I hesitate to get write about Anna Nicole Smith's death and the ensuing legal battles, especially as my first blog post, except that the Will that has been released as her Last Will is a perfect example of a purely drafted will. And so, I will use it as an example of how not to draft a will and why a carefully drafted will is one of the most important documents you can execute.
It has been reported that her last will leaves everything in trust for her son Daniel and after that provision specifically excludes all other heirs, including her spouse, any future spouse, any children other than Daniel including future born children, and other descendants.
(By way of disclaimer, I have not read the Will. So I am using the information disclosed as a fact pattern in this discussion not as a commentary on the specifics of her estate nor what may happen in the end after her will is probated and battled out.)
Now let’s dissect the problems with those provisions (many of which have come to fruition).
First in New York and in every state that I can think of, you cannot disown your spouse – a spouse is entitled to a portion of your estate regardless of what is contained in your will. He can renounce his or her interest after you die, or can by way of pre nuptial or post nuptial agreement agree not to exercise his rights against the estate but other than that, a spouse can claim a portion of your estate even if you write as Anna Nicole did in her will that you want to exclude him. This is known as a right of election. Other than your spouse, you are not obligated to provide for any other person. Accordingly, she could legitimately disown her future children, her heirs, etc. But her spouse is entitled to a portion of her estate even though she thought she disowned him.
But this Will gets even more sloppy. She did not provide in the Will what would happen if Daniel predeceased her. We all wish we had a crystal ball and could tell when we will die and who will die before us, however that is not reality. Reality is that you do not know when you will die nor who will survive you. You have to assume when you write your will that there is at least the possibility that the person to whom you would like to leave your estate will not survive you. It is insanity to not provide for a contingent beneficiary in the event Daniel did not survive her.
Further complicating the matter on her Will is that the assets were put in trust. A trust usually provides that the income goes to an individual for his life or a set period of time and at the end of that time, will be given either in trust or entirely to someone. Who was to get the money at the termination of her trust? I haven’t read the will, so I do not know what it provides. But let’s assume it provides that it goes to Daniel’s issue (which is a legal term for children if they are living, or if they are dead, then their children, down the line).
When she wrote the will, Daniel was not married nor did he have children. Someone cannot assume in a situation when the beneficiary of a trust is young, not married and without any children, that he will die having children. Yes the likelihood is that he may but there is a possibility he won’t.
Provide for what you hope will happen and also provide for what you want if that does not happen. Otherwise you have a mess. Does it go to Daniel’s heirs (which would be the case if the will doesn’t have the provision that Daniel must survive her)? Or her heirs (which would be the case if the will says that in order for the trust to be created Daniel or his issue must survive her)?
So the possible end result in a case such as this is that the people she specifically excluded (her spouse, her future born children, her heirs) will all get the assets. How does that accomplish the goals of the client?
Let’s assume again by way of argument, that her after born child will inherit the assets (assuming for a minute that she was not legally married - a question that will be battled out in court). Many commentators have stated that the father of the child now is “in control” of the assets of the after born daughter.
Assuming that she died in NY and again in every state I can think of, that is not entirely true. Without a trust created under the will for the after born child, the money will be deposited into accounts which will be overseen by the court. There will be annual accountings required and no money may be spent for extraordinary expenses. The court takes very seriously the job of protecting those assets for the child. It is not a blank check for the father of the child. In fact, it is probably more limited than had she written a trust where she could delineate under what circumstances she wanted the principal or the income of the trust used for the child.
Then (to be honest this is the part that bothers me the most), when the after born child turns 18, she gets the money – all of it. No one is overseeing it; no one can tell her how to spend it or how to save it. In my experience, I have never seen an 18 year old (or for that matter a 21 year old or a 25 year old) that can handle that kind of money. The best case in my opinion would be she would spend it all on luxuries…the worst case would be that she spends it on drugs and partying.
Now the final piece that bothers me as an estate planning attorney is the fact that no estate tax planning was contained in this will – she could have sheltered (deferred) all or a portion of the estate from taxes by creating a credit shelter trust. She could have offset the taxes by purchasing life insurance and placing it into an insurance trust. She could have created a trust where Daniel gets the money for his life and then a portion of it goes to a charity, thus minimizing her taxes.
In my opinion, the will as it is reported will benefit two groups – the government and the attorneys who will litigate this forever. Now I have yet to meet a client who wants either of those groups to get their assets when they die. A carefully drafted document (although it would still be subject to the claws of the above groups) would limit the exposure.
There are probably a hundred reasons she didn’t have a properly drafted will and I will not postulate on any of them. But that does not excuse others from learning from her mistakes.
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