Even More Lessons from Famously Bad Estate Planning
by Steven A. Morelli
You want a tip on an inexhaustible resource? Celebrity estate failures. They never stop. Year after year, they keep making more.
Since last year’s edition of celebrity estate-planning disasters, we have had a few that have just kept going and going, like a certain cymbal-smashing bunny rolling through the living rooms of America. Not only do these stories serve as good water-cooler chatter, they also offer cautionary tales for your clients, ripped from the headlines.
Danielle and Andrew Mayoras heartily recommend the strategy of using celebrity stories as tools to get clients to do the right thing. She is an estate-planning attorney and he is a probate lawyer; together they wrote the book Trial & Heirs: Famous Fortune Fights!
"We teach insurance agents how to use these celebrity stories to get their clients engaged in dialogue about estate planning because it’s often an uncomfortable subject to bring up," Andrew Mayoras said.
The Gary Coleman case is one such example of many things not to do. Coleman, who died last May of a head injury from a fall, left a legacy of baffling estate planning. But at least he did do very rudimentary preparation, which is more than some people undertake.
Take the shocking case of NFL quarterback Steve McNair from a couple of years back. The first surprise was the circumstance of his death: he was shot by his girlfriend in an apartment he rented for her. It certainly was a stunner for his wife, but it proved to be the first of a few humiliations for widow Mechelle McNair. Despite her husband’s $20 million estate and many potential heirs, he neglected to draft a will.
McNair’s widow had to beg a probate judge to release some money from the estate, which had been frozen pending a payment of $3.7 million in federal and state estate taxes—not necessarily the final tax bill, by the way. Steve McNair had two sons with Mechelle and he had two other sons from a previous relationship who are also heirs.
Even though McNair died on July 4, 2009, his estate is still frozen as issues are being resolved. Between the taxes and legal fees from years of probate action, who knows how much of the nearly $20 million estate will be left.
Julie Ann Garber, an estate-planning attorney with Becker & Poliakoff, Fort Myers, Fla., said the McNair case astonished her.
"I’ve actually worked with NFL players and I was shocked when this man did not have an estate plan," said Garber, who also writes about estate planning on About.com. "With the players I’ve worked with, that’s one of the first things, regardless of their age, marital status or whatever, that their agents tell them: get a plan."
Not only does the lack of any planning tie up and diminish the estate, it also takes some decisions out of the hands of surviving parents.
"The children with his wife are going to get all of their money when they’re 18," Garber said. "They are going to get millions of dollars when they’re 18. Not a good idea."
Another person who should have known better was John Denver. He famously sang in the ’70s of his gratitude for being a country boy, but he might have taken his simple living a little too far. He did not leave a will when he crashed an experimental plane and died on Oct. 12, 1997. His family had to wait six years while the estate ground through probate court.
Convincing clients to engage in even simple estate planning, such as drawing up a will, has always been difficult, and apparently it is getting even harder. A Harris Interactive poll released last year showed that only 35 percent of Americans had a will in 2009, which was down from 45 percent in 2007.
Redd Foxx did not have a will when he died of a heart attack on Oct. 11, 1991, but he might not have thought his estate needed one. Besides having significant debt, Foxx also had the IRS on his tail—and you know death does not stop that agency. Nearly 20 years after the Sanford and Son star went to the great junkyard in the sky, the IRS is still waiting to be paid $3.6 million.
Even though Foxx’s financial mess might not have seemed to warrant estate planning, the lack of planning reduced the likelihood that the estate, and the family, might ever be right side up. The first court-appointed executor, Foxx’s daughter, Debraca Foxx, could not account for royalties and other income. The new executor, a public administrator, is bringing in income and working on a deal to sell the Redd Foxx story. Although the executor is hopeful the sale would settle some or all of the tax bill, the Foxx family is opposing the executor.
Then there are those who did estate planning but undid some of it afterward. Marlon Brando, for example, became a real Wild One toward the end of his life, even demanding that his room be locked after his death so no one would steal the buttons off his shirt. Not only did he make some questionable changes in his planning, he also made an oral promise—or so his housekeeper claimed.
Angela Borlaza said Brando gave her a house in the San Fernando Valley and promised continued employment after his death. She sued on both issues, eventually settling for far less. That was only one of the challenges the estate has faced, said Andrew Mayoras.
"There were a lot of funny circumstances, lawsuits and fighting going on with that estate," Mayoras said. "But the main lesson to draw is to never rely on verbal or even written wishes. You should always put your wishes into a will or, better yet, a trust."
Another case of changing plans while not in the best frame of mind is Elizabeth Edwards. Probably no one in America would blame her for cutting her philandering husband out of her will, which she signed six days before she died of breast cancer on Dec. 7, 2010. But North Carolina does not allow that and spouses have a right to make a claim against the will.
She had a trust, so it is possible she provided for John in that, but the Mayorases said it was unlikely that her trust would mention her husband if the will did not.
Edwards used a pour-over will, which transfers assets into a trust after death, Danielle Mayoras said. It is a handy tool, especially if someone does not have time to set up a trust completely. But it can have its drawbacks, as Michael Jackson’s family learned.
A significant benefit of a trust is bypassing the public glare of probate court. But that aim is subverted when a trust is not funded before death. Those assets then pass through probate court to funnel into the trust. That was why the world cringed through the sordid details of the Jackson clan’s dysfunction during the probate case.
Dysfunction was also the key word in two of the latest celebrity spectacles, Gary Coleman and Dennis Hopper. They both had one thing in common, a wife who could be charitably referred to as a tad intense.
Coleman did not help matters by his less-than-rigorous approach to estate planning. Since he died last May, three wills have appeared. The first one was from 1999 and left everything to his manager. Then one in 2005 left everything to a woman he lived with but apparently was not romantically linked to. Another one was handwritten in 2007 after Coleman married Shannon Price. He named her sole beneficiary, writing, "I made this change of free will and was not coerced in any way."
Free will or whatever, that wish would have been undone when the couple divorced the next year. (Some might recall the noble attempts to rescue the marriage on Divorce Court in 2008.) But Price had another card to deal. She claimed that she and Coleman still lived together and believed themselves to be married. Because their state, Utah, is one of the few that recognizes common-law marriages, Price said she was still wedded to Coleman when he died. In fact, she said her love for Coleman is still so strong that she wants to wear his ashes around her neck.
Coleman not only did not update his will to reflect his divorce, he also did not change other documents, such as the medical power of attorney, which was still under Price’s name when Coleman fell and slipped into a coma. So his ex-wife had the authority to pull the plug, which she exercised. The Coleman/Price relationship might have been "special," but not many people would be comfortable with their ex-spouse holding the power of life and death over them.
The Coleman case is another example of keeping estate planning current.
In Dennis Hopper’s case, he tried to update but not soon enough. Three months after he filed for divorce, Hopper tried to remove one of his children as a beneficiary from his $1 million life insurance policy. The child was a daughter he had with his wife Victoria Duffy, who was already was due $250,000 of the death benefit because of a premarital agreement. Hopper wanted his three adult children to have the remainder of the policy. The judge did not allow it, which is not unusual during a divorce.
Hopper’s death did not quiet Duffy’s claims. She is still suing the trust with claim after claim. It will take a strong trust and trustees to withstand the onslaughts. Just imagine what it would be like without the trust.
A trust would have helped Walter Cronkite’s family avoid some embarrassment. When the venerable TV news broadcaster died at 92 in 2009, he had purposely left his girlfriend out of his will. He had said he had been generous with her in his life, so that was sufficient. The New York Post handled it with its usual brass-knuckle subtlety: WALTER JILT$ GAL PAL!
Cronkite might have been able to spare his family that headline. But the most trusted man in America did not set up a trust.
"That does highlight one of the key advantages of using a trust," said Andrew Mayoras. "It keeps your affairs—what assets you had and any family baggage—out of the court system and out of the public record."
In fact, it has been a constant lesson learned from years of reviewing estate-planning blunders—a well-functioning trust works wonders. Trusts are often a tough sell, Garber said, but clients’ families are grateful when they work well. She saw this play out earlier this year when a client died.
"I had been working with her and her husband since 2005," Garber said. "The husband died in ’07. We got her set up with a trust in 2008. I helped her get everything in it because, I said, ‘You need to do this because it will just make it so much easier for your family.’ And so now I’m working with the family and they’re doing what they need to do. There’s no probate, no judge looking over their shoulder. And they’re saying, ‘Why doesn’t everyone do this?’"
Why, indeed? Advisors cite clients’ two key reasons: being afraid of losing control of the estate and thinking they do not have enough assets to justify a trust.
"You’re in control of your assets but you’re changing them to a new pocket," Danielle Mayoras said. "In my case, if I’m wearing pants, I have one pocket that says ‘Danielle Mayoras’ and the other that says ‘Danielle Mayoras’ trust.’ My real estate and my assets are simply changed to that other pocket. But it’s still my pocket so I can still spend the money or transfer the money."
The trust also helps ensure that the client’s wishes are carried out. In the case of many of the celebrities InsuranceNewsNet features, executors are often struggling to understand what the deceased would have wanted. In the case of Marlon Brando—did he really want his housekeeper to have one of his houses? Expressing that in a trust would erase all doubt. With Steve McNair—would he have wanted his children to become millionaires at 18? Probably not, but he lost his chance to control that. And Redd Foxx—would he have wanted a third-party administrator that he did not choose deciding how much his life story is worth and who should buy it? Who’s to say? Certainly not Foxx.
And although Foxx had more debt than assets and might not have thought he needed to worry about his estate or trustees, his estate is still a problem 20 years after his death.
Danielle Mayoras said it’s a key lesson that a family of any means can use a trust.
"There’s not an actual amount—that if you have this much money you need to have a trust," she said. "The real question is whether you want your loved ones to avoid probate court. I’ve worked with clients who have a very modest estate, but they chose to use a trust because they want to avoid family fights down the road. If you’re disinheriting a child, if you’re in a second marriage situation, if there’s a sibling rivalry that you want to avoid, a trust gives a family more protection to decrease the likelihood of court battles and have everything pass much more smoothly."
Trusts become even more important with wealthy clients to avoid probate and to help with some tax issues. But, of course, life insurance is a key tool for dealing with tax impact. This is particularly important for owners of large assets, such as a business.
Robert H. Brooks’ family found that out. You might not know Brooks, but you know the restaurant chain he owned—Hooters.
Brooks’ family had to sell the chain and say good-bye to its $1 billion a year in sales, partly because of estate taxes. The sale price was not disclosed, but the chain was reportedly worth up to $250 million. The estate tax was 46 percent when Brooks died in 2006, meaning the family could have owed $115 million.
Many family-owned businesses face this problem but have not planned for it. It is imperative for advisors to help families understand this because time is the enemy, according to estate planners. With each passing year, the owner of the business becomes more expensive to insure—if he or she is in fact insurable. Brooks, for example, developed diabetes, a significant red flag in the cubicles of underwriting.
Planning for estate taxes is one of the lessons that the families of the rich and famous learn year after year. Or perhaps it is more accurate to say that some celebrities never learn. But we do, because you can be sure a whole new crop of estate-planning disasters will be awaiting us next year. See you then.
Read last year’s Estate Planning Faiures article here.Steven A. Morelli is senior editor for InsuranceNewsNet Magazine. He has more than 20 years of experience as a reporter