NEW YORK (Reuters) - Philanthropist Brooke Astor. The Grateful Dead’s Jerry Garcia. There are a few celebrities who, in death, at least in certain circles, have become as known for the litigation over their estates as for how they lived their lives. While the dollars are mind-boggling in these cases, anyone thinking about wealth transfer faces the same issues: dysfunctional families, potentially unequal positions in the family business, perhaps multiple marriages with kids from each.
We spoke with Russell Fishkind, an estate attorney and a partner in the East Coast law firm of Saul Ewing and author of “Probate Wars of the Rich and Famous: An Insider’s Guide to Estate Planning and Probate Litigation,” about what regular folks can learn from these high-profile estate battles.
Q: What’s the most common scenario you see?
A: Hands down, most common was a second marriage, or third marriage, with children from multiple marriages. If the estate plan does not adequately provide for Spouse No. 2 and for the children from the first marriage in a way that tries to achieve equality, you’re basically buying a litigation case. The two most notable celebrities were Anna Nicole Smith, who at 26 married an 89-year-old billionaire, and Jerry Garcia, who had numerous children with different women, and then, just before he died, married Wife No. 3. The first turned into the longest estate litigation case we’ve seen in 100 years. The second led to litigation over custom guitars, Cherry Garcia ice cream and Jerry Garcia ties.
Q: What’s happens if the family is in business together?
A: A huge amount of our wealth is from family business owners, and often mom or dad runs the business, and one or two children are in it, and one or two children are not. If I’m a dentist in California, should I not get a share of the business? Or what if the son in the business gets gifted the business? There are a lot of emotional ticking time bombs in family businesses that create litigation. The most shining example of that would be the Koch brothers, who had the largest family-owned business in the United States, and feuded for decades.
Q: In the case of Brooke Astor, there was fraud. Does that happen much?
A: I see a lot of these cases. When mom is alone and weak, and one child starts caring for her, somewhere along the line they start thinking they are entitled to more than their fair share. So the person will go to UBS or Morgan Stanley, and say, ‘Mom wants to change title from her to me because I’ll be dealing with this day-to-day, and I’m paying for her care, and she wants me to watch her portfolio.’ Invariably, what gets left out of the conversation is that because these are now jointly-titled assets, they will pass to that child, and that is also the intent of the antagonist. The titling of accounts trumps the terms of the will.
Q: So you could have a very good will, and it will end up being meaningless?
A: Correct. I can give you an example where there’s no glitz and no glamour. I handled a case involving a guy who never had any money, but was an inventor, and when he was 76, his invention hit, the company went public, and he was worth $50 million. The wife had the account retitled for his name and her name. When he died, the kids thought they were going to get the motherlode, but everything went to the wife.
Q: Is litigation over estates going up?
A: There’s not a doubt in my mind that it is. I’ve asked surrogate judges informally in chambers, and they all say the same thing. The incidence of probate litigation is on the rise, and the fact patterns are consistent.
Q: What would you do to avoid these situations?
A: If there’s a second spouse, make sure to give that spouse what was bargained for in the (prenuptial agreement). Where there is a likelihood of dissension, appoint an independent fiduciary or trustee. And for the family business, you really want to document your intentions so that if you are giving an interest to one child, and not to the other three, there is no mystery. If you are appointing one child to be CEO, write it down and explain it to everyone. Don’t leave it to chance, or to petitions filed in court.
Q: The cases you point to entail significant amounts of money. What about for folks with smaller estates, who won’t be affected by any estate-tax issues, and so might not have planned as carefully?
A: This is not just about the money. It’s about who’s living in the house? Where’s mom’s engagement ring? Where are her photo albums? This is not just something for millionaires. It is day-in and day-out, Main Street-type stuff. It’s not unusual nowadays for a grown child to be living with mom and dad. If the second spouse dies, and the kid’s still living in the house, the other siblings may battle because the house is worth $300,000. It’s not so much about the money, but that the situation is bad. It would be better to have a will that says, the house is valued at $300,000, and the son who is living in it gets it, but he has to take out a mortgage and give the other siblings $150,000. You need to address it. These issues are not unique to people having money. They are common issues.
(Editing by Beth Pinsker Gladstone and Jan Paschal)
The author is a Reuters contributor. The opinions expressed are her own.