After Jacqueline Kennedy Onassis’ death, there was much press coverage about a tax strategy provision in her will. The will created a special sort of charitable trust, known to estate planners as a charitable lead annuity trust, or CLAT. During the trust’s 24-year life, the trust would pay 8% of its initial value to charities selected by the trustees. Mrs. Onassis’ two children, Caroline and John, were two of the four trustees. After 24 years the trust would end, and the assets would pass to her descendants.

In addition to promoting philanthropy, this sort of trust can dramatically reduce transfer taxes on the family fortune. The estate tax at Mrs. Onassis’ death would be significantly reduced by a charitable deduction for the projected value of the payments to the charities. When the trust ends, and the assets pass to the private heirs, there would be no further estate or gift tax. As the press noted, the charities would benefit, the family would benefit, and the only “loser” was the IRS.

The rest of the story

The press learned of the trust plan because it was implemented with a will, a document that is necessarily in the public record. However, the trust was never funded. Estate planning expert Conrad Teitell recently explained why in Trusts & Estates magazine.
The charitable trust was a back-up estate plan, not the primary plan. Most of Mrs. Onassis’ wealth was held in a living trust. The trust provided that its assets were to be divided between Caroline and John, but it invited them to disclaim their inheritance should their financial circumstances warrant it.
A disclaimer is a renunciation of a gift or bequest. Properly executed, a disclaimer has no adverse tax consequences. After the disclaimer the property passes as if the recipient had already died. In some cases, that means it is divided among other heirs or passes by intestacy. In this case, however, there was an alternate plan in place should there be a disclaimer. This approach gives the heirs the chance to make adjustments to the estate plan based upon contingencies that the plan’s maker could not take account.
As it happened, Caroline and John decided not to disclaim their inheritances. Accordingly, the property passed under their mother’s living trust, instead of under her will.

© 2014 M.A. Co. All rights reserved.
Any developments occurring after January 1, 2014, are not reflected in this article.

When an elderly grandmother leaves all of her assets to a new beau, or Dad leaves everything to the child who visited most in the nursing home, a will challenge may be in the offing. Will contests generally are brought by unhappy family members who feel cheated out of their legacy. If they have something to gain if the will, or offending provisions, are set aside, a battle may ensue.
Will challengers generally have tough legal ground to plow and, as a practical matter, they rarely win in court. Instead, they are often “paid off” by estate representatives who want to minimize burgeoning legal fees and lengthy delays in distributing estate assets. Therefore, having the appearance of a valid claim and threatening to challenge a will may be enough to produce a settlement.
Wealthy people may be particularly susceptible to will challenges because of the assets involved. This possibility should be factored into estate plans and will drafting. As with many things in life, a good offense may be the best defense in reducing the risk of a will challenge.

What is the basis for contesting a will?
Although the unhappiness of disgruntled beneficiaries may be at the heart of a will contest, a legal basis is needed to move forward. These include charges that:
• The will signer (testator) was not mentally competent. To prove mental competence, most states require a person to understand: (1) the nature and extent of his or her assets and (2) his or her family relationships. A testator who cannot identify a spouse, child or a grandchild at the time that the will is executed, probably will lack legal ability to sign the will.
• The testator was overreached by some party who benefits under the will. This claim of “undue influence” may arise, for example, when a caregiver takes advantage of an infirm elderly charge by threatening to leave the individual alone and helpless, unless the caregiver is named in the will.
• The will was executed as a result of fraud or mistake and was not what the person signed or thought was signed. For instance, if a person signs the will at the end of the document, and new pages are inserted in the will after it was signed, the will could be challenged.
• The will was not executed properly. For example, if state law requires two witnesses, and there was only one, the will may not be valid.
• The will being offered for probate is not the decedent’s most recent will or was revoked prior to the decedent’s death.
Each state has its own laws regarding what it takes to execute a valid will. What’s more, state case law will affect determinations regarding mental capacity, undue influence, fraud, duress, mistake and whether a prior will has been revoked.

What can be gained by those challenging a will?
If a challenge is successful, all or part of the will may be disregarded, or a prior will reinstated. If the will is thrown out, and no prior will is revived, the estate is often distributed as if there were no will. These rules, known as laws of intestacy, generally distribute assets among the closest living blood relatives, a spouse and children, for example. More distant relatives (siblings, parents, nieces, nephews, aunts, uncles) may share if no closer relatives are still alive. Consider the following example:
An elderly grandmother, who has outlived her one child, is placed in a nursing home because she suffers from dementia. At her death she is survived by three adult grandchildren. They discover that while in the nursing home, their grandmother had written a new will. Under that will she left all of her property to a floor nurse who tended to her. The grandchildren challenge the will on two grounds: The grandmother either: (1) lacked mental capacity to sign a will or (2) was unduly influenced by the floor nurse. If the will is overthrown entirely, the three grandchildren would share equally in their grandmother’s estate, because they are the closest living blood relatives.

How can a will contest be avoided?
If capacity and undue influence are not at issue, good drafting and planning can go a long way toward avoiding a will contest. For those with significant wealth, wills should not be used as incendiary devices to disinherit relatives or make grand statements that invite discord and challenges. In addition, the more assets that are passed outside of a will (lifetime giving, trusts, etc.), the less there will be to argue about if a challenge arises. Consider the following:
• “Disinheriting” family members can be an outright call to arms for will challengers. For example, if a wealthy parent plans to disinherit two out of three children, or children of a first marriage, and those children likely will fight the result, it may be worth considering the costs of a will contest and whether small legacies make sense instead of outright disinheritance.
• Establish trusts while you’re alive to provide for the transfer of assets to beneficiaries at your death and avoid having substantial assets pass under your will. Because trust beneficiaries generally are not subject to public scrutiny as part of probate, less discord may result. Also, it is more difficult to challenge trusts with independent trustees.
• Insert an “in terrorem” clause in your will. This clause prohibits an heir from challenging the validity of the will. Although these clauses are intended to prevent disgruntled heirs from taking part of an estate, many states will not enforce them because it may put good faith challenges to fraud, duress and undue influence at a disadvantage.

© 2014 M.A. Co. All rights reserved.
Any developments occurring after January 1, 2014, are not reflected in this article.

Planning your estate takes a considerable amount of time and effort.
First, you must inventory what you own and decide how to divide your assets among your loved ones.
Then you meet with your advisers—attorney, accountant, trust officer, insurance agent—to formalize your plans.
Because you are conscientious, you review your estate plan regularly, keeping up with changes in family circumstances, your personal finances and the tax laws. When it becomes necessary, you revise your plans. Everything dotted to the “i” and crossed to the “t.”
Or so you believe.
But despite your clear intentions and your careful planning, your family could still wind up spending a great deal of time and money trying to see that your wishes are carried out—unless you take two simple, but very important, steps.

The first step is to provide for the safekeeping of your will.
Should you keep the original at home? There is always the possibility that it might be unintentionally destroyed or thrown away with other papers by mistake.
Put it in your safe deposit box? There may be some legal proceedings involved in opening the box after your death that could make immediate access difficult.
What about your attorney’s office? If he or she is a single practitioner, there are risks: The attorney could die or move away.
A law firm may be willing to hold your will, but you must remember to retrieve it if you end the relationship and go elsewhere.
If you name a trust institution to serve as an executor, you can deposit the original copy with the institution, keeping unsigned copies with your attorney and in your personal records for future reference.

The second step
Create a document locator, a detailed list that gives your family access to all the information they will need to see that your estate plan is carried out. The locator should include the names, addresses and phone numbers of all the important financial players in your life. You also will want to include information about your debts. Credit card issuers and card numbers and mortgage, auto and other loans should be noted as well.
Be sure to specify the location of your will and other important documents (tax returns, Social Security information, business agreements . . . estate deeds). Note where your safe deposit box is and who has access to it. Provide an inventory of its contents.
Give directions as to where you keep investment records, with names and addresses of all the financial institutions with which you have savings, checking or investment accounts.
This kind of information should be particularly detailed. You should spell out the type of investment that you hold, the account numbers, the names on the account, and the dates on which the accounts were opened. Specify where you keep the account statements, passbooks and securities certificates.
The document locator is also the place to indicate who has spare keys to the house or car and to give other information of that kind. Be sure to remind your survivors to call your employer so that the benefits department can get the proper paperwork started.
You also may want to attach a letter to the document locator specifying your wishes as to funeral and burial arrangements.
Be sure that you have made multiple copies of your document locator. A copy should be given to your executor and appropriate family members. You may want to keep one in your safe deposit box as well.
Finally, remember to update the document locator once a year to ensure its accuracy.

© 2014 M.A. Co. All rights reserved.
Any developments occurring after January 1, 2014, are not reflected in this article.