The Lessons of Famously Bad Estate Planning Failures

by Steven A. Morelli

Admit it: You can't resist celebrity news. You're standing at the grocery checkout behind someone who still uses checks, and then you notice the gossip rags. You can't help but look and shake your head: "Tiger Woods did what? Brad wants to remarry Jennifer? Kirstie Alley is obese—again?"

Let's face it—celebrity foibles are even more enticing than are the Reese's Peanut Butter Cups calling your name. Sex might sell, but silliness does too. And celebrity screw-ups can help sell one of the most unsexy things out there: estate planning.

Sure, people know they should have a will, but if you tell them about the many celebrity disasters that have ensued because of the absence of a will, you're likely to grab clients' attention.

Guitar great Jimi Hendrix died without a will in 1970, setting up a family fight that would end up in court more than 30 years later. His father, Al, had cut Jimi's brother out of the estate and left the Hendrix legacy in control of Al's adopted daughter, Janie, from his second marriage. And even though Al had built an $80 million business called Experience Hendrix, he reportedly still did not complete Jimi's grave site. Odds are good that Jimi Hendrix would not have expected these turns of events, but he had no say in the matter because he did not leave a will.

Because of undefined intent, the celebrity universe is filled with questionable handling of legacies. Sometimes it is not failure but overwhelming success that generates criticism, as in the Bob Marley case. The Marley estate in 2009 signed a deal with a private-equity firm to sell merchandise worldwide to generate as much as $1 billion, prompting some to ask if that is what Bob Marley would have wanted. Forbes, for example, asked, "Could this be commercial overkill for the Rastafarian whose spiritual songs about social injustice, hope, and redemption have become anthems for billions of fans, from Marrakech to Tokyo, and will it alienate them?"

Daniel Scott, an attorney with Chadbourne & Parke in New York City who specializes in estate planning for entertainers, said those stories frustrate him.

"We should know what Bob Marley wanted," Scott said. "This should all be in place where the transition of control is both smooth and accomplishes the artist's goals."

In his practice, Scott finds that artists are very concerned about their legacy and want to extend control over it for posterity. Celebrities already understand brand management and have seen what happens when it is not done well—or not done at all.

Scott helps set up trusts, systems, family offices and other structures to protect clients' assets, but most people fall in the middle between nothing at all and bulletproof plans. And the middle can get muddy.

Take the Sonny Bono and Michael Crichton cases. When Sonny died on Jan. 5, 1998, in a skiing accident, he did not leave a will. As with all cases when people die intestate, Sonny left quite the mess for his family—and it only got messier.

Sonny's widow, Mary, barely had time to grieve. She had to run to court so she could be appointed the estate's executor. Then she had to file special court petitions to manage royalties and take advantage of business opportunities before they were lost.

Other people, including Cher, lined up to make claims against the estate. Then there was the inevitable love child.

"It created a lot of havoc, this poor grieving widow dealing with everything else, and now she has this love child come forward," said Danielle B. Mayoras, an estate planning attorney in Troy, Mich. "They actually had to take a DNA sample from Sonny's body to determine whether this was actually a child of his. Sonny could have saved his widow a lot of grief and aggravation, and all it would have taken to do it was some simple estate planning."

Michael Crichton did leave a will and also excluded any unborn children. This is a typical provision in a will for a high-net-worth man. Although, in an odd twist, Anna Nicole Smith used the same provision and specifically excluded "future children" from her will, leaving her estate to her recently deceased son and disinheriting her 5-month-old daughter. A judge eventually straightened that out—but at an expense to the estate.

Both cases illustrate the importance of updating a will. When Crichton died of throat cancer, his fifth wife was six months pregnant and his will disinherited that child.

"This highlights the importance of updating your estate planning documents," said Mayoras, who co-authored the book Trial & Heirs: Famous Fortune Fights. "You do not even need to wait until the child is born. It should be done as soon as a life event happens, whether it is starting a business or filing for divorce. Do not wait till the divorce is final."

Also, no shortcuts. The updating should be done in the will or trust document itself rather than in a letter of wishes. Although some defend the validity of accompanying letters, the case of Princess Diana shows why they might not be the strongest tool in the estate planning shed.

After Princess Di died in a car crash on Aug. 31, 1997, a letter of wishes was discovered in her estate planning documents that called for a quarter of her personal possessions to be distributed to her 17 godchildren, at the executors' discretion. The executors, Diana's mother and sister, instead gave each godchild a trinket to remember Diana by and had the letter thrown out in court through what some said was a legal loophole. The judge decided that the executors' discretion meant they were not obligated to give the godchildren anything. The portion of the estate each child would have received under the terms of the letter reportedly would have been valued at more than $150,000.

"I think the point from this is that your intent needs to be incorporated into your will or trust and not placed into a separate document," Mayoras said. "And if you are going to do a separate document, don't use the word ‘discretion.'"

The next step might not seem necessary to point out, but apparently it is: Tell someone where the estate planning documents are.

When Florence "Flo-Jo" Joyner died unexpectedly at age 38, her husband could not find her will, which fueled a family feud. After years of fighting, the court appointed a neutral executor who settled the estate four years after Joyner's death.

"The courts always, always want an original," Mayoras said. "There could be a question about the signature's authenticity. So, the court always wants an original. Now, with copy machines, scanners, faxes and everything else, we in business look at copies the same as an original, but wills and trusts are exceptions to that."

But even if you do everything right in structuring (and securing) a will, some families will still fight over it. Well, not in the Sinatra family, buddy.

Frank made sure there was no way but his way, even posthumously. Sinatra included a very detailed no-contest clause. This meant that anyone who fought the will or trust by using any of the 13 legal actions listed would be disinherited. Despite a will and trust that favored one child over others, no one contested.

But some trusts invite challenge. Take Leona Helmsley, for example. The Queen of Mean lived up to her nickname even after the legendary hotelier died. She not only created a $12 million trust to take care of her dog, but she also disinherited two of her grandchildren, reportedly because they did not name one of their children after their grandfather.

To set up such a vindictive trust ensured a court battle, and sure enough, the grandkids fought and settled for $6 million and court fees paid for. Trouble, Leona's treasured Maltese, had his inheritance cut back to $2 million. Although that's still not bad for a dog, it was not Helmsley's wish. So, setting up a fight not only will cost the estate money, but it could also subvert the original objectives.

Sometimes a trust can be set up with the best of intentions but be structured for failure. In the case of Michael Jackson, the first issue was naming people as executors and trustees who were not in the Jackson family. That ensured a fight from his mother, Katherine. But that would not have gotten much traction had he adequately funded the trust, Mayoras said. Jackson failed to put any assets into the trust.
"If you don't transfer the assets into the trust, you don't avoid the probate courts, which is one of the key benefits of setting one up," Mayoras said.

Once the estate goes to probate court, anyone with a disagreement about the estate can simply go before the judge and complain. This opened up the door not only for Katherine Jackson to contest many aspects of the estate plan but also for the whole world to see the process in minute detail. For example, the executors had to go to court to get permission for a monthly allowance for Katherine and for Michael Jackson's children ($86,000 a month, not including housing but including $1,000 for Katherine's grooming needs).

The Michael Jackson case reminds planners that a trust can be a valuable tool, but it is only as good as its funding. That also goes for any other structure, such as a foundation. That was the lesson of Babe Ruth's estate.

The Bambino set up a private foundation a little over a year before he died in 1948 of cancer at age 53. But it had little money because of how it was established. The bulk of his estate went to his wife, and the foundation's major funding was supposed to come from his wife when she died. But because he died relatively young, his widow lived for another 28 years. By the time she passed away, the foundation was a distant memory.

Even if it had been adequately funded, the foundation was in trouble from the beginning because of its poor direction, which was basically to use any of the interest or principal for any effort that benefited any person. Eventually the trustees settled on helping underprivileged children, largely because The Babe himself came from very humble beginnings, an orphanage in Baltimore. But with little money to start with and few benefactors willing to chip in, the foundation foundered within a few years.

Of course, ensuring that there is money to fund the estate is job No. 1 for an estate planning advisor.

That would have helped Joe Robbie's family when the Miami Dolphins founder died of respiratory failure in 1990. His family had to pay a reported $47 million in estate taxes, forcing them to sell the team and other assets.

The first issue is sheltering the estate, and the second is setting up a way to pay the taxes without destroying the estate.
Julie Ann Garber, an estate planning attorney with Becker & Poliakoff in Fort Myers, Fla., said she sees families struggling with estate tax issues just about every day. It is a common problem with illiquid assets, particularly land.

"It's a big problem when people have successful businesses or their money is tied up in property and they don't work beyond that to plan to pay the taxes," Garber said.

One of her clients was a real estate agent who had many pieces of property but did not leave much money, so her children are still struggling four years after she died.

"They still owe the IRS $800,000," Garber said. "Because of the way the real estate market has been in Florida, the family has had to sell property basically in a fire sale."

The best way to ensure liquidity is life insurance, Garber said.

"That is the quickest and easiest way to deal with it," Garber said. "It's cash. And if you put it into an irrevocable life insurance trust, that's not going to add to the tax burden."

Of course, many people, such as her real estate agent client, are not receptive to paying the large premiums required to cover big tax exposure.

"Most people are insurance-averse," Garber said. "They don't see the benefit of it because they, of course, won't be around to see the benefit of it."

But Garber uses the fear factor—leaving the family with an enormous mess—as a first tactic. And then she lays out the options.
"If it's not insurance, then it's going to have to be something else," she said. "They're going to have to start gifting to bring down the value of their estates. They have to give it away and they will lose control of their money. So they go back to the insurance option because they don't want to give up control."

That gets down to the essence of estate planning: control. Whether it involves celebrities maintaining their image for all posterity, or wealthy landowners keeping their families' holdings intact, estate planning protects clients' control.

Quite often people don't want to discuss estate planning because it involves their death. But clients should understand that it is essential to maintaining their family's stability and dignity.

Remind them to look at any supermarket checkout magazine stand to see just how ugly bad estate planning can be.

Steven A. Morelli is senior editor for InsuranceNewsNet Magazine. He has more than 20 years of experience as a reporter
and editor for newspapers, magazines and insurance periodicals. He was also vice president of communications for an insurance
agents’ association. Steve can be reached at smorelli@insurancenewsnet.com.
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