leona Helmsley chose to provide her brother, Alvin, with an outright bequest of $10,000,000 and $5,000,000 to two of her grandchildren, David and Walter. In addition to the outright bequests, her Will  created three separate charitable remainder unitrusts; one funded with $10,000,000 for Alvin for his lifetime, one for her grandson David funded with $5,000,000 and another for her grandson Walter, also funded with $5,000,000. The terms of these Trusts are straightforward. The trustees are to determine the value of each Trust annually, then pay out to the beneficiaries 5% of the net fair market value of the trust for the beneficiaries’ lifetimes. As an example, if the Trusts values were constant, Alvin would receive $500,000 a year for life, and each grandchild would receive $250,000 a year for life.

By creating these trusts, Leona accomplished three objectives:

  • First, these payments for life, combined with the fixed bequests in her Will, gave her assurances that all three would always have a roof over their heads and enough money to survive without worrying.
  • Second, her estate would be entitled to an estate tax deduction equal to the value of the remainder interest going to her Foundation. By way of example, if her grandsons were both 45-years-old, the Foundation would have to wait approximately 38 years before receiving the balance of the trust funds. Therefore, depending on interest rates, her estate would receive an estate tax charitable deduction of approximately 20% of the $5,000,000 contributed into the trust or $1,000,000. However, if her brother Alvin was 80-years-old at the time of her demise, the Foundation would have to wait approximately only 10 years until actuarially, Alvin dies, and depending on the then interest rate, her estate would be entitled to an estate tax charitable deduction of approximately 67% of the $10,000,000 contributed into his trust, or $6,700,000.
  • Third, Leona knew with certainty that after each beneficiary dies, their trust would further fund the Helmsley Charitable Trust.

A win win for all.

By so structuring the distribution of her estate, Leona utilized less than 1% of her total estate value for family members and the remaining 99% of the Helmsley empire would earn the estate a charitable deduction. Whether she planned her estate to avoid estate taxation,  or was truly philanthropic, or more likely a combination of both, we’ll never know. But one thing’s for sure, the estate tax changes how wealthy individuals distribute their estates. The problem however is that Congress has historically made it difficult for Americans to plan their estates with certainty. A review of the federal estate tax system from 1997 to 2013 exposes the roller coaster ride that we the little people have been forced to endure.

Table 4.2: Historical and Future Federal Estate Tax Exemptions and Rates

Year Estate Tax Exemption Top Estate Tax Rate
1997 $600,000 55%
1998 $625,000 55%
1999 $650,000 55%
2000 $675,000 55%
2001 $675,000 55%
2002 $1,000,000 50%
2003 $1,000,000 49%
2004 $1,500,000 48%
2005 $1,500,000 47%
2006 $2,000,000 46%
2007 $2,000,000 45%
2008 $2,000,000 45%
2009 $3,500,000 45%
2010 $0  0%
2011 $5,000,000 35%
2012 $5,000,000 35%
2013 $1,000,000 55%

 

Tax years 2010 through 2012 are based on the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act that was signed into law by President Obama on December 17, 2010. This law is only good until it sunsets on December 31, 2012 and then we return to the estate tax structure as it was in 2002. Numbers on a chart simply don’t tell the story. So to better illustrate the point, if your estate was valued at $3,000,000 as a constant, from 1997 through 2013,  then your federal estate tax liability could be estimated as follows:

Table 4.3: The Estate Tax Rollercoaster

Year Estate Tax Exemption Estimated Estate Tax Liability
1997 $600,000 $1,320,000
1998 $625,000 $1,306,250
1999 $650,000 $1,292,500
2000 $675,000 $1,278,750
2001 $675,000 $1,278,750
2002 $1,000,000 $1,000,000
2003 $1,000,000 $1,000,000
2004 $1,500,000 $720,000
2005 $1,500,000 $720,000
2006 $2,000,000 $460,000
2007 $2,000,000 $450,000
2008 $2,000,000 $450,000
2009 $3,500,000 $0
*2010 $0  $0
2011 $5,000,000 $0
2012 $5,000,000  $0
2013 $1,000,000 $1,100,000

Families who have accumulated modest wealth don’t know if they should anticipate being subjected to the estate tax and planning their estates accordingly, or spin the wheel and hope to die in a year that their estate can pass free of federal estate tax. The Boss, George Steinbrenner died on July 13, 2010 with an estate estimated at $1.1 billion and since there was no estate tax in 2010, his heirs got a $500,000,000 windfall. In an article entitled, The Disappering Billions, by Ivan Taback and Yvonne M. Perez-Zarraga it was estimated that our federal government will lose $8.75 billion of revenue as a result of the 2010 estate tax repeal. In addition to that lost revenue, would billionaires such as Leona Helmsley leave all or a portion of their fortunes to charity if there was no estate tax  deduction?  If charities weren’t supported by wealthy donors, who would support them?

Legacy Lesson #16: A Generation Skipped

Leona intended to provide for two of her grandchildren, while cutting out two other grandchildren.  However, she did not provide her reasoning which could have been instructive to a Court if her intentions were ever challenged – and challenged they were.  In fact,  her 18 page Will only said “I have not made any provisions in this Will for my grandson CRAIG PANZIRER or my granddaughter MEEGAN PANZIRER for reasons which are known to them”.  Outsiders could only speculate that when Leona’s only son Jay died,  Leona had reportedly tormented her daughter-in- law,  and perhaps by so doing, put the relationship with her grandchildren at risk.  Given the fact that she was a multi-billionaire, and she left millions to her other grandchildren,  she should have been much more precise in expressing her intentions. Perhaps her lack of specificity was for the best.

Leaving a bequest, or a trust for the benefit of grandchildren is a wonderful sentiment and typically, grandchildren never forget such acts of kindness. But be careful.  Congress may view an act of kindness as an attempt to avoid estate taxation. In short, if a grandparent left a bequest of $10,000,000 to a grandchild, and such wealth  wouldn’t be subject to estate tax until the grandchild died, the Treasury would have to wait a long time before collecting any estate tax from that grandchild. The U.S. Treasury apparently isn’t that patient and viewed such a transaction as a tax loophole. Its preference is to collect monies on each and every estate that exceeds the exemption amount, not every other estate. So to close this loophole, Congress enacted the generation skipping transfer tax. This tax, which is assessed in addition to the estate tax, would all but absorb any wealth passed to a generation two or more generations below the transferor – in this example a grandparent to a grandchild. There is however a generation skipping transfer tax exempt amount, currently $5,000,000 per individual, which is not subject to this confiscatory tax. Here’s the rub, the exemption amount is a moving target. From 2001 to 2013 the exemption from the generation skipping transfer tax has or will change seven times. In addition, there is also a predeceased ancestor exemption such that if a child predeceased a parent, the parent may leave the bequest to the grandchild without incurring the generation skipping transfer tax.  But the question is, do you want to provide meaningful wealth to grandchildren if:  a) you don’t yet know them; b) if you don’t know the spouse; or c) if such wealth would take the incentive out of working hard and climbing the proverbial ladder?  Creating a generation skipping transfer trust of $5,000,000 is a great thought, but drill down.  Will you be upset if instead of inheriting $5,000,000 you instead receive the income of the trust for life, and after you die it passes to your children?

Legacy Lesson #17: Buried, But Not Resting Peacefully

When Harry Helmsley died, his Will included specific burial instructions as follows:

“I, HARRY B. HELMSLEY, do make this Will, hereby revoking all wills and codicils previously made by me.  Any reference to my Will shall include any codicil thereto.  I direct that my remains be interred at the Helmsley Mausoleum at Woodlawn Cemetery, The Bronx, New York.  I further direct that permission be granted as the need arises for the interment in the Helmsley Mausoleum of the remains of my wife, LEONA M. HELMSLEY (“my wife), her brother, ALVIN ROSENTHAL, and her brother’s wife, SUSAN ROSENTHAL, but for no other person.”

After Harry B. Helmsley died, his wishes were respected … for a while anyway.  He was in fact buried in the Bronx at the Woodlawn Cemetery, but Leona soon became disenchanted with the lack of ambiance surrounding the Helmsley Mausoleum.  Since every real estate agent’s mantra is location, location, location – Leona found a better location for her Harry. But the mechanics of moving a body at rest isn’t so easy. Leona sued, seeking to disinter the body claiming the Bronx Cemetery no longer provided perpetual beauty and peaceful solitude, but instead had become an eyesore.

Leona’s protests and pleadings worked. Harry’s remains were  disinterred and moved uptown into a  $1,400,000 mausoleum at Sleepy Hollow Cemetery  in Westchester, New York. The new location, where Harry and Leona Helmsley are interred, sits imposingly on the crest of a hill bearing the name Helmsley. Two real estate tycoons resting comfortably.

Leona Helmsley is not the only one who has had to sue to move the deceased from one gravesite to another. And, it’s certainly not the kind of issue unique to celebrities. In fact, in unreported probate litigation matter a judge was told the story of  a dying man who once called his son down to the basement and explained that though still married to his mother for more than forty years, it had been a lifetime of bickering. Not believing in divorce,  both he and his wife agreed to live separate lives and to some degree, the détente worked. But now, facing his own mortality, he had made an important decision, and asked his son to see to it that his intentions were honored. This dying man wanted to be buried next to his father. He explained that if he was buried in a single plot next to his father, he would surely have eternal peace. But, if buried in a double plot, and his wife later interred on top of him, he would be condemned to an eternity of bickering.

With that in mind,  he asked his son to go to the cemetery and buy the plot next to his father. The son, honoring the wish of a dying man  complied. Hours later, he returned to the basement, plot deed in hand and assured his father he can and will rest in peace. To be sure that buying the plot deed was enough, the father asked the son to call the family lawyer and ask if burial instructions had to be part of a Will. The call was made, and the attorney opined that the deceased are buried before a Will is probated, and therefore, the purchase of the plot deed reflected his intentions and would be sufficient. Relieved, the dying man closed his eyes for the last time. Though some describe this family as dysfunctional, the morning of the funeral they dressed in dark clothes,  attended  mass and rode in black limousines which followed the hearse like every other family in mourning. But on this morning, the hearse went one way, and the limousine carrying the son and two of the five siblings went another way. When the son’s limousine reached what was to be his father’s final resting place, there were no other cars and the plot had not been prepared for his father’s burial.  The son quickly phoned the main office and was informed that his mother had, just one day prior, purchased a double plot and made arrangements for her deceased husband to be buried such that when she died, she could be interred on top. The son, enraged, didn’t attend his father’s burial, instead he called a lawyer hoping to stop the burial.

The sympathetic lawyer understood and immediately filed an Order To Show Cause seeking to disinter the body and bury the deceased as he had requested.  A judge was called, he read the relief requested and ordered all parties to appear in Court one week later. The family members arrived at Court in different cars, all dressed in dark suits and appropriately subdued dresses like any other family. The son who petitioned the Court took the stand first and tearfully explained his father’s charge and his promise to honor the wish of a dying man. The lawyer too testified that the decedent had called and asked if he needed to update his Will to include his wish that he be buried with his father. The lawyer offered a detailed summary of the call, his thought process and the advice he offered. The widow was then called to testify. She put her hand on the bible and swore to tell the truth.   Her lawyer offered into evidence the ten-year-old year Last Will and Testament of her now deceased husband. He asked her to read aloud from Article 2nd of that Last Will and Testament. Slowly she read the words which directed that the Executrix shall have the power to bury the decedent in such manner as she, in her sole discretion shall determine reasonable.  The Court having heard testimony from all who appeared that morning took a one hour break and then issued a decision. The order was clear. The Court reasoned that after death,  there’s only one document that speaks the words of the dead and that’s why the document is called a Last Will.  Accordingly, the terms of the decedent’s Last Will governed, not the purchase of a cemetery plot, not the call to a lawyer nor oral discussions with a son.

So then its clear, to assure your intentions are honored, you must document your burial intentions in your Last Will and Testament. Ted Williams, one of the greatest baseball players to ever play the game did just that on December 20, 1996 when he signed his Last Will and Testament.

In his Last Will and Testament, Ted Williams expressed his wishes to be cremated and his ashes sprinkled at sea off the coast of Florida where the water is very deep.  He also directed that no funeral or memorial service of any kind should be held for him and that neither his family nor his friends should sponsor any such service for him.

However, on November 2, 2000 the Splendid Splinter allegedly signed a handwritten note, which conflicted with Article 1 of his Will. This note, stained with motor oil, and allegedly bearing the signatures of Ted, John Henry, and his sister, Claudia claims that they all agree to be put into Bio-Stasis after they die so they can be together for the future, even if there is only a chance.

Almost immediately after his death, Ted Williams’ body was flown to an Arizona cryonics lab to be cryonically suspended.  His head was removed in neuroseparation surgery, a procedure that billed John Henry $120,000 plus $16,000 for the cost of flying the body to Arizona.  The Hall of Famer’s head and body are being stored in separate containers.  His head, which been cracked as many as ten times, supposedly because of changing temperatures, and has two dime size holes in it, is stored in a silver container marked as ID #A-1949.  This burial request resulted in litigation amongst the siblings, but the damage was already done, he was already in pieces,  and now the siblings relationship is also in a state of deep thaw.

So whether you want your remains cremated, launched into space, frozen, buried at sea, stored in an urn or sitting on a mantle over the fireplace like Jack Burns’ father in “Meet the Parents”, you must clearly express these intentions in your Will. Same applies to the purchasing of any plot deeds,  or written funeral plans. Give thought to who you choose as your Executor, because ultimately, it’s the Executor who’ll tuck you in for the big sleep.

Legacy Lesson #18: The Mission Statement: A Legacy Builder or Buster

How many rooms could be filled with closing binders of all the properties Harry Helmsley bought and sold?  How many hours did the Helmsleys, their lawyers, accountants and employees dedicate to ironing out the details of complex commercial real estate transactions?  It took decades to build the Helmsley empire. Yet, how much thought went into defining the purpose of the Leona B. and Harry M. Charitable Trust? The trust was established years before Leona died, and was clearly to be one of New York’s largest private charitable trusts. And if you go by the last signed Mission Statement the Trustees were directed to hold, administer and manage the assets for:

“(1) purposes related to the provision of care for dogs; and

(2) such other charitable activities as the Trustees shall determine.”

That’s it – that’s the mission statement? Dogs and whatever you think … really? And, a little help please, like, what percentage should be distributed for the benefit of dogs, and what percentage should be distributed at the discretion of the trustees? That ambiguity was certainly cleared up by the Court. The dogs were left out in the cold and distributions were left entirely to the discretion of the trustees. And by the way, from an outsider’s point looking in, it looks like the trustees are doing an outstanding job – no issue there.  The website is informative and monies are going to great causes. That’s not the point. The point is, given the enormous amount of wealth being bestowed upon the trustees, and the great responsibilities they’ve been asked to assume, you would think the Helmsley Mission Statement would be a work of art, detailed with lots of strings attached and conditions precedent and other such Helmsley imprimaturs. But instead,  the first and second amended mission statements lacked any such forethought. The Helmsley Mission Statements didn’t get the attention that you’d think worthy of a multi billion dollar fortune that could be held for the benefit of charities … forever.

What did the donor intend? Though the judicial intervention required to determine whether or not the Trustees of the Leona B. and Harry M. Charitable Trust had absolute discretion or not was resolved quickly – that’s atypical. Usually the words “quick and efficient” are not associated with litigation.  Giving money to charity is a good thing. It usually makes both the donor and the charity feel good. But that magnanimous feeling can quickly turn sour if the donor, or some other interested family members questions the utilization of the gifted dough. Just ask the Robertson’s. Charles Robertson was a Princeton graduate, class of 1926. His wife Marie inherited a fortune through her grandfather, the founder of the Great Atlantic & Pacific Tea Company now known as A&P. In 1961, the Robertson’s created the Robertson Foundation and funded it with $35 million worth of A&P stock. The certificate of incorporation, much like a mission statement, clearly stated the purposes of the Foundation:

“To establish or maintain and support, at Princeton University, and as a part of the Woodrow Wilson School, a Graduate School, where men and women dedicated to public service may prepare themselves for careers in government service, with particular emphasis on the education of such persons for careers in those areas of the Federal Government that are concerned with international relations and affairs….”

The Robertson’s wanted their gift to be used for graduate training in international affairs with the hope that that most of the students who benefitted from the gift, would one day work for the federal government. In a 1962 letter, Charles Robertson wrote about his desires: “If substantial numbers of persons trained in the School do not go into government service … then no matter how excellent their training may have been, the basic purpose of the School is not being  achieved”. To assure that the gift was properly managed, The Robertson Foundation was created with seven board members. Four were to be appointed by Princeton University and three by the Robertson family, including naming Charles Robertson as Chairman of the Foundation who dutifully served until his death in 1981. The  trouble is that Princeton trustees sought to expand the meaning of the mission and control the management of the Foundation funds, while the Robertson heirs sought to narrow the scope of the mission and objected to the Princeton University Investment Company being retained as the investment managers. Add the accelerant;  the 1961 gift of $35,000,000 appreciated over the years to over  $900,000,000 and the molten lava was ready to blow.

This volcano erupted in 2002 when the Robertson trustees sued Princeton University, and the trustees appointed by Princeton University. The Robertson’s as Plaintiffs sought to sever the Foundations ties to Princeton University, regain control of the Foundation themselves, terminate Princeton University Investment Company as the investment manager and hold the University accountable for alleged inappropriate transactions. Princeton University refuted the claims by emphasizing that it operated, supervised and ultimately controlled the Foundation, and as such, had academic independence that broadened the scope of the mission when necessary.

After forty years of peacefully fulfilling the donors intention, the hinges had come off, and the next six and half years was nothing short of a four alarm fire. Over eighty individuals had their depositions taken and that task alone took 125 days. Experts were retained from Duke University, Johns Hopkins University, New York University, the IRS and  top accounting firms, to opine as to what’s right, only to be refuted by experts hired by the adversary opining what’s wrong. Though both sides had the funds to wage war, there’s nothing worse than money intended to benefit charities going up in smoke. The Plaintiffs had funded this firefight through another charitable foundation called the Banbury Fund and the price tag – over $20,000,000. Perhaps well over $20,000,000 as in December of 2008, the litigation was finally settled, and the claims extinguished by a settlement agreement that provided:

  1. That Robertson Foundation Funds would be used to reimburse the Plaintiffs Banbury Funds $40,000,000 payable over three years.
  2. That The Robertson Foundation would fund a new Foundation funded with $50,000,000 over ten years and the funds would be used strictly to prepare students for careers in government service.
  3. That the Robertson Foundation would thereafter be dissolved, and the funds transferred to an endowment fund at Princeton University with the same mission and purpose as understood and interpreted by Princeton University.

There is a right way and a wrong way to create a mission statement. Ideally, the perfect mission statement would be a clear and concise. It would reflect your intentions and provide the trustees with some inspiration and guidance. Mechanically, the mission statement could name the specific charitable causes and allocate  percentages of distributions to each one, or it can name numerous charitable causes or types of causes  and allow the trustees the right to allocate amongst them as they determine. A key component to a well drafted mission statement is determining how much discretion the trustees or board members are granted.  The advice and input from family members and  advisors should be sought, as they may be responsible to see the mission through as employees, advisors, board members and or trustees and you want assurances that they are willing to so serve. The term of the mission should also be established; as some charitable foundations or trusts operate in perpetuity,  others only for a term of years. A mission statement could be  a true legacy builder, a reflection of your good intentions and giving back to communities or causes that move you. It’s a worthy undertaking, but it does take time, attention and some diplomacy.  In the process of trying to do good, you don’t want to poison the waters and taint the intent of a gift.

A Legacy At Risk: Estate Planning Versus Estate Litigation

Introduction

Having drafted estate plans for a large cross-section of families and having resolved contested estate disputes for decades, I could not help but notice that there are themes and recurring fact patterns that could ultimately, depending in part upon the efficacy of the estate plan, mean the difference between eternal peace and a great divide. These recurring patterns are constants in virtually every estate battle.

Those who spend time clearly expressing their intentions to their trusted advisors, and then execute the appropriate estate planning documents, are more likely to have survivors who will peacefully mourn the death of a loved one and amicably share in the decedent’s legacy.  Conversely, those who do not clearly express their intentions to their trusted advisors, and do not have estate plans tailored to the needs of their family, will likely have survivors who do not grieve normally and cannot embrace the decedent’s legacy because they are consumed with litigating over it.

But likelihoods aside, it is the following six recurring fact patterns that are the universal sparks to almost every probate litigation fire:

  1. A second marriage with children from prior marriages;
  2. An elderly, infirm widow or widower who changed the disposition of their wealth shortly before death;
  3. Significant wealth, a family business, and a struggle for control;
  4. A dysfunctional family;
  5. A dilatory, tyrannical, or conflicted fiduciary;
  6. An antagonist who is more concerned with his motives than the decedent’s intentions. Aptly dubbed “the officious interloper” by one judge who has seen it all, this actor can clog any courtroom calendar … and divide any family.

If any of these six recurring fact patterns exist and the estate plan was ineffective, the estate will be contested. It is a given—a universal truth; and this universal truth transcends time, knows no geographic border, and does not distinguish between rich or poor. You can read Bible stories or classic literature, you can watch movies or sitcoms, listen to your favorite tunes, enjoy an opera, or surf the web, and you will recognize that when it comes to inheriting the family wealth, brush fires spread like a wildfire, treasures are reduced to ash, and the legacy of a lifetime can go up in smoke

Family Member Considerations in the Estate Planning Process

Your life story could be a book. Therefore, your estate plan can only be effective if the planner understands and appreciates what keeps you up at night, what makes you tick, the nuances of your family structure, the needs of your heirs, and your goals. To that end, you must be able to develop a rapport with your planner, and talk frankly about family conflicts, struggles, jealousies, special needs, or special situations as a condition precedent to effective estate planning. Understanding the family dynamic, your goals, asset base, and titling of assets is a terrific start.

Documenting your wishes in a will, health care proxy, power of attorney, and if appropriate, trusts, is surely important. When it comes to drafting your will, you should take a step back and think about how your fiduciary would interact with the beneficiaries of the estate. Would they work well together? Do they get along, or is there a history of animosity? Are there family issues that have been suppressed by your presence that might bubble over after you are gone? Next, think about the skill set that that an executor or trustee should have, such as diplomacy, fairness, reasonableness, and a comfort level working with attorneys, accountants, financial planners, and bankers. If you are going to name co-executors or co-trustees, will the decision making be shared equally, or would one executor or trustee antagonize the other, or be domineering?

By way of background, executors are individuals or institutions nominated in a will and appointed by a court to settle the estate of the testator: i.e., to execute the provisions of the will. Once appointed by a court, the executor has the responsibility of collecting the estate assets, paying its debts and taxes, maintaining accurate books and records, and ultimately distributing the estate’s assets as provided in the will. Being an executor is a thankless job, and can entail a lot of work. You may choose as your executor a spouse, child or children, an accountant, lawyer, trust company, trusted family member, advisor, or any combination of them.

Every family has different needs. If you have been married a long time to your first and only spouse, and you trust each other, each spouse may appropriately be named as each other’s executor. If it is a second or third marriage, and there are children from prior marriages, or prior relationships, choosing a spouse as executor or in many cases, co-executor, is not a good idea. Once you introduce that spouse as a fiduciary who is supposed to work for the benefit of others, children from prior marriages tend to resent the situation and react to it with skepticism.

If you think your estate may be complicated or involves a business, or if you own assets that are difficult to value, wish to leave assets to heirs unequally, or involve a second spouse and children from prior marriages in your estate plan, think about hiring an independent individual executor or corporate executor. Appointing a corporate executor with an independent neutral third party co-executor who understands the family dynamic typically prevents your heirs from fighting amongst themselves, or second guessing the actions of their step-parent. Some are reluctant to appoint a bank as a corporate executor or trustee and cite as their reasoning the fees involved or the institutional feel of such an appointment. The reality is corporate executor fees could, in the long run, save the estate money, because a smoother estate administration is much more cost-effective than the costs of an estate in litigation.

Trinkets, bric-a-brac, and heirlooms provide yet more fertile ground for family disputes. Upon hearing that her mother passed, one daughter dropped everything, boarded a plane, and hours later, entered Mom’s home to discuss arrangements with her sister, who was already in the home … “organizing things.” After a quick look around the home, and a peek inside the mother’s china closet and jewelry box, the questions started: “Where’s the candelabra, and grandma’s china, and mom’s engagement ring?” “What do you mean?” responded the organizing daughter, who by the way, provided her mom’s care for the past two years. “Mom gave me that stuff years ago, she said she wanted me to have it.” Another fuse lit.

Inheriting money is one thing, and it is important. But heirlooms can define a legacy. And when an engagement ring, china, or photo albums are missing in action, emotions heat up quickly. The will has not even seen the light of day, at least for the daughter who just arrived, but you can see the steam coming out the ears of the surprised daughter. The visit may be brief, but the emails will be long and emotionally charged. So whether the heirlooms are jewelry, candelabras, china, photo albums, or an invitation to the White House signed by a President, do not leave the disposition of prized possessions to chance. Most wills have a clause which governs the distribution of tangible personal property, and it is up to the executor to divide that property amongst the beneficiaries as equally as is practicable. When families are tight and get along well, this is usually not a problem. But when there is friction and all the heirs are not on the same page, this standard clause is an invitation for litigation. When it comes to drafting a will, you should spend time on the distribution of personalities—a stitch in time saves nine.

You spend a lifetime building your reputation, your asset base, and your legacy. Your estate plan should be a natural extension of your life by providing appropriately for those you love, for causes near and dear to you, and it should be executed by those you deem most capable. The absence of a properly implemented estate plan is a prescription for chaos, bitterness, and dispute. Life is not stagnant. Changes in the law, your wealth, your health, your intentions, or your family structure will require your plan to be periodically reviewed by a team of advisors who embrace your priorities on an ongoing basis. Maintaining the plan’s integrity, keeping it current, and considering the good advice of your trusted advisors is the key often misplaced.

Business Succession Planning

A well-designed business succession plan that transfers the value of the business to the next generation in a tax-efficient manner will appoint a successor leadership team, structure gifts or sales of business interests to the next generation, preserve your income stream, establish your children’s post-transfer income stream to meet their needs and obligations, all while maximizing income, estate, and gift tax efficiencies and promoting family harmony. A tall order indeed, but once completed, such a plan protects and preserves your life’s work.

Once the need for a business succession plan has been established and your needs assessed, a detailed proposal letter with a understandable flowchart should be circulated to you, your accountant, life insurance professional, financial planner, attorney, banker, and other trusted advisors, and, if appropriate, shared with your heirs. A vetting of the plan can be an enlightening experience, one that sometimes reopens wounds and sometimes heals wounds.

Typically, business succession planning requires a valuation of an existing entity and the execution of a buy-sell agreement that will govern that entity. Sometimes the legal structure of the business merits the creation of new entities such as limited liability companies (LLCs) or a family limited partnership that may serve as the springboard for planned sales or gifts of all, or a portion, of the underlying business interest. Passing value to loved ones is one thing, passing control is quite another. To strike that delicate balance you must protect the golden goose first, and then divide the eggs equally. Nominating the successor manager should be a decision based on what is in the best interests of the business, and thereafter, the benefits of ownership should be apportioned equitably.

After a thorough analysis of all business succession planning options, making a commitment to a detailed blueprint, followed by execution of documents edited for your needs,  you can take comfort that you have done your level best. Selling or gifting your prized possession is an emotional act, and hopefully, your children will appreciate the significance of the moment, embrace the process, and thereafter preserve the burning torch for the next generation. Such is the “American Dream.”

The Value of Careful Decision Making in the Estate Planning Process

Not until it was too late did King Lear realize his plan for bequeathing England’s riches to only two of his three daughters was ill-conceived. Not until it was too late did Esau regret selling his birthright to his brother Jacob for a cup of hot soup. Themes of hasty decisions and ill-conceived gifts make for a fascinating read, but in our profession, we find that such themes cause agita and families to fall apart.

Where there is smoke there is fire, and it generally does not take long after one’s demise for the smolder to burst into flames. It may start with a disagreement over the planning of the funeral service, the location of the burial, whether to have an open or closed casket, the wording of the obituary, or a missing goblet, but make no mistake, such disagreements stand as a beacon of things to come. Expect thereafter, a newly inked will, a surprise codicil, or an outdated will being offered for probate. Sometimes the issue is not the will at all, but rather a beneficiary designation form that was changed shortly before death, or odd financial transactions re-characterized as “gifts” by the donee. Allegations of promises made and promises broken are often lodged as a new lawyer enters the scene, and family members scramble to fight fire with fire. A caveat blocking the will from being admitted into probate may be filed, and the appropriate response may be an order to show cause seeking to vacate the caveat then docketed. Ultimately, a life’s journey ends up on trial, subject to a discovery schedule, expert reports, motion practice, briefs, mediation and a trial, all seeking to find the truth which now lies buried—a treasure never to be found but instead judicially constructed.

Too often the will is vague, the decedent’s intentions are unclear, and the survivors all have expectations. Multiple marriages often involve children from both prior and current marriages. Once one parent dies and the surviving spouse and children find themselves on different pages, the fuse is lit. It should come as no surprise that estate litigation cases are on the rise, and once filed, the gloves come off. Though a prenuptial agreement would have been helpful, even without such an agreement, a well-designed estate plan could provide equitably for children from a prior marriage and a subsequent spouse. The amount left to each, the timing of the distributions, and the estate tax implications require thoughtful consideration of the following factors:

  1. The financial needs of the children and the second spouse;
  2. The ages of the children and the age of the spouse;
  3. The estate tax implications of leaving money to a spouse or children;
  4. The terms of a prenuptial agreement;
  5. The length of the marriage and whether children were born to the marriage;
  6. The relationship between the parent and the children from a prior marriage;
  7. The need to hold the assets in a spousal trust or distribute outright to spouse and the need to hold assets in a discretionary trust or age terminating trust for children or distribute outright;
  8. The titling of assets to make sure they are consistent with the terms of the will;
  9. The health of the spouse and children; and
  10. Their respective abilities to manage money.

If an estate plan is created by an attorney who balances these needs such that the plan provides reasonably for each beneficiary class, then the likelihood of adequately protecting both your loved ones and your legacy goes up. But if the will is silent as to any class, perceived as overly generous to any one class, or harsh as to any one beneficiary, then the likelihood of probate litigation goes up dramatically.

Omitting a Child from a Will

Sometimes a child has chosen not to be part of their family, or has been a thorn in the side of his or her parents for too long, has shown no love or respect, or is simply out of favor.  Alternatively, as is often the case, a child has married a spouse who is not up to snuff or appears to be the cause of a divide.  Though a child does not by law have rights to inherit the riches of their parents, simply omitting the child from a will is a mistake. Such an omission may leave the omitted child with nothing to lose and all to gain by contesting the will. Why? Because a will contest burdens the other surviving beneficiaries and the estate with the costs associated with litigation, will cause the executor or administrator to delay distributions to the heirs until the litigation is concluded, and will increase the tensions and anxieties for those who now need to fight the omitted child. Even if the omitted child has a weak case, the prospect of a long and costly litigation could force a settlement, particularly if the other heirs have no stomach to battle or resources to fund the war.

Simply omitting a child from your will, or providing the sum of $1 is not prudent planning. The better course of action is to name the child in the will and specifically address why the child is not to be included as a beneficiary. The goal is to let all who read the will, including potentially a judge, know that your decision was deliberate and intentional. Sometimes, in addition to the language in the will, a handwritten letter is helpful if it details your reasoning, as it could be introduced into evidence and quickly quash the antagonist’s ill-conceived efforts.

For those who have meaningful assets, it may be prudent to include a modest bequest for the child, but not include him or her in the residuary or balance of the estate. In addition to the bequest, the inclusion of a no-contest clause, or in terrorem clause, adds teeth and gives the antagonist cause for concern. This clause provides that in the event any beneficiary contests the will, their interest lapses and is distributable to the residuary beneficiaries. Even the most adversarial beneficiary would think twice before contesting the will, for to do so would put their bequest at risk. The combination of language specifically omitting the beneficiary from the residuary, providing a small but not inconsequential fixed bequest, an in terrorem clause, and possibly a handwritten letter of explanation and a videotaped will signing, all but disarm the antagonist from contesting a will.

Antagonist Caregivers

Whether a second spouse, child, friend, relative, neighbor, or health care provider, an antagonist caregiver typically has a false sense of entitlement, and a righteous justification for exerting his will over the will of the weakened prey. Any of these actors may dutifully attend to the daily needs of one so ill or dependent, but alas, the doer of good deeds may be a wolf in sheep’s clothing. Perhaps the caregiver is thought to be so loving and thoughtful by one so dependent, that after traveling to the doctor, pharmacy, and post office, a stop at the bank or lawyer’s office seems in keeping with what their priorities should be. The antagonist may make a reasonable suggestion to visit a new, much better estate planning lawyer, offer a timely reminder of the estate owner’s children’s irresponsible tendencies, suggest that changes to a will are “required” to save estate taxes, or they may make a host of other prompts, all at a time when one is fragile, dependent, or weak—and as a result, fortunes are diverted. Taken together, these prompts may cause a new will to be executed, or a new beneficiary form filed just days, weeks, or months before the estate owner’s death, and surprise: the “doer of good deeds” has surfaced as a primary beneficiary and executor.

In some cases, however, the decedent is the antagonist, the last minute change is their final dig/last word; and the intended consequence is anguish. Those bearing the brunt of the message typically claim that the decedent was not of sound mind, lacked the requisite mental capacity to execute the proffered will or more likely, that a sister, brother, or spouse influenced the antagonist to act so irrationally.

Probate Litigation and Pattern Recognition

Probate litigation almost without fail is caused by the actions of an antagonist or the inaction of a decedent who failed to implement an effective estate plan coupled with one or more of the following recurring fact patterns: a dysfunctional family; a second spouse and children from prior marriages; significant wealth involving a family business; an elderly infirm widow or widower who allegedly changed his or her intentions shortly before death; and either a tyrannical or dilatory fiduciary. Should these explosive conditions exist, after the funeral unspoken words often lead to heated words, followed by less than diplomatic late night emails. Thereafter lines are drawn, détentes formed and the best lawyer sought—all the precursors that lead to battle. These ingredients when mixed, battered, or boiled result in a contested estate in which aggrieved heirs seek to:

  1. Set aside a will as the product of undue influence, fraud, or lack of capacity;
  2. Set aside the titling of investment management accounts or deed;
  3. Set aside beneficiary forms for life insurance policies and retirement accounts;
  4. Enforce the rights of income beneficiaries or remainder persons of an estate or trust;
  5. Set aside the acts of the agent while supposedly authorized by a power of attorney;
  6. Demand an estate accounting and then object to the accounting when produced;
  7. Remove an executor or trustee for malfeasance or breach of fiduciary duty;
  8. Demand a sale or distribution of estate assets; and
  9. Appraise and properly distribute jewelry, photographs, and the contents of the home.

Threatening letters from lawyers may be exchanged, but rarely do such letters result in an amicable resolution. The next action may be the filing of a caveat, a one-paragraph warning to the court, in the county where the decedent resided. If the caveat is properly filed, typically within ten days from date of death or before the will is offered for probate, the will is blocked from being admitted to probate. The filing of a caveat requires the proponent of the will to file an order to show cause seeking to set aside the caveat and thus allowing the will to be admitted to probate. Generally, both sides prepare and sign certifications telling their side of the story, and then a court issues a return date for preliminary oral argument. If the court is persuaded that something is amiss and that perhaps there was wrongdoing, before vacating the caveat, the court will set the matter down for discovery, which includes interrogatories, depositions, exchange of paper discovery, expert reports, motion practice, and briefs, which typically are required to be completed within a six-month timeframe. Extensions are generally required, and court-ordered mediation is not unusual before a trial date is set. In the interim, the court may appoint an administrator of the estate who will be fair and impartial during the litigation.

The road to the estate’s conclusion will occur either in mediation, a settlement just before trial or by Order of the Court.  Some probate litigation cases are  promptly resolved, while others, such as Jarndyce v. Jarndyce as described in Charles Dickens’ ninth novel, Bleak House, rumble on for years, decades, or generations, and the estate assets wind up absorbed by costs—a legacy lost.

Influence or Undue Influence

Claims seeking to set aside a will based on undue influence have become more prevalent over the last few years as the economy weakens and as more baby boomers reach the fragility of old age. Opportunities for children or others to take control of a senior’s finances often lead to temptations that are too often acted upon to the detriment of the intended heirs and beneficiaries.

Generally, courts have found that undue influence exists when circumstances show a destruction of the free will and judgment of the person over whom influence is exerted and consequently, the weakened testator yields to the will of another merely for the sake of peace or is mentally or morally coerced into doing something contrary to his or her own wishes. Undue influence can be established both by pressuring one who is in a weakened mental or physical state to yield to the influencer’s control, or sometimes in a much subtler behavior pattern, using acts of kindness to illicit guilt or dependence such that the weakened testator feels compelled to change his or her will or the titling of his or her assets in favor of the influencer.

In order to establish undue influence, a contestant will typically need to establish: 1) that there were suspicious circumstances at the time the will was executed; and 2) that a confidential relationship existed between the testator and the beneficiary. Some states require the objecting party to also show that the influencer had both the opportunity and motive to influence the testator.

You will know if suspicious circumstances exist. In an unreported case, a distant son flew into New York allegedly to visit his dying father in the hospital.  After an unsuccessful operation to remove cancer, the son requested time alone with his dad. The second spouse, tired and depressed, welcomed the chance to go home, and perhaps shower, sleep, and eat something. She returned the next day as the son was preparing to leave. Hugs were exchanged, words of encouragement offered to dad, and off the son went. Only days later, dad succumbed to illness and, though the grieving process should have followed, it was cut short. After the funeral, the distant son reappeared and handed his step-mother a new will.  The son had requested some quality time with dad—i.e., some alone time—and instead, he seized the moment, and orchestrated the execution of a new will. The will, prepared in advance of the son’s visit, was signed by witnesses he arranged, and kept a secret until dad died. The will all but cut out the wife of twenty-two years, left the majority of the assets to the son, and named him as executor—a very different disposition than the husband’s prior will. This fact pattern is not offered as an academic explanation, but is instead, an example of a suspicious circumstance.

A confidential relationship may exist when circumstances make it clear that the parties do not deal on equal terms, that on one side there is an overpowering influence, and on the other, weakness, dependence, or trust such that the parties do not deal on terms of equality. For instance, if a daughter controls her mother’s banking, pays her bills, manages her health care, cooks her meals, and talks with the accountant or estate planning attorney at a time when the mother is ill—and but for such help, Mom would be in a nursing home—a confidential relationship would likely be found to exist. Alternatively, if a child is an agent under a power of attorney, or a trustee of a trust, then that alone may allow a court to find that there exists a confidential relationship.

Though varying from state to state, and court to court, the following factors are generally considered in determining whether or not undue influence exists and who has the burden of proving it:

  1. Whether the beneficiary was present at the execution of the will;
  2. Whether the beneficiary recommended and or arranged for the attorney to draft a will for the testator;
  3. Whether the beneficiary, to the exclusion of others, reviewed drafts or provided comments prior to the will’s execution;
  4. Whether the beneficiary was involved with the decedent’s bankers, money managers, accountants, or lawyers shortly before the decedent’s demise;
  5. Whether the beneficiary was in charge of safekeeping the will subsequent to its execution;
  6. Whether the beneficiary secreted the will from others;
  7. Whether the beneficiary isolated the testator from other family members;
  8. Whether the beneficiary discouraged other family members from visiting the testator before his or her demise;
  9. Whether a beneficiary was the day-to-day caregiver;
  10. Whether assets were gifted, re-titled, or beneficiary forms changed shortly before the testator’s demise;
  11. Whether a long-term relationship with the family estate attorney was ended, and a new attorney hired shortly before testator’s death;
  12. Whether there was a history of a testator seeking to distribute assets equally, followed by actions which caused the estate to be distributed unequally;
  13. Whether the decedent’s health history indicates a mental or physical impairment;
  14. Whether the decedent was taking medication, or required another to care for him;
  15. Whether there were any acts that are suspicious or circumspect that resulted in inequity.

If a court finds that a Last Will and Testament offered for probate was the product of undue influence, then it will be set aside, as if it never existed, and a prior will may be admitted to probate.

There is clearly a variation of undue influence that is less frequently written about, but is occurring with increasing frequency. When someone dies, many look to the decedent’s will to determine how the estate is to be distributed.  However, the titling of the assets trumps the terms of the will.  Generally, if an asset is titled jointly with a spouse, as an example, then upon one’s demise, that asset passes to the surviving spouse. Similarly, certain assets such a life insurance, individual retirement accounts, or annuities have named beneficiaries. The beneficiary designation governs the distribution of the asset—not the will. Undue influence may not be present in the drafting and execution of a will, but may instead occur in the re-titling of assets while one is ill and dependent on another.

Joint accounts are at first blush afforded certain statutory protections, and the courts will generally enforce the disposition of a joint account passing to the named surviving joint tenant. However, if someone challenges the titling of the account and alleges the beneficiary change form or a deed conveyance was the product of undue influence, then courts may look to two factors. The first is a determination as to whether or not the account was titled jointly as a matter of convenience only, or if there was really donative intent. By way of example, it is not unusual for a checking account to be changed such that a daughter who lives nearby can pay bills for her aging mother. If the account was changed from just the mother’s name into an account titled in the mother’s name jointly with the daughter simply to enable the daughter to pay bills, then that is a change for convenience only, not an intention to transfer wealth. Accordingly, the joint disposition would likely be set aside. Alternatively, if that same mother called her attorney and advised that in the event of her death she intends that a certain bank account or investment management account is to pass to her daughter, then donative intent can be easily established. But without a statement in writing or witness, such intentions may be challenged and overturned by a court which has no proofs before it to establish donative intent.

In some cases, the re-titling of assets simply reeks of undue influence. The most common example begins with an ill or mentally compromised parent who is dependent on one of his children for all daily needs. Without such help from the child, the parent fears the only alternative is a nursing home. Fear and dependence changes the balance of power. A parent may easily assent to a child’s request to change the title of the investment account and the home from the parent’s name alone, into a joint account, or a deed with the parent and the child jointly named on the title—simply because it is the right thing to do. The child may explain that by so doing, the assets will be protected from a nursing home and therefore the change is prudent and really protects everyone. The deed is done. Not until the parent dies will the other four children quickly learn that the titling of the account trumps the terms of the will which provided for the children equally. Therefore, the other four children protest in vain, and then hire an attorney to challenge the re-titling of assets. The pleadings filed with the court claim that all such transactions should be set aside as a product of undue influence.  The siblings may easily prove that their brother was involved in the parent’s finances, was an agent under a power of attorney, or a trustee of a trust, and that alone may be enough for a court to find the son had a confidential relationship with the parent. In some states, that is enough to shift the burden of proof to the son to prove there was no undue influence. The son now has an uphill battle. If a court finds the child was in a position of dominance and the weakened father was dependent, the son may be unable to prove to a court, by clear and convincing evidence, that all was fair and that the playing field was equal.

Preparing for and Participating in a Will Contest Hearing

Typically, the changing of account ownership forms or deeds does not happen in one day, but occurs over time. Accordingly, the aggrieved siblings may ask a court for a reasonable amount of discovery to subpoena all banking records and medical records from the date of death back to the onset of the illness, seeking to show a nexus between the two. Then to prepare for a hearing, their lawyer will propound interrogatories on the alleged influencer, take his or her deposition, serve anyone with knowledge of the facts with interrogatories, and then take their depositions as well. Once all the banking and medical records are received, experts are hired. Perhaps a forensic accountant will be engaged to quantify the re-titling of accounts and establish the amount of money in controversy, and a geriatric medical professional may be hired to attest to the decedent’s weakened condition.

Prior to a trial, the court may suggest, and the lawyers may agree, to mediate their dispute. An experienced lawyer or retired judge may accept the role, review all the pleadings and discovery, then host an informal mediation. You could cut the tension with a knife when all the family members are in one room, each believing they are right, and genuinely believing that the other heirs do not understand and never understood their deceased parent. The room may be filled with emotion, but a good mediator, reasonable lawyers, and family members looking to put an end to the divide may be able to reach a settlement at, or shortly after mediation. If the case does not settle, pre-trial briefs are filed and a trial date set such that a judge will be destined to determine what the decedent intended. A court may subsequently order that the re-titled assets which benefitted the influencer be reversed and be distributed as provided in the decedent’s Last Will and Testament, and sometimes the court is so enraged by the influencer’s actions that he is ordered to pay the legal fees incurred by the siblings.

Most will contests involve allegations that the testator lacked sufficient mental capacity to execute the Last Will and Testament. The standard for mental capacity is low and will be met if, at the time a will was executed, the testator understood: a) the extent of his assets; b) who his heirs are; c) that the will is meant to dispose of his assets at death; and d) the terms of distribution under the will. At least initially, the witnesses and notary who watched the testator sign the documents typically have also attested that the testator, at that moment in time, had mental capacity. Are the witnesses psychologists? Probably not. Can a patient who suffers from early onset of Alzheimer’s have a moment of clarity sufficient to sign a will? Probably. If heirs challenge not just the will, but also the three subsequent codicils and five gifts which took place over a two-year period, must mental capacity be established for each act? Although there is a presumption that a testator is of sound mind and competent when he executes a will, claims may often be filed seeking to set aside or invalidate a will or gifts claiming the testator lacked testamentary capacity. To prosecute such a claim, a psychologist will need to be retained to testify that the testator either had or lacked capacity at the time the will or codicil was executed. Witnesses to the execution of the will and the attorney draftsperson also become key witnesses in the litigation.

Many times, the estate planning attorney will take adequate precautions and document evidence of capacity in the client’s file, or will videotape the will signing if a will contest is expected. Some people know their will is going to be contested and will actually hire a psychiatrist or psychologist to opine in writing that the testatrix has capacity. Then someone will videotape the will signing. During the taping, the testatrix reads a prepared statement that might go something like this:

“My name is Contessa Capacita and I have two daughters, Maria and Tina. Yesterday, I met with my accountants, reviewed my balance sheet, and am aware that my assets total approximately $100 million. I am here today, in the presence of two witnesses and a notary, to sign my Last Will and Testament. I have read it and it is consistent with my intentions. I have intentionally made no provisions for my daughter, Tina. It is difficult for a mother to cut her own daughter out of her will, but I am doing so knowingly and voluntarily. My reason for cutting Tina out of my estate is fairly simple. She has not acted like a daughter to me, she shows me no love or affection. She does not call or write, and has, for too many years, only caused me pain. I have had enough. So as to protect my estate, my daughter Maria, and my legacy I read this statement out loud, so there will no mistake or inquiry about my intentions.”

The lawyer then reviews the will with the Contessa, and in the presence of the witnesses and notary, she signs the will.  Tina has little to no chance of over-turning the will…unless Maria was seen in the video, hiding behind a plant and snickering.

Guardianship Proceedings and Incapacity Issues

What should you do if your aging parent is succumbing to old age, illness, and there is either no power of attorney in effect, or a power of attorney is in place, but you suspect foul play? Consider commencing a guardianship proceeding.  In such event, a family member with standing, such as a spouse, child, or beneficiary, may file a complaint on behalf of an incapacitated person seeking to be appointed as guardian. A court may appoint a guardian to make decisions on behalf of the incapacitated person, including living arrangements and health care decisions. The court may also appoint a guardian over the property of an incapacitated person who will have the authority to make financial decisions subject to a later accounting. A determination of incapacity may be accomplished if there are two disinterested doctors willing to opine that an individual is mentally or physically incapacitated. To aid in the decision making, a court may appoint an independent guardian ad litem, typically an attorney respected by the court, to meet with the alleged incapacitated individual, talk with the doctors and family members, and then file a report with the court. The report will include a summary and a recommendation as to whether a guardian of the person and or property should be appointed. If family members disagree with the report, a court may hear from all parties and then issue an order. There are also degrees of incapacity, and a growing trend allowing courts to limit a guardian’s powers based on the level of incapacity, thereby allowing the incapacitated person to retain whatever rights are deemed appropriate.

If one does have capacity, but other heirs may question capacity, post-mortem, you need to plan accordingly. Why pay experts, take up the court’s time, and leave a legacy up to the discretion of the court? If you have meaningful assets, and you are concerned about an antagonist challenging your will, there are several precautionary measures to consider, but certainly an option often dismissed as being expensive or not necessary, is in fact, not expensive and is necessary—videotape the signing of your will. Since the signing ceremony will be on tape, you should not take an extra Xanax, or otherwise slur your words, as the videotape could then be used as evidence that you are incapacitated or under the influence of medication, and provide just the crack in the door that the antagonist is looking for.

Conclusion

There are several constants in the American family quilt. First, an inheritance can provide great warmth or leave some feeling out in the cold. Second, ambiguity with respect to an estate plan opens the door to differing interpretations. Third, differing interpretations combined with a possible inheritance or heirlooms too often lead to litigation. Fourth, last minute changes to a will may lead to a dispute. Fifth, there is a casual relationship between effective estate planning and protecting one’s legacy.

Estate planning is about you, your life, and your legacy. Be aware of the universal sparks to probate litigation, and plan your estate to adequately and clearly represent your intentions. Should you smell smoke, react, be proactive, and stand up for what you believe to be true.

Key Takeaways

  • Develop a rapport with your estate planning client, and talk frankly about family conflicts, special needs, or special situations as a condition precedent to effective estate planning. Understand your client’s family dynamics, goals, asset base, and titling of assets.
  • Document your client’s wishes in a will, health care proxy, power of attorney, and if appropriate, trusts. When drafting a will, think about how the chosen fiduciary would interact with the beneficiaries of the estate. Specifically address why a certain child is not to be included as a beneficiary in the client’s will.
  • Hire an independent individual executor or corporate executor if you think your client’s estate may be complicated or involves a business, if they own assets that are difficult to value, if they wish to leave assets to heirs unequally, or if their estate involves a second spouse and children from prior marriages.
  • Determine if the client needs a business succession plan. If so, a detailed proposal letter with a understandable flowchart should be circulated to the client’s accountant, life insurance professional, financial planner, other attorneys, banker, and, if appropriate, their heirs. Obtain a valuation of an existing entity and the execution of a buy-sell agreement that will govern that entity.
  • Prepare for an undue influence hearing by propounding interrogatories on the alleged influencer, taking his or her deposition, serving anyone with knowledge of the facts with interrogatories, and taking their depositions. Obtain all banking and medical records, and hire a forensic accountant to quantify the re-titling of accounts and establish the amount of money in controversy. Hire a geriatric medical professional to attest to the decedent’s weakened condition.   

 

 

A Partner in Saul Ewing LLP’s Personal Wealth, Estates and Trusts practice, Russell Fishkind focuses his practice on high net worth estate planning, business succession planning, family office consulting, estate administration and probate litigation. Prior to joining the firm, Mr. Fishkind served as chair of the Trusts & Estates Team at Wilentz, Goldman & Spitzer P.A. in Woodbridge, New Jersey. Following law school, he was a trust and estate administrator and financial officer for the United States Trust Company of New York. He was also the founding partner of Rudolph & Fishkind in New York City and East Brunswick, New Jersey.

 

Mr. Fishkind is an Assistant Adjunct Professor in New York University’s Department of Finance, Taxation and Law where he teaches estate and business succession planning. He frequently writes and lectures about trusts and estates related issues. Mr. Fishkind is the author of Legacy of a Lifetime, a layman’s guide to understanding estate matters; a co-author of J.K. Lasser Pro’s™ Estate Business Succession Planning—A Legal Guide to Wealth Transfer, and the author of Probate Wars of the Rich & Famous: An Insider’s Guide to Estate Planning and Probate Litigation.

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In a decision of the New Jersey Appellate Division in the seminal Stockdale Will Contest case (196 N.J. 275 (2008)), the Court refused to impose compensatory or punitive damages against the influencer, Ronald Sollitto, or his attorney, Anthony Casale, despite the finding of undue influence surrounding Stockdale’s Will and the transfer of her home to Sollitto. In the underlying Will contest, the Spring Lake First Aid Squad, a beneficiary under Stockdale’s prior Will, successfully challenged as a product of undue influence Decedent’s 2000 Will and the inter vivos sale/transfer of her house to Sollitto.  The trial Court admitted a prior Will to probate, rescinded the sale of the house to Sollitto, and awarded punitive damages of $1.174 million in legal fees incurred by the Squad against Sollitto and Casale.  On appeal, the Appellate Division reversed the award of punitive damages and instead ordered the Squad’s fees paid from the Estate. The Supreme Court granted certification and ultimately agreed that the counsel fees were not recoverable as a form of punitive damages, distinguishing the case from In re Niles.  The Supreme Court also held that punitive damages could not be awarded absent an award of compensatory damages.  With that said, the Supreme Court decided to remand the matter back to the trial Court on the punitive damages claim noting that the following facts support a basis for the award of punitive damages, Sollitto and Casale were strangers to Decedent, they engaged in undue influence, a tort-based remedy was sought in the underlying Complaint, and the loss of the Squad could not be addressed through the ordinary probate process. On remand, the trial Court decided that there was no basis for an award of compensatory damages and therefore no basis for punitive damages.  The Court ordered the fees paid from the Estate.  The Court denied the Squad’s claim that it had lost money in the delayed transfer of Decedent’s home result of the litigation, as the Squad in fact received an amount equal to their claimed loss when they subsequently sold the property. In this context, an experienced Will Contest Attorney in New Jersey can make all the difference.  Counsel must navigate through the initial filing of the pleadings, the all important discovery and depositions, and then be prepared to bring the matter to trial.  While cases often settle before trial, the actual costs to prepare for trial often compels an early settlement, and the proper choice of counsel is imperative to achieving a quick resolution.

Russell J. Fishkind, Esq. and Ronald P. Colicchio, Esq. at Saul Ewing, LLP rfishkind@saul.com (609)452-5043                                                   rcolicchio@saul.com (609)452-3133

The lack of information will prove costly to any accounting action. Good practice dictates that an Executor of an Estate should provide the beneficiaries with information and documentation regarding the assets and liabilities of an Estate in a timely manner, whereas failure to do so, will only breed suspicion, contempt and ultimately litigation over an accounting.   Too often, we are contacted by clients who have not received adequate information from an Executor.  In the normal context, letter requests will be sent to opposing counsel, and if they go unanswered, the filing of a formal Complaint compelling an accounting will be required.  There are certain time frames involved before a beneficiary is entitled to an accounting, but the Executor should think long and hard before withholding information that is at their disposal.  Full disclosure in a timely fashion after a Decedent’s death will ensure an expeditious and less costly administration of the Estate.

Russell J. Fishkind, Esq. and Ronald P. Colicchio, Esq. at Saul Ewing, LLP rfishkind@saul.com (609)452-5043                                                    rcolicchio@saul.com (609)452-3133