Tom Clancy at Burns Library, Boston College. Taken by Gary Wayne Gilbert.
Originally published on Forbes.com.
My account of the Court of Appeals of Maryland decision on the division of Tom Clancy’s estate generated a good bit of interest, so I thought it would be worthwhile to share some expert opinions on the decision to see if there are any lessons in the story that might be broadly applicable.
Summary Of The Case
Here is what happened in a nutshell. Tom Clancy, author of numerous technically detailed espionage and military novels, such as Red Storm Rising (my favorite) and Hunt For Red October (his first) died in 2013 leaving an estate estimated by the Wall Street Journal to be over $80 million.
The bulk of the estate was split into three buckets – a trust for his second wife, Alexandra Clancy, a trust to benefit both Alexandra and their minor child and trusts for the children of his first marriage. In his original plan, the estate tax was to be split between the second two buckets, which would make them net equal.
Then there was a codicil (a legal instrument that adds or changes something in a will). The codicil tweaked the second trust (benefiting both Alexandra and her minor child) so that it also qualified for the marital deduction. The personal representative still thought that the second and third buckets were supposed to be equal and split estate tax of $15.7 million between them.
Alexandra Clancy objected. Allocating estate tax to the second bucket had made the estate tax higher (Money used to pay estate tax does not qualify for the marital deduction). She thought all of the lower estate tax of $11.8 million should be charged against the third bucket.
So looking at the will and the codicil together, what was more important to Tom Clancy? That the estate tax be minimized or that the net amount in the two buckets be equal. Like the lower court, the appellate court went with the lower estate tax, but it was unclear enough that three of the judges dissented.
When In Doubt Go With The Lower Estate Tax
I reached out to a few experts for comment. Keeping with the literary nature of the issue, first up is Howard Medwed of Burns & Levinson, whose wife, Mameve Medwed is a novelist, who manages to sometimes slip arcane tax references into her novels, which I would view as romantic comedies. Howard focused on the merits of the case and general estate planning principles.
I’m on the widow’s side. virtually, all clients (and their advisers) want the marital share to (a) pass unencumbered by taxes on the first death, (b) minimize current taxes and (c) avoid the iterative calculation. If that overweights the marital trust, then the amount passing in the marital trust has to be set out to reach that result.
It Might Have Been Real Expensive
Hubert Klein of Eisner/Amper in New York focused on the expense of the litigation, which is one of the things I was wondering about.
I suspect this estate litigation was in excess of $1 million, based on the size of the estate, the type of litigation and the need for legal, tax and consulting experts. It was a sizable issue and the meters were running on this matter on both sides.
As with all estate planning, even the best of planning and intentions can go awry. It appears that Mr. Clancy’s estate was complicated by having blended family members as beneficiaries. Generally, the desires or expectations of biological children are not always completely aligned with that of the surviving step-parent.
When this happens it generally leads to costly litigation issues specifically when trying to settle a sizable estate. Even in situations where all family members have been advised of the wishes of the deceased prior to death disagreements can arise. There have been many instances of high and low profile cases involving estates with significant value in which it appears all the proper planning steps may have taken place prior to death and there is still conflict between the beneficiaries.
Often an estate disagreement is driven by the belief that one side has been disadvantaged as a result of undue influence, improper planning or both. Other times it is pure and simple greed: One side believes they are entitled to something regardless of the wishes of the deceased. When this happens the disgruntled parties may believe they may be able to squeeze more money out for themselves, or a class of beneficiaries, knowing that many disputed estate matters settle as opposed to going to trial.
Either way, whether or not an estate dispute is litigated or tried in court it can cost, at the low end, tens of thousands of dollars to several hundreds of thousand dollars and in some cases millions between lawyers and expert fees. The fees are generally driven by the complexity of the issues in dispute and the amount of the potential expected recovery at stake.
Codicils Maybe Not Such A Great Idea
Matt Erskine has an estate planning and trust administration practice that includes a focus on unique assets. Matt is located in Worcester, Mass (heart of the Commonwealth) and, full disclosure, is responsible for part of my not very vast fortune. Despite his focus on unique assets, even he has never run into somebody who, like Tom Clancy, had an honest to goodness M4 Sherman tank. Matt did run into a collection of machine guns, though.
Matt focused on practical suggestion which might have avoided the litigation.
Never, ever use a codicil. A Codicil requires just as much formality as does a will, and so the better practice is to sign an entirely new will rather than use a codicil. In this case, that fact that Tom Clancy revoked the prior will (with the language making the Family Trust taxable) and only had the language that makes it qualify for the marital deduction, there would be much less ambiguity. This is also true not only for technical corrections like this but also when you change your mind about bequests in a Will. For example, Aunt Mabel may make Nephew Phil very happy with a $10,000 gift under her new will, or very mad if she reduces a $50,000 gift under her prior will using a codicil.
Use models, and flow charts to illustrate what the plan should do when explaining the effects to the client. This case revolves around intent. If you could clearly illustrate the cash flow (and tax effect) of the revised language as explained to Clancy before he signed the new document, it is ancillary evidence of his intent in executing the document. Even though for you this is elementary math, for us medieval history majors, it is about as clear as mud. A picture is worth a thousand words (or a will contest).
I found Matt’s passionate rejection of codicils interesting. On reflection, though, I think he is on to something. I mean codicils probably made a lot of sense in the days of Bartleby the Scrivener, when documents had to be tediously hand-copied, but we have made some technical progress since then.
His second suggestion reminds me a bit of Reilly’s Sixth Law of Tax Planning – Don’t do the math in your head. To ordinary mortals, it is not intuitively obvious that qualifying the second trust for the marital deduction would create tension between minimizing tax and keeping the shares in the same proportion.
Matt is not alone in rejecting codicils as this article by Mary Randolph indicates.
The witness requirement, plus the ease of using computers to prepare, modify, and print documents, erases any reason to make a codicil. When legal documents were painstaking written out with quill pens, it made sense not to rewrite a whole will if you could just tack on a brief codicil. But these days, there’s no advantage to a codicil.
There is, however, a drawback: A codicil is unlikely to seamlessly fit with the original will. Is it a pure addition, or does it negate something in the original document? If it’s supposed to replace part of the first will, which part?
So the lesson from the case is that if you want to change your will, just redo it rather than just tweaking the existing one and then take a good look at how all the parts fit together.