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Parents and Adult Children Shy Away From "The Talk"

As estate planning attorneys, we generally encourage clients to discuss their estate plans and financial plans with their adult children, even if they provide them with just a rough overview. Many clients, for many reasons, are reluctant to follow through on that recommendation. Interestingly, a recent poll shows that the reluctance is mutual!

A January 2020 survey conducted by Mass Mutual of 1,500 adults ages 25-44 reveals that 47% consider it “very important” or “extremely important” to talk with their parents about their parents’ retirement savings. Half anticipate that one of their parents will live past 90. And two thirds worry that parents who live that long will run out of money and will eventually need to rely on their children for support.

But here's the surprise: Their worry doesn't translate into action. Despite their concerns, 71% of Baby Boomers’ adult children report having have little or no knowledge of their parents’ finances, saying they are uncomfortable discussing the topic. Their discomfort with this topic is second only to their discomfort in talking with their parents about sex.


Another survey, reported in a February 26, 2020 Financial Advisor magazine, also reflects this communication gap. Conducted by Harris Poll for TD Trade, it surveyed 2,000 adults between the ages of 40 and 79 with a minimum of $25,000 in investable assets. The survey revealed that just 20% have shared their estate plans with their children, and only 19% have shared their incapacity plans with their children. And just 20% have told their children how to access and manage their assets should it be necessary.
 
Of course, avoiding the issue doesn't eliminate the reality: Today's increased longevity brings with it financial and legal concerns unknown to prior generations of parents and children. Parents and children must air those concerns with one another if they are to prepare effectively for the future. Having the talk" may not be the easiest conversation, but it can go a long way to giving both generations greater peace of mind. 

So parents and adult children, have either of you initiated "the talk"? You need not even meet in person, which as it turns out is a plus in this era of social distancing.Time to get talking! 

An Estate Conflict Straight Out of Hollywood

Here’s an intriguing, somewhat salacious estate planning story straight out of Tinsel Town. It even sounds like a Hollywood movie. Not surprisingly, it involves two marriages, children from both, and of course, big money. Read on and take a break from the 24/7 pandemic information overload.

Malibu resident Joe Kaplan started out in his family's Missouri meat-packing business after college graduation. He left that business, and went on to make a fortune in financial services, creating two highly successful firms that were eventually acquired by others. The second, Innovative Merchant Solutions, was bought by Intuit.

Kaplan's first marriage lasted 20 years and produced two children, Brandon and Danielle. The marriage ended in 2006. Two years later Kaplan married Elizabeth McAdams and had a son with her, Parker, born in 2009. Rumor has it that the Kaplans' relationship was not all smooth sailing. Then, while on vacation with Elizabeth in Bermuda in July 2018, Kaplan died suddenly in his sleep. He was 55.

Elizabeth's prenuptial agreement guaranteed her $5 million. Everything else, including their Malibu residence, is in a Living Trust Joe established for her benefit and the benefit of all three of his children. According to the Joe Kaplan Living Trust, Elizabeth is entitled to live in the house, rent-free, until she remarries or begins cohabiting with someone who is not a blood relative. Joe named his brother, Aaron Kaplan, as trustee. Aaron is a well-known producer of many television shows, including American Housewife, The Chi, and the Santa Clarita Diet. Joe is not a beneficiary of the trust.

Aaron knew his brother liked to stash large quantities of cash in his home. Not long after Joe's death, Aaron began to suspect that his sister-in-law might try to pocket those monies and other valuables, which rightfully belong to the trust, not her. He was also concerned about the solvency of the trust, as his brother reportedly left behind $15 million in gambling debts. Of particular concern to him were the contents of a wall safe in Joe's personal closet.

Aaron took his concerns to his lawyers. They sent Elizabeth a letter reminding her that everything in the house is trust property and advising her not to touch the safe. But there's more: They installed a secret monitoring system in Joe's closet. Two motion-activated cameras were placed there, ready to record any attempt to access the safe.

As it turns out, there was an attempt. Footage revealed Elizabeth and a locksmith trying to get the safe open. Other footage recorded Elizabeth searching through her late husband’s clothing, discovering $10,000 in cash, and pocketing it. While going through his clothing, she was allegedly on the phone with her father and uncle, making disparaging remarks to them about her late husband.

But the secret cameras didn't remain secret. Elizabeth discovered them, disabled them, and recording ceased. In February 2020, Aaron filed a petition for instruction with the court documenting what had transpired. His attorneys stated: "Based on consultations with his attorney, the Trustee understood that he could – and should – have motion-activated cameras installed in Joe’s personal closet to monitor and protect those assets for the beneficiaries of Joe’s Trust." Additionally, Aaron accused his sister-in-law of extortion, saying she threatened to go public with the camera story in order to ruin his reputation - unless he stepped down as trustee.

Aaron refused to step down. And Elizabeth has not backed down, either. Recently she filed a lawsuit against Aaron, accusing him of invasion of privacy. Although Aaron claims both cameras were focused solely inside Joe's closet - one trained on the safe and the other toward the back of the closet - Elizabeth says one camera was pointed in the direction of her personal closet, where she regularly dressed and undressed. Her lawsuit also claims that Aaron failed to fulfill his duties as trustee by providing her with the $5 million she’s entitled to from her late husband's estate. 

"Protecting trust assets is not a defense to his violations of Elizabeth’s right of privacy or of criminal statutes," her attorneys state. "Not only were his actions criminal, they were in poor judgment, repulsive and perverted, since Aaron, as a male trustee, effectively placed his ‘eyes and ears’ in a woman’s master bedroom suite, regardless of whether he actually saw Elizabeth scantily dressed or nude."

Aaron's attorneys' reply: Elizabeth is sensationalizing her husband's death and Aaron has simply done what is required of a fiduciary: "As trustee, Aaron is focused only on protecting the Trust for the benefit of all of its beneficiaries as his brother wished, and he will not succumb to extortionist tactics."

Fortunately, if you are a trustee, performing your fiduciary duty is likely to be fairly straightforward, and hidden cameras won't be necessary. The Kaplan case will no doubt present more moments of suspense as the parties battle it out. As they say on TV -  a business that trustee Aaron Kaplan knows well -  Stay tuned.

Warren Buffet Instructs Fiduciaries To Retain Berkshire Stock

Warren Buffet, the CEO of Berkshire Hathaway, is worth $82.2 billion. His estate plan provides for his children in a manner consistent with his philosophy: Leave your children enough to do anything, but not enough to do nothing. The bulk of his fortune will go to charity when he dies. The 89-year-old has already given $34 billion to the Melinda and Bill Gates Foundation. 


Ninety-nine percent of Buffet's wealth is in Berkshire stock. In the just-released 2020 annual report, he directs his trustees and executors to retain the stock, and to ignore their fiduciary responsibility to diversify investments. He writes: "Today, my will specifically directs its executors - as well as the trustees who will succeed them in administering my estate after the will is closed - not to sell any Berkshire shares... My will also absolves both the executors and the trustees from liability for maintaining what obviously will be an extreme concentration of assets."
  

Even with today's plunging stock market, it's reasonable to assume that Berkshire will rebound and return to its stellar historical performance. It has quite a track record: From 1965 to 2019, the S+P overall return was 19,784%. That looks positively shabby compared to Berkshire's return for the same period: 2,744,062%. Buffet's beneficiaries are unlikely to complain so long as the stock does well. But if Berkshire stock declines significantly after his death, beneficiaries may not care that Buffet let his fiduciaries off the hook, and may go ahead and sue anyway. 


A Feb. 29 New York Times article ("Is An Investment Sage's Estate Plan Imprudent?") draws parallels between Buffet and the late Charles Dumont, whose fortune was entirely in Kodak stock. Like Buffet, Dumont directed his trustees to retain Kodak, saying his trustees were not to be held responsible for any decline in value. And decline it did, dramatically, for the half-century it was held in trust. The trustee was taken to court for violation of fiduciary duty, and in 2004 the New York Surrogate Court found the trustee personally liable for $21 million in losses. (Luckily for the trustee, an appeals court later reversed the ruling.)


The takeaway here is this: whether you are a personal representative and trustee for a zillionaire or for a person of ordinary means, you must be mindful of all your fiduciary duties, including the duty to diversify. For a list of all that is required of you, click here. 

Kirk Douglas, Leading Man On and Off Screen, In Life and Death

Silver screen icon Kirk Douglas passed away on February 5 at the age of 103. He left behind his wife of 65 years, Anne; three sons, Michael, Peter and Joel; several grandchildren and one great-grandchild. Douglas was as spectacularly charitable in death as he was in life, leaving most of his $80 million estate to charity.  


Born Issur Danielovitch, Douglas was one of seven children raised by impoverished immigrants from present-day Belarus. He grew up in Amsterdam, New York, a small town near Albany. His father Herschel was unable to find work at the town's mills because they did not hire Jews, and turned to making a living as the town “ragman,” collecting and selling junk. Despite these humble circumstances, Douglas recalled that his mother, Bryna, was generous: "Sometimes we didn't have enough to eat, but very often there would be a knock at the door and it would be a hobo wanting food, and my mother always gave them something,” he said in a 2015 interview. “My mother said to me, 'You must take care of other people.' That stayed with me."


He estimated that he had no less than 40 jobs before his film career took off, including washing dishes and delivering newspapers. He served in World War II as a communications officer of Patrol Craft 1139, and was injured in an accidental explosion. His later years were no walk in the park, either: in 2004 he lost his son Eric to an accidental drug overdose; suffered a debilitating stroke that impaired his speech; and was seriously injured in a helicopter crash.

 
Most of Douglas’ estate will now go to the Douglas Foundation, a non-profit that he and Anne established in 1964. It is one of the entertainment industry’s oldest and largest non-profits. Its website states of its founders: They wanted to give back – not only in thanks for their many blessings, but as a means of teaching their children and grandchildren the lessons they had learned. The Douglas Foundation’s principal goal is to help those who cannot otherwise help themselves. Anne still serves as the organization's managing trustee.

 
Among the foundation's beneficiaries are The Children’s Hospital of Los Angeles; a scholarship for underprivileged students at St. Lawrence University, Douglas’ alma mater;  the Kirk Douglas Care Pavilion, part of an Alzheimer’s facility that serves the entertainment industry; The Kirk Douglas Theater in Culver City, nurturing young talent; the Kirk and Anne Douglas Childhood Center; the Kirk Douglas High School that helps at-risk youth finish their education; and the Anne Douglas Center for Homeless Women, focused on assisting women dealing with addiction. In his later years he and Anne spearheaded a campaign to build 400 playgrounds in Los Angeles. Read more about the projects the foundation supports.

 
Although Douglas never won an Oscar for his many films, he did receive the Presidential Medal of Freedom Award, a Kennedy Center Honors Award, the Jefferson Award for Public Service, and the French Legion of Honor.


He reportedly left nothing to his son Michael, the actor/producer and the most well-known of his three sons. But that does not reflect a family rift: Michael is said to be worth $300 million, doesn't need the money, and he and his father had a loving relationship. We do not know what if anything he left to his two other sons, all of whom are involved in the movie business.

 
Anne Douglas recalls that in 2015, reflecting on the money he had amassed, her husband told her: I want to give it all away. And he has. A "leading man," in life and death.

Family Fighting Over Former Attorney General's Childhood Home

You probably think that the estate plan of one of the nation's most prominent legal authorities would be absolutely airtight. 


But you would be wrong. 


Janet Reno was appointed U.S. Attorney General by President Clinton, the first woman to serve in that role. Raised in Miami, Reno subsequently ran an ultimately unsuccessful campaign for the Florida governorship. She died as a result of Parkinson's Disease in 2016, age 78. She had no husband or children. Her revocable trust listed her seven nieces and nephews as beneficiaries, and named one of them, James Hurchalla, as her successor trustee. 

Reno's estate plan gave special consideration to her longtime Dade County home. A unique piece of property amidst suburban sprawl, the rustic ranch home was built by hand by Reno's mother in the 1940s. It sits on four acres of undeveloped land, can be reached only via a dirt road, and is hidden from view by thick vegetation. Reno's estate plan bequeathed  the property to the University of Miami, on the condition that it preserve the property and keep it undeveloped. 

Just one problem, and a big one: The University of Miami did not want it. The school determined it was too expensive to maintain.

Because Reno failed to include alternative arrangements for the property, her successor trustee sought out another educational institution for the bequest. Miami-Dade College, located just a quarter mile from the ranch, agreed to take the property and preserve it as Reno had specified. The Miami-Dade Circuit Court approved the substitution, stating: "...If a particular charitable purpose becomes unlawful, impracticable, impossible to achieve, or wasteful, the court may...modify or terminate the trust. … in a manner consistent with the settlor’s charitable purposes.”

But now another problem: One of Reno's beneficiaries, her niece Janet M. Reno, wasn't on board with the decision to give the property to Miami-Dade College. She argued that since the property will not pass precisely as Reno originally intended, it must be sold and the proceeds distributed to the nieces and nephews. She took her case to the Miami-based Third Court of Appeals, but it ruled against her in August 2019, finding that substituting a different school was in conformity with her aunt's intent: "The University of Miami’s declination to accept the charitable transfer made the original disposition impossible to achieve. But the successor trustee identified an even closer charitable, educational institution to accept the gift and to comply fully with Ms. Reno’s conditions ‘in perpetuity,’ respecting the ‘unique character’ and ‘historical importance’ of the Reno homestead."

That is not the end of it, however. Late last year Reno took her case to the Florida Supreme Court. She claims that once her aunt died, the trust became irrevocable, and the terms cannot be changed. In other words, Miami-Dade College may not substitute for the University of Miami. Her attorneys write of the lower court's decision: "The opinion if allowed to stand would allow Florida courts and fiduciaries to alter the testamentary intent of Floridians after they pass away thereby eroding their constitutional right to freely devise their assets. The issue is of great public importance to the people of our state, with its high population of elderly citizens, as well as the trust and estate bar."


So what happens now? The Reno family waits for a decision. And the rest of us get a lesson in why one's estate plan must be precisely worded and cover all possible scenarios, whether you're a regular citizen or a U.S. Attorney General.