Father's Will Dictates Sham Marriage

This from Samantha E. Weissbluth writing for Wealth Management:

Gay son must marry woman to get inheritance

In a recent New York case, a father, in his will, dictated that his gay son’s child get nothing unless his son married the child’s mother.  Manhattan resident Frank Mandelbaum founded the ID verification company, Inteli-Check, and passed away in 2007 at the age of 73.  His son, Robert, a Manhattan Criminal Court Judge, is now arguing in a court battle that his longtime partner, Jonathan, is the only “mother” their infant, Cooper, has ever known.  Robert and Jonathan married shortly after the baby’s birth via surrogate.  The child is entitled to a share in a $180,000 trust established for Frank’s three grandchildren. 

The Manhattan Surrogate’s Court is pondering whether to approve a settlement to ignore Frank’s requirement as contrary to New York law.  Robert claims that Frank’s restriction “imposes a general restraint on marriage by compelling Robert Mandelbaum to enter into a sham marriage.”  He alleges that this violates state law supporting marriage equality.  The guardian ad litem appointed for Cooper agrees and stated “Requiring a gay man to marry a woman…to ensure his child’s bequest is tantamount to expecting him either to live in celibacy or to engage in extramarital activity with another man, and is therefore contrary to public policy.”

Frank’s wife is contesting Robert’s allegations claiming that Frank’s will “specifically prohibited [Cooper] from becoming a beneficiary.    Robert counters that Frank knew Robert was gay and his partner was welcomed at family gatherings.

Given New York’s passage of the Marriage Equality Act, in July of 2011, I think the odds are in Robert’s favor, but stay tuned!

Is a Divorce Agreement That Promises an Inheritance to Kids Enforceable?

Let’s say you got a divorce. As part of the divorce agreement your ex agreed to leave half of his estate to your kids. He dies. He leaves a will that doesn’t comply with the agreement - leaving 90% of his estate to his second wife. What happens? Enforce the contract you say, the kids get half. That’s what you and I think the answer should be. Maybe you have a divorce settlement with a similar provision. Will it hold up? That is the issue that has been tying up the Oleg Cassini estate for years.

Oleg Cassini, the fashion designer who made first lady Jackie Kennedy's style the "single biggest fashion influence in history" died in 2006. Jackie had chosen Oleg Cassini as her exclusive couturier and called him her "Secretary of Style."

Cassini married film star Gene Tierney in 1941. Tierney, a very successful actress, was nominated for an Academy Award for her performance in "Leave Her to Heaven." (The story is the basis for the plot in Agatha Christie's murder mystery, Mirror Crack'd.) Tierney and Cassini had two daughters, Christina Belmont and Daria Cassini. When Tierney was in her first trimester of pregnancy carrying Daria, a fan with German measles broke her quarantine to shake hands with her favorite star, and Tierney unknowingly contracted the disease. Daria was born deaf, severely retarded and nearly blind.

When Cassini and Tierney divorced in 1952, the marriage termination agreement mandated that half of Mr. Cassini's estate be split equally between the couple's two daughters upon his death.

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Ex-spouse Does Not Mean Ex-beneficiary

 

If you are divorced, or you advise clients who are divorced, this is important. The Pennsylvania Supreme Court has ruled that the federal Employee Retirement Income Security Act (ERISA) takes precedence over the Pennsylvania statute that removes divorced spouses as beneficiaries. What this means is that unless your employer’s plan contains a provision to the contrary, if you are divorced and your ex-spouse is still named as beneficiary of your qualified plan; it is payable to the ex-spouse! That is without regard to Pennsylvania state law, without regard to any order from a Pennsylvania Court, and without regard to any provisions in a property settlement agreement or other contract. It’s really true.

It is very common for spouses to divorce but fail to update their estate plans, including beneficiary designations. This has not been a big problem because Pennsylvania law (20 Pa.C.S. § 6111.2) provides that if an ex-spouse is designated as a beneficiary on a life insurance policy, annuity contract, pension, profit-sharing plan or other contractual arrangement providing for payments to the spouse; any designation which was revocable at the time of death is ineffective, and the beneficiary designation is construed as if the ex-spouse had predeceased. If the designation or a separate contract (such as a property settlement agreement) provides that the designation is to remain in effect even after the divorce, then the designation remains effective. This statute produced the result that most people wanted: the ex-spouse is not the beneficiary. No more.

The legal issue is whether or not the federal law, ERISA, which provides that a qualified plan benefit is payable to the named beneficiary, is superior to, or "trumps" Pennsylvania state law that modifies the beneficiary based on circumstances, in this case, the divorce of the plan participant. The legal doctrine involved is called "federal preemption" and is based on the supremacy clause of the U.S. Constitution: "This Constitution, and the laws of the United States which shall be made in pursuance thereof; and all treaties made, or which shall be made, under the authority of the United States, shall be the supreme law of the land; and the judges in every state shall be bound thereby, anything in the Constitution or laws of any State to the contrary notwithstanding." In other words, certain matters are of such a national, as opposed to local, character that federal laws preempt or take precedence over state laws. As such, a state may not pass a law inconsistent with the federal law.

In 2001, the United States Supreme Court in Egelhoff v. Egelhoff, 532 U.S. 141 (2001), set the precedent that any state statutes having a "connection with" ERISA plans are superseded by ERISA. David Engelhoff divorced his wife and did not change his beneficiary designations on his qualified plans. Washington state law provided that on divorce, the beneficiary designation of his wife was revoked. However, his ex-wife successfully claimed the benefit asserting that since she was the named beneficiary and ERISA preempts state law she gets the benefit.

Closer to home, the Pennsylvania Supreme Court case decided an almost identical case on November 23, 2011,in re Estate of Sauers, York County, Supreme Court of Pennsylvania, Middle District (No. 78 MAP 2009). Paul and Jodie Sauers divorced in 2002, and Paul did not change the beneficiary on a $40,000 employee group life insurance plan subject to ERISA. Paul died in 2006. The Court held that the Pennsylvania statute which provides that Jodie, now an ex-spouse, does not receive the death benefit was preempted by ERISA - the benefit was payable to her, the ex-spouse. (The only question is why in the world didn’t the lower court follow Egelhoff.)

The Court explained that the state probate law at issue "gives a Pennsylvania court the power to enjoin a plan administrator from discharging his fiduciary duties in accord with federal law, while concomitantly subjecting the plan administrator to civil liability in federal court. ...

"This Hobson's choice, of being forced to choose between applying either state or federal law, at the potential peril of disregarding a state court order to evade federal liability, is exactly what the preemption provisions of [section]1144(a) of ERISA, as interpreted by the [U.S. Supreme Court], intended to avoid. Such potential not only 'relates to,' but also surely violates, the uniformity requirements and objectives of ERISA."

What to do? If you are divorced, make sure you have changed all of your beneficiary designations.

If you are a plan sponsor, consider amending your ERISA plan to include a provision that would automatically revoke a pre-divorce spousal beneficiary designation.

 

Does this apply to IRAs? Probably not, because IRAs are not governed by ERISA for most issues. To be safe, change IRA beneficiaries too.

Can a change of life insurance beneficiary designation be challenged?

J. Michael Young blogs about a change of beneficiary designation when the decedent lacked sufficient mental capacity or was the victim of undue influence.  He provides an excellent discussion of In re Estate of Wallis in this post.

 

Another Win for the Erin Brockovich Team

The October 29, 2008 edition of Trust & Estates contains this article:  A Final Win for the Lawyer of Erin Brockovich Fame

Edward Masry was the California trial lawyer who with the help of an assistant named Erin Brockovich brought a class action lawsuit against Pacific Gas & Electric Company for groundwater contamination which caused wide-spread illness and even death in the town of Hinkley, California.  The case settled for $333 million.  Masry got a check for $40 million.

The story of the suit was brought to the big screen in the movie version Erin Brockovich.  Julie Roberts played Erin (winning the Oscar for Best Actress in 2001) and Albert Finney played Ed Masry (nominated for best supporting actor). 

Masry married Joette in 1992.  In 2004 they created a joint trust to hold property acquired during their marriage.  Before he died in 2005, Masry revoked his interest in the joint trust and transferred his portion of the assets to a new trust controlled by his kids from his first marriage.   Joette didn't find out about this until after Ed Masry was dead.  Problem was, the trust by its terms was only revocable by the two of them.

The trial court, with whom the appellate court has agreed, found that the delivery of the notice of revocation to the other Settlor (Joette) was not required since Edward's delivery of the revocation to himself as trustee complied with the applicable provision of the California Probate Code, and the trust document did not specify the the method of revocation set forth in the document was the exclusive way to revoke the trust.

As John Brooks and Erika Alley, authors of the Trust & Estates article put it:  "Even after the lawyer of Erin Brockovich fame was dead, he managed to win a case."

Keith Ledger's Little Girl Inherits

The Toronto Sun reports that Heath Ledger's 2-year-old daughter, Matilda, will inherit his entire estate.  Apparently, the family "gave" all the money to Matilda.  Heath's estate is estimated at $16.3 million.

See the my earlier post, The Joker, describing the issues in Ledger's estate.  His will, executed two years before the birth of his daughter Matilda, did not include her.

Interestingly, Ledger's father, Kim ledger, told the newspapers that "Our family has gifted everything to Matilda."    I doubt that very much.  You think they were found to be the beneficiaries and then gave their inheritance to Matilda, paying gift tax?  I'll bet they just agreed not to pursue their claims.  However they want to spin it - the result is the same -  Keith's little girl inherits.

Blogging credit to San Diego Estate Center.

Now there is another fight.  ReliaStar Life Insurance Company is refusing to pay on Heath's $12.5 million life insurance policy claiming that he committed suicide.  The New York City inquest found that Heath's death was due to an accidental prescription drug overdose.  If the insurance company is acting in bad faith -  that could triple the award to Matilda.

 

William F. Buckley's Will

William F. Buckley, the conservative columnist who died  in February 27, 2008,  had one son, Christopher Buckley.  Christopher has two children, Caitlin and William, with his now-estranged wife, Lucy. Christopher had an affair with book publicist Irina Woelfle and together they had a son, Jonathan, now age 8.

William F. Buckley's will contained this provision: "I intentionally make no provision herein for said Jonathan, who for all purposes . . . shall be deemed to have predeceased me."

Jonathan's mother is seeking more child support form Christopher Buckley, who currently pays $3,000 per month.  Her petition notes that there has been a substantial change in Christopher's income (since his father died and he inherited).

The New York Post's headline for the story:  NOT ONE 'BUCK'LEY FOR YOU!

Why is this news?  It shouldn't be.  It is another example of the overweening sense of entitlement that children (and more remote issue) have to inherit their parents' estates.  Children have no right to their parents' estate let alone grandchildren.  How many times have I met with an ailing client's children and found that the children think the estate is already theirs -  except for the minor inconvenience that Dad is still drawing breath.  Isn't the support of Jonathan his father's problem and responsibility?  Really.

Shucking Isn't Just for Oysters

You can shuck corn, too.  And peas and beans.  Bet you never thought of this:

Jerry Orbach's son, Chris, says his stepmother, Elaine Cancilla-Orbach is a "double-dealing, lying, scheming, miserable fool."  All he got from his dad's estate was "a few CD's, two sweaters, a pool cue and a pocketknife."

As reported by Vicki Hyman for the Star-Ledger -  "He's also angry that his stepmother permitted someone to harvest his father's eyes, although Cancilla-Orbach says her stepson simply didn't know Orbach okayed the donation. "Having to leave my father's deathbed so that some guy with an ice box could shuck his eyes out while they were fresh still makes me sick and furious to this day."

Now that puts organ donation in a different light, doesn't it?

The Joker

Heath Ledger, famous for his protrayal of Ennis Del Mar in Brokeback Mountain (2005). died January 22, 2008.  He had just finished filming the latest Batman movie, The Dark Knight, where he played The Joker:  The Clown Prince of Crime. The Harlequin of Hate. The Ace of Knaves.

According to The New York Times:

"Heath Ledger’s will left nothing to his former girlfriend and their 2-year-old daughter because it was filed in Australia in 2003 and never updated after they became part of his life, The Associated Press reported. A copy of the will, filed in Manhattan Surrogate’s Court, shows that Mr. Ledger, a native of Australia, left everything to his parents and three sisters."

Is this deja vu?  When Anna Nicole Smith died, her Will left everything to her deceased son and made no mention of her baby daughter Danielynn.   

Joann Grossman and Mitchell Gans, in their article, "Heath Ledger's Estate: Why Daughter Matilda, Who Was Left Nothing in Her Father's Will, Might Have a Claim to Everything" examines the issues of where Heath Ledger was domiciled, which jurisdiction's law will govern the distribution of his estate, and whether the tabloid reports about another child fathered many years ealier are true.

Matilda is what the law refers to as a "pretermitted heir" -   a child who was accidentally omitted from her parent's will.   According to Grossman and Gans, if New York law applies (New York being the place where Ledger was living and where he died) Matilda woudl be entitled to a portion of her father's estate suince she was born after the execution of his will.

We all seem to take for granted that Matilda is Ledger's child.  However, to have rights to inherit under  New York law, since Ledger wasn't married to Michelle Wiliiams (Matilda's mother), there must be either 1) an adjudication of paternity, 2) a written acknowledgment of paternity, or 3) other "clear and convincing evidence" and the father has "openly and notoriously acknowledged" the child as his own.  Grossman and Gans report that Ledger's name appears on Matidla's birth certificate and that he lived with Michelle and Matilda for the first year of her life.

Under New York law, if the testator had no children when the will was executed, the omitted child gets what would have been his or her intestate share of daddy's etate.  In this case -  that would be the whole thing!    But what about other children?  The tabloids report that Ledger fathered a child in Aurtrailia while he was in high school.

If there is another child, and if Ledger is considered the father under New York law (or maybe under the law of another jursidciton based on a case brought by that child or hir or her mother) then New York law leads to the conclusion that Ledger intended to omit that child, and thus probably intended to omit all children.  That would leave Matilda out in the cold.

What's the moral of the story?  Keep your will updated!  Don't fall into the trap of thinking its just a fill-in-the blank form that, once completed, need never be looked at again!  Estate planning really has very little to do with forms.  Ask Matilda.

 

UPDATE:  Johnny Depp, Jude Law, and Colin Farrell, the 3 actors who stepped in to complete Heath's role in "The Imaginarium of Dr. Parnassus" donated thier earnings from the film to Heath's daughter Matilda.

Blogging credit to David S. Luber and Gerry W. Beyer.

Disinheritance and In Terrorem Clauses

We usually think of a person’s will as a financial document used to make sure his or her estate is distributed according to his or her wishes. The will can also be used as a constructive tool or a destructive weapon to reach other goals, which often do not involve money.

Eddy M. Elmer, in his article, “The Psychological Motives of the Last Will and Testament” describes the use of wills. Used positively, a will can be used to foster a sense of continuity for the survivors and to preserve family relationships. Used negatively, through imposed conditions, disinheritance, unequal treatment, and attaching “strings,” a will can be used to control from the grave and continue dysfunction in a family.

With the power to make a will comes the right to disinherit. By the common law, anyone may give his estate to a stranger, and thereby disinherit his heir apparent. In the words of Mr. Elmer, “disinheritance is one of the more vengeful goals of will-writing.”

Most states include protections for a surviving spouse so that the spouse cannot be completely disinherited, although in Pennsylvania, the spouse has a right to receive only one-third of the deceased spouse’s estate. In all the states except Louisiana, children can be disinherited.

When it is the intention of the person making the will to disinherit a child or someone who is an heir at law, it is important to make it clear that the omission of the person from the will is not a mistake or oversight. For this reason, sometimes wills provide “I give my son John $1.00.” Leaving someone a dollar is not intended to be a gift to them. It is a formal statement of disinheritance. Similarly, a will could provide “I leave nothing to my son John,” or “I am leaving nothing to my son John, for reasons known to both of us."

Questions can arise about these provisions. If John predeceases the parent who made the will, do John’s children inherit? Is the disinheritance of John to be assumed a disinheritance of his children also? The will must be drafted to make the answer to this question clear.

It is best not to give a reason for the disinheritance. If a reason is given, and it is proven to be a mistake of fact, then there could be a dispute about the validity of the disinheritance. For example, a will could provide “I give nothing to my son John because he is a convicted felon.” If John is not a convicted felon, is he still disinherited?

A writer of a will can also disinherit anyone who challenges the validity of the will in what is called an "in terrorem" clause. "I leave anyone who challenges this will or any part of it one dollar." Sometimes these clauses are called “no contest clauses.”

An in terrorem clause (pronounced (in tehr-roar-em) is from Latin for "in fear." It is any provision in a will which threatens that if anyone challenges the legality of the will or any part of it, then that person will be disinherited or given $1.00, instead of receiving his or her stated bequest in the will.

An in terrorem clause is intended to discourage beneficiaries from legal battles after the testator is deceased. However, if the will is challenged and found to be invalid (perhaps because of lack of capacity or undue influence), then the in terrorem clasue which was part of the failed will fails as well. Whether or not to challenge the will then becomes a calculated risk.

An in terrorem clause is not much help to disinherit a child or other beneficiary entirely. It is most useful when the child or other beneficiary receives something meaningful under the will, but just less than what he or she might feel entitled to. If you completely disinherit someone, and include an in terrorem clause in the will, there is not much of a threat. If the person you are concerned about challenging the will is not a beneficiary, he or she has nothing to forfeit (and nothing to “fear”). So an in terrorem clause would have no effect on him or her. For the clause to work, you have to leave enough to the disfavored beneficiary so that the beneficiary has too much to lose if the challenge fails.

In Pennsylvania, under the 1994 changes to the Probate Estates and Fiduciaries Code, “[a] provision in a will or trust purporting to penalize an interested person for contesting the will or trust or instituting other proceedings relating to the estate or trust is unenforceable if probable cause exists for instituting proceedings.” Probable cause, in general, is when a reasonable person, properly advised, would conclude that there is a substantial likelihood that the will contest will be successful. The policy behind allowing this probable cause exception is to ensure that a person is not intimidated into remaining silent out of fear of losing a bequest where there is a good faith belief that the will is invalid.

An in terrorem clause may be viewed favorably as a means of discouraging frivolous litigation. On the other hand, courts tend to construe the clauses strictly because their enforcement causes a complete forfeiture of the claimant’s interest, a harsh result. There are many court cases on what should be the fair boundaries of the power to condition a gift on not contesting a disposition. The law frowns on a provision which seeks to repress a search for the facts surrounding a disposition in a will. Florida and Indiana have statues that completely void the use of in terrorem clauses.

It is unhealthy for the living as well as the dead if we use our death as an occasion to get even and settle petty accounts -- with our own children, no less.