Guaranteed Inheritance? think again………….

Short stories about probate litigation and inheritance fights?  Here’s one chapter or short story, what I call “money tales”, from a book on probate litigation which I am writing.  It is only in the draft stage.  My book is, right now, titled: “Pankauski’s Probate Litigation: The $59 Trillion Probate War“.   Are you an heir or son or daughter who believes that you are entitled to an inheritance? 

GUARANTEED INHERITANCE? think again

Heirs, descendants, family members, sons, and daughters do not have a right to an inheritance. Their sense of entitlement is often mis-placed, and disappointing for spoiled rich kids with little patience and far less ambition.

There is no such thing as guaranteed “anything” in this world, and the same certainly holds true for family wealth in the trust and inheritance world: there is no guaranteed inheritance

Every trust lawyer knows that. Why? Because too much “stuff” can happen. And I’m not talking about trust investments losing money or getting wiped out. No, I’m talking about you expecting to get an inheritance from a family trust when your dad dies ……..but you don’t. File this one in the chapter called “This Could Happen to You”…..

Consider this: your grandmother is very, very wealthy. She and your grandfather, who has been dead for years, were industrialists, or invented some obscure component to airplane engines or odd machinery. You know: the type of product that no one has ever heard of, but is used every day across the country. The kind that doesn’t make people rich; the kind that creates family fortunes. Regardless, grandmother is filthy rich.

You grew up in a cushy lifestyle because your dad had a small trust fund and your grandmother paid your prep school and tuition bills. You, your siblings, and cousins, attended the finest prep schools from Exeter to Choate to Deerfield, and went on to small, upscale private colleges in New England. You’ve landed in Chicago or Manhattan or Boston where your rent consumes most of your paycheck, but grandmother sends you a check each January, which she has described as “gift-tax-free.” You sign a receipt each year, for “tax purposes” and return it to your mom’s estate attorney. These annual checks of $10,000-$13,000 a year have helped, but big city living is expensive. Your American Express Platinum bill from the restaurants you go to with your prep school friends runs more than it should. You don’t bother saving for rainy days or retirement because, well, there’s no need to, right? Your family is wealthy. Thank God for the family’s wealth, right?

Although your grandmother has only mentioned it in passing, your dad has said on a number of occasions that “we all inherit” when grandmother dies. You don’t know the specifics, but your siblings and cousins have said that a huge family trust was created when your grandfather died. It’s for the family.

You wonder how many millions were set aside for you in the trust, and if grandmother even left you a little extra, since she found you so adorable when you were just a child, and you visited her down the Cape or in the Hamptons during the summer. Of course that was 30 years ago for you and three divorces ago for your dad. And God knows that you haven’t called grandmother in some time, let alone send her cards or flowers on her birthday, but she understands that you are busy. Doesn’t she?

Dad wasn’t as ambitious, or financially savvy, as his mother or father had been, so dad blew through that “little” trust by his third divorce. No inheritance for you? Not from dad, but that’s ok: grandfather created a huge family trust. Huge ! Like $100 Million huge. And it’s for grandmother’s family: her descendants, her heirs. And you are one of her favorites, aren’t you? Not to worry. You’re in, right? No need to really push yourself, correct ? You just wait your time and the money will flow in from the trust. You are patient. Self-assured. Confident. No one would dis-inherit, you right? Especially family. Well, not your family. Sure, you know families who have dis-inherited some of their kids, like some of your prep school friends, but, those were nasty situations. Exceptions to the rule ! Family wealth stays in the family ! And besides,your family wouldn’t do that to you.

…………………….

Grandmother dies. You are shocked (sort of) that your cousins, two aunts and one uncle are talking about the family money at the funeral–including your dad. In the limo ! At the gravesite ! “Disgusting” you think.

Afterwards, back in the big city, your email inbox starts overflowing with intra-family commentary, and counting….the millions that everyone should be inheriting.

One of your cousins gets a copy of the trust and it starts circulating among the family. And while you have not completely read it, let alone understand the terms of the trust, you do know that you inherit after your dad dies.

Here’s how it all goes wrong, terribly wrong.

The trust is smaller than you think. Sure, it was over $100 Million when it was created by grandfather, but that was a couple of decades ago. And while that $100 Million should have increased gradually over the years, there were significant out flows and decreases in value. His estate paid significant estate taxes. Even with great insurance and health plans, grandfather needed round the clock nursing, which was costly the last ten years of his life. Hospital bills. Specialists. It’s hard to keep track of all of that stuff.

When he was gone, grandmother travelled the world, while maintaining homes in the Hamptons, Palm Beach, Vail and France’s Cote de Azure. Their upkeep and maintenance were costly. She tried to stay busy. Winter trips to St. Barth’s with friends, overseas jaunts to the Venice Biennale, lots of charitable functions, pledges. Instead of those real estate gems appreciating greatly, the family trustee suggested liquidating them and raising cash. So, three of the real estate properties were sold during 2002, when all the markets were reeling after the “tech wreck.” The trustees didn’t sell the real estate for as much as hoped for. Then grandmother grew sick and her ’round the clock care got expensive, very expensive. Major setbacks to the trust portfolio occurred during the Great Recession. But not to worry, there’s $70 Million in the trust. Enough for everyone, right?

Except that after grandmother’s death, two things happen that you and your siblings and cousins are all upset about–and never even imagined could happen.

First, grandmother exercised some power of appointment over the trust by donating, upon her death, $20 MM to the local community foundation. She appointed, or gave away, $20 Million to a charitable fund set up in her name that is the largest single gift of money in the history of this small community foundation. The trust lawyer says this was permitted by the terms of the trust. She says that your grandfather gave her a power of appointment which was exercisable at her death. It permitted grandmother to appoint some or all of the trust to a charity or family members of her choice.

You and your cousins find this bizarre and ironic…. that grandmother, while suffering from an early onset of dementia, gave away a chunk of the family’s wealth to, well, create grants for the study and cure of dementia. Your siblings wonder if grandmother was demented at the time she signed her will which exercised the power of appointment. While your grandmother is remembered by her community, and posterity, as a generous woman, the family trust just lost $20 MM–which you and your cousins view as your money. After paying estate taxes and after the $20 MM gift to charity, the trust is split four ways: into separate trust shares, one for each child of your grandparents. Your dad gets a share, as does his two sisters and one brother. Wow, you think, thank God there’s at least $50 Million left in the trust.

Except that you learn that your grandmother also exercised her power of appointment by giving away $10 Million to your cousin Libby. Libby, the social worker who eschewed the clubs and hotspots of the cities and summer haunts of the rich and famous for small town civic, social and charitable work. But Libby didn’t just spend time helping the less fortunate. She also was grandmother’s favorite. She called often, visited grandmother, sent cards and flowers and always was there on holidays and birthdays.

Now the trust is down to $40 MM and your father’s share is only $10 Million. The trust lawyer tells you two things: first, you can only inherit from your father’s share and not from the shares for your aunts or uncle since their shares go to their kids. You only inherit from your father’s trust share, that is, if there’s any left. Two, she recommends that each of you get your own lawyer since she represents the trustee and not any individual beneficiary. Why in the world, you wonder, would you need a trust lawyer over a family trust?

You were never that good with math in school, but for that matter, you were never that good in school. Still, something is unsettling. You sense a bit of, well, foreboding—- perhaps doom? How did the family fortune dwindle down to a $10 million trust for dad and you and your siblings? You had always believed that there were hundreds of millions of dollars in family wealth. The math doesn’t make sense. “Where were all those lawyers and accountants?” you wonder. “This is not good” you whisper. But no one is listening.

Money from Dad’s trust share can only be distributed for his benefit during his life, for his health, education, maintenance and support. Dad submits a budget and wants $360,000 a year, which you find high; especially considering that you want some money now, but are told you can’t get it until Dad dies. You feel frustrated, disappointed, even a bit angry that yourfamily trust is not being used for your benefit. After all, grandmother is dead. And you thought that you inherited when grandmother died. You waited patiently.

Then comes the sad news one day that your dad unexpectedly dies. His death brings a lot of memories, and a lot of regret. You regret not seeing him more, not staying in touch over the miles and years. He knew you hated him at times for the way he treated your mother, and God knows no one liked the women he dated after mom, but he was your father. You wished things had been different. You wish you had gone out of your way to love him more. To be more involved with his life. After the funeral, the trustee’s attorney tells you that there was an occurrence that you will find unsettling.

“What now?” you think. More investment losses? Can’t be: the market is on fire, setting new highs. Is dad’s 30-year-old-younger-than-he girlfriend making a claim to the trust? Not to worry, you think. After all, you shrewdly already discussed this with the trustee’s attorney and she assured you that non-family members have no claim to the family trust and that the trust, under no circumstances, would go outside the family. So, what now…..?

You learn that, oddly, just three weeks prior to his death, you learn that your father legallyadopted his much younger, 30 year old girlfriend.

Adopted his girlfriend?

What? Your 64 year old father adopted his girlfriend who is six years younger than you?

Yes.

You see, in Dad’s state, where he lives, the law has no age limit, or other similar restrictions, on adoption. One may adopt a person of any age. There’s no rule that you have to only adopt a minor. And there’s no incest argument here either, because Dad and his fitness instructor girlfriend are not related by blood.

You are getting a sick feeling. Is Dad’s girlfriend now……..your step-sister? What does this mean?

“Just like your grandmother” the trust attorney begins to tell you. “Your father had a power of appointment to appoint, or give away, his trust share to his descendants at his death. Your father exercised that power of appointment and gave his trust share to his girlfriend, who, after the adoption, is now a descendant.”

“You and your siblings don’t inherit anything.”

Dad’s power of appointment has now become a power of dis-appointment.

You stagger, hang up the phone and sit down, spilling your decaf, three pump, triple mocha latte. You are speechless. You try to picture your dad, and your siblings. There is a pit in your stomach. You don’t know what hurts more: knowing that your dad’s girlfriend inherits something at all, or that you get nothing from your family fortune?

For some reason, you hark back to a friendlier, more loving time. Back when you were children. A photograph is in your mind. Your dad is hugging you and all your siblings on a picnic blanket at the beach. At one of your grandmother’s beach houses. You are all children and your dad is a young and happy father. You all stare up at the camera which is positioned above the blanket. In the back of your mind, you wonder how things changed. In your mind, you start to see your father’s hand rise, looking at you now. His middle finger begins to point up at you, as he whispers “To hell with you all.”