Private Wealth

November 14, 2012

Inheritances With A Catch


As head of a company that helps people facing financial difficulties, Jim Angleton gets to know a lot about how his clients lived-and how they want to die. One wanted the ashes of his two dogs to be with him in his coffin. He wanted his Rolex watch to be set for the exact time he was born so he could "check out" at the same time. And he wanted a photograph of his girlfriend placed in a sealed envelope-so his wife wouldn't see it-and then put in the pocket of his pants, so he could depart this world for the next with her in his hip pocket.

Angleton says another client recorded two videos prior to his death: one of him saying goodbye to his friends, which he wanted to be rolling at his funeral, and another of him reading his will aloud because he did not trust attorneys. And he wanted to make sure his fourth wife knew that he really did leave her out of the will.

"He actually yells at her in the video," says Angleton, president of Aegis FinServ Corp., a Miami-based financial cosulting firm.

Some can be quite extravagant. One estate attorney has a client who wants all of her assets and liabilities written down on pieces of paper that are then to be let loose to blow around an air chamber. Her family members are then to go inside the chamber and grab the pieces of paper, and they can keep as many of the assets-and the liabilities-as they can grab. Another woman wants to give all of her real estate and cash to charity, but she wants a game show held just after her memorial service, and friends who can correctly answer questions about her life can keep some of the personal artifacts she's collected over the years as a missionary. She's already written the questions and answers.

It's no surprise people want to go out with a bang. It may be their last act on earth, so why not make it memorable. The problem is when people don't want to let go after the funeral, and they put provisions in their wills and trusts that attempt to control how their children and spouses behave for years to come. These provisions, which make the beneficiaries perform some act or behave some way before they can receive their inheritance, are becoming increasingly popular, estate attorneys say.

The most common thing to do is to keep money in a trust for grandchildren for, say, 10 years, and they can only receive the money if they undergo drug testing for a period of time. If they're clean, they get the money. If they're not, they must wait a certain number of years.

Some wills stipulate that children or grandchildren marry within their cultural group or faith. Others are more concerned about school, and they go from the vague-the money must be used for school-to the specific-the money must be used on this particular school. "I've had some wills that say the money must be spent on a science or engineering degree. It can't be a liberal arts degree. Or it can't be a trade school. Or a religious school," says Cloyd E. Havens II, an estate attorney in Glendora, Calif. "The people who write wills like that are trying to make some of the same decisions after death that they would have in life."

More recently, Havens says he's seeing wealth generators stipulate that their children or grandchildren hold on to their non-monetary assets, like their residence, income property or their business. They believe they knew just what to acquire and have little faith that their children will be as wise. Havens says he even has one client who insists that his children keep his stock portfolio exactly as it is. He believes he picked the perfect set of stocks, Havens says.

How wealthy the individuals are doesn't matter. Some of the most controlling people have very little. But without much money, their demands often go unheeded.

"They want to make people do what they want, and they've got $10,000 to make it happen. That's their entire estate. And then you have people with multiple millions, and they think, 'Nobody told me how to earn it. I'm not going to tell people how to spend it,' " Havens says.

Donald DeLong, an estate attorney based in Southfield, Mich., had a client with a $5 million estate who said that if any of his grandchildren went to Ohio State University-an archrival of the University of Michigan, the client's alma mater-they would be disinherited.

"This was a rabid University of Michigan graduate," DeLong says. "Everyone who went to U of M hates Ohio State. This client specifically had me write in, 'If anyone attends Ohio State, they get nothing.'"

DeLong says he had another client who so detested her mother and siblings-she had no spouse or children-she thought leaving them nothing would be too kind. So she left each of them checks for $9.99, because she thought that would hurt them more.

John J. Scroggin, an estate attorney in Roswell, Ga., had one client who said his daughter would not get her entire trust fund until she divorced her current husband, a man he referred to as a "dandy scallywag." The son-in-law was married two or three times before, he's never held a steady job, yet he drives a nice car and is a very sharp dresser. He's about a decade older than the man's daughter. The client's trust prohibits the daughter from receiving anything while she's married to the man. He instructed the trustee to keep the provision a secret and to never give copies of the trust documents to either the daughter or her husband, unless he is required to do so by a court order.

"He clearly did not like his son-in-law," Scroggin says. "He thinks the guy is a ne'er-do-well who will spend all of his money when he dies."

Scroggin says he had another client who put so many detailed provisions on his son's inheritance into his will, they were surely going to cause conflicts in the family after he was gone.

"He was absolutely against the idea of the child having any control whatsoever over this trust fund, and I was never quite sure why," Scroggin says. "It probably wasn't a very good relationship, and it wasn't likely to get any better after he was gone."

Some prefer to take the carrot and stick approach, offering to sweeten the pot for family members who carry out the benefactor's wishes. Carl Archer, an attorney with Maselli Warren in Hamilton, N.J., says he's seen people offer to give family members an extra $10,000 if they go to a particular college or if they marry or divorce a certain person.

"I haven't seen a lot of really crazy stuff, because people who come up with the really crazy stuff are crazy. You don't want someone coming in with delusions of grandeur," he says.

Instead of putting stipulations into their will or trust documents, some people are empowering their trustees with more discretion. It's become common for benefactors to give trustees the power to halt distributions if they suspect the money in the trust is being used to buy drugs or bet on horses, or being used for some other type of activity that the trust did not anticipate, says George Ragland, a senior attorney with Womble Carlyle Sandridge & Rice in Winston-Salem, N.C.

"The creator of the trust is actually asking his trustee to have surrogate judgment in deciding to pay money out," Ragland says. Sometimes, this surrogate authority will trump other provisions of the agreement. For instance, a will might say, "When my grandson reaches age 30, pay over the assets to him." But a more dominant clause in the will might say, "Notwithstanding the fact that my grandson reaches age 30, if he's going to blow it up his nose or lose it at the track, or if he's in a nasty divorce, then the trustee has the authority to withhold the distribution," Ragland says.

"We're seeing this more and more," he adds. It's become so common, a year or two ago his 600-attorney law firm began including this kind of language as a standard provision in trust documents, and it's up to the client to take it out. The provision would say something like, "If the trustee determines that the beneficiary of the trust is going to put the money to ill use, then the trustee has the power to delay the distribution of assets to the beneficiary."

With divorces so common, there is the concern that if money gets paid out of the trust and the beneficiary is in a divorce or is about to get one, then the spouse will end up with maybe half the assets, Ragland says. Alternatively, if the beneficiary of the trust winds up as a defendant in a lawsuit, there's a chance the money will be seized by the plaintiff.

Ragland says wills and trusts are very old, traditional areas of the practice of law, and this kind of clause is not one you would have seen 50 years ago. That's because people didn't think about lawsuits and alimony and divorces and drugs when they were drawing up their wills. Today, they do, he says.

"This is not a provision that was dreamed up by lawyers. It was requested, sometimes inarticulately, by creators of trusts who, realizing their own mortality, said, 'After I'm gone, I don't want someone sniffing their inheritance up their nose,' " Ragland says.

Of course, with such a provision, the client had better choose a trustee he trusts. That's the most important decision the creator of the trust will have to make, Ragland says.

"They have to consider, who do I trust to think like me, to have the same value system that I have, who would most likely make the decision that I would make if I was still around?" Ragland says. "Sometimes it's a family member. Sometimes it's a bank. Whoever it is, it's someone who has the strength to stand nose to nose with the requesting beneficiary and say, 'No, Joe. You can't have the money, and here's why.' "

But there are always clients who try to take the control thing too far, and attorneys say they sometimes have to step in and try to persuade their clients to rein it in. Tracy Craig, a partner in the trust and estates group at Mirick O'Connell in Worcester, Mass., says she's had clients who want to euthanize their pets when they die because they can't bear to have the animal missing them. Craig's suggested that they leave the pet to a humane organization, along with a little money. In one case, she told a client she would find someone to take care of the pets.

"I do try to talk people out of things I don't agree with," Craig says.

She also tries to discourage clients from tying their children's inheritance to their salaries, which is actually a fairly common practice. The parents want to encourage the children to earn a good living, so they make distributions to match the child's salary. But what if the child becomes disabled or can't work for some reason? Craig also points out that there are many very honorable professions, like teaching or social work, that aren't highly paid; by linking the child's asset distributions to their salary, they may be discouraging their children from entering those fields.

"I think people can create unintended consequences," Craig says. "They're coming at it from a place of love, but they aren't thinking about all the parameters."

Craig says she tries to steer people away from being too controlling, not just because it's sometimes morally incorrect-depending on what they're trying to control-but because there are a lot of unforeseen things that happen in life.

"I feel like it's my job to expand my clients' horizons and play devil's advocate, to point out that unfortunate things happen, and you want your trust to be flexible, so that in 10, 20, 30 years from now, it can accomplish your goals," Craig says.

Some of the strangest wills are written not by attorneys, but by wealthy individuals. In some cases, they're actually handwritten-though not all states accept them. The problem with such wills is that people don't always articulate what they want clearly enough, and they risk not achieving their intended goals. Lloyd Lowe, a Dallas-based wealth advisor, had a client whose will instructs the trustee "to keep a fly rod, shotgun, two horses and a dog together and in comfort at the current home until the last one passed away." "I'm not sure how to bury the fly rod or shotgun, nor what kind of eulogy to give for either," Lowe says.

After speaking to the man who wrote the will, Lowe found out his real intent was to make sure that all of his favorite things were in order and that the phrase, "until the last passed," referred to himself or his wife. While Texas allows people to write their own wills-if it's written no longer than five years prior to death and the person writing it was of sound mind-people can't just write things in their wills and expect their executors to understand what they meant, Lowe says.

"Luckily, we got to talk to him beforehand, and it was fixed by an estate attorney," Lowe says.

Some clients are not specific enough. Lowe had a client who was retired and liked to tour around in a recreational vehicle. He had no immediate family and wanted to leave all of his money to a nude RV camp. There was no such institution, Lowe says. The man was part of a loose-knit group that would travel in recreational vehicles and camp in the nude, but there was no formal entity to which one could leave money.

And then some clients are so specific, they lose the control they are seeking. Lowe says he knows of a man who wrote his own will and said, "If my wife remarries the pool boy, cut her off completely."

"I guess if she married the gardener, she'd be OK, from a legal standpoint," Lowe says.


Copyright 2012 Charter Financial Publishing Network