Tom Petty’s family is facing the consequences of a lack of clarity in his estate planning. Last month (May 2019), his two daughters from his first marriage filed a petition challenging the Trustee (his widow and second wife), claiming that she had made decisions affecting his estate that deprived them of their inheritance. Petty (of Tom Petty & The Heartbreakers fame) had died from an accidental drug overdose in October 2017 at the age of 66.
This on-going legal tussle over his estate centers around whether his widow - as the sole Trustee of his estate - had exceeded or abused her powers by including some of his unreleased songs in a new anniversary box set. These artistic works were assets she had transferred from his estate to an LLC with herself as the only member. Petty’s daughters allege that their father’s real intention as expressed in his Will and Trust was for an LLC to be set up to own and hold all his artistic assets, with each woman being an equal member of that LLC. His widow refutes this on the basis that as the sole appointed Trustee, she does not need to share any decision-making powers with his two daughters as regards his estate. The case is now before the Los Angeles Superior Court.
From an attorney’s perspective, the court will have to determine Tom Petty’s true intentions regarding his estate’s assets. Details count, as does consistency. The court’s scrutiny will likely focus on the wording in Petty’s estate plan (his Will and Trust), and how each side’s interpretation of it is supported (or unsupported) by witness accounts, documentation, correspondence and communications with credible parties.
The fact that this matter is now before the courts points to one thing — there was a lack of clarity in his estate plan. While most of us do not have an estate like Tom Petty’s, there are lessons from his estate planning that apply to all of us.
THE LACK OF CLARITY OF INTENTION IN YOUR ESTATE PLAN - WHETHER IN YOUR WILL AND/OR TRUSTS - CAN CREATE A REAL HEADACHE FOR YOUR FAMILY. WHAT IS MEANT BY “LACK OF CLARITY”?
Legal documents are all about language/text. Whether it’s legal phrases and terms or lay language, there are precedents that guide the interpretation of such language. If the document is poorly constructed, like a template that has not been customized to reflect a person’s goals and intentions, things can get tricky.
There also has to be consistency throughout the estate plan so that the language of various sections or accompanying documents do not contradict one another. Drafting legal documents is not a “cut-and-paste” exercise, and experience counts. The “kitchen-sink” approach to drafting your will or trust can also be counter-productive, even dangerous, unless you understand how the law operates as regards each asset or objective or legal term. In short, it’s not always easy to cater for all possible exigencies, and the ability of an attorney to plan for them is often the product of years of experience dealing with the subtleties of that particular area of law.
YOU MAY BE THINKING, “BUT WHAT IF I DON’T NEED A WILL AND/OR TRUSTS? EVERYTHING I HAVE IS IN BENEFICIARY DESIGNATIONS SO SHOULDN’T THAT BE CLEAR ENOUGH?”
Not quite. Firstly, while beneficiary designations for assets such as bank and retirement accounts and life insurance can be straightforward in terms of paperwork, one has to be careful in how they are to be apportioned — see my earlier blog post on “Naming Beneficiaries”.
Secondly, don’t assume that you don’t need a Will or Trust. If you have minor children, your wishes as regards a Legal Guardian for them - should you (if you’re a single parent) and your spouse (if you are partnered or married) no longer be around - has to be contained in a Will. Currently, in New York, only Standby Guardianship can be set out in a stand-alone document, but permanent Legal Guardianship can only be provided for in a Will.
Thirdly, if your assets outside beneficiary designations amount to more than $30,000 and you don’t have a Will or estate plan for them, these assets become part of an “intestate” process in Surrogate’s Court (which is the Probate Court). This can be an expensive and lengthy process for your heirs. You may have art, cars, jewelry or family heirlooms and personal possessions that have financial value, even if to you there are purely of sentimental value. These will form part of your estate that has to be probated (where there is a Will) or distributed (where there is a Living Trust).
Fourthly, you may need a special Trust in specific situations — e.g. if you have a Special Needs Child or if you intend for your surviving spouse to remain in the family home until her/her passing, even if your children are adults or nearing adulthood. You never want to give your special needs child assets that will deprive her of government benefits, and the best way to ensure this is to pass such assets to a Trust, where the trust is the owner of the assets, not your child. In the second situation, a Trust will ensure the surviving spouse has a home and that it’s not sold and the proceeds divided among your heirs. In second marriages where there are adult children from the first marriage, the parent of those children may wish to ensure that the second and current spouse gets to stay on in the matrimonial home, and upon the latter’s consent or death, the property is sold and divided to the remaining children of both marriages. This solution requires that a Trust be set up.
For more on Estate Planning for Families, take a look at our e-Guide.