A state Superior Court judge ruled in July that two estranged daughters of Len Tweten of Palm Desert, Calif., the founder of Magnolia Audio Visual, must await their father's death before they can receive their mother's half of the couple's $100 million estate.
The judge ruled that the entire estate should remain, for now, with the father, who is permitted to use his half of the inheritance as he desires. He can draw income and other benefits - and pay for legal costs - from the money from his wife held in a marital trust. After his death, whatever remains of his wife's money will pass to the daughters. Because Eileen Tweten died in 2010, when the federal government levied no estate tax, that amount will not be subject to estate tax.
The family drama drew notice because it was sparked by the anomalous tax year of 2010, when Congress let the federal estate tax lapse, requiring the court to decide if the inheritance should pass directly to the children or remain with the father until his death.
In the case, two of the Tweten's adult children (though not their third child, an adult son) accused their father of non-compliance, forgery and the use of undue influence. While the case is noteworthy, its impact would be limited to the outstanding estate cases involving 2010 deaths. Beyond California, some states tried to avoid such battles by passing laws to clarify discrepancies, says Martin Shenkman, an estate planning lawyer in Paramus, N.J. "But to the people it does impact, the effect is going to be huge, potentially," he says.
Attorneys for Tweten say the case underscores why clients should review their estate plans annually because tax laws change. Failing to do this might land families in court and entangle inheritances in litigation.
"Even the most skilled professionals may be there and it may not dawn on them that your estate plan may change as a result of a change in the law," says Rodney Lee of Ervin Cohen & Jessup in Beverly Hills, Calif., one of Tweten's attorneys in the case. "This suit has kind of torn the family in half.'' Tweten's relationship with his grandchildren is ruptured, as well, Lee says.
His attorneys say the decision demonstrates that courts will support the intent of the person who has died -although her intent remains in dispute - regardless of technical glitches related to the unusual situation of 2010.
HOW THE LAW WORKS
Often, trusts and wills are drafted so that a portion of an estate equal to the annual estate-tax exemption is placed in a bypass trust and given directly to the children. Any amount above that is subject to the federal estate tax and is placed in a marital trust for the surviving spouse. The marital trust defers taxation until the death of the surviving spouse. In a year with no estate tax, heirs receive the entire amount through a bypass trust and nothing is left for the marital trust, which is exactly what happened in 2010. Many legal experts regard this as a technical glitch.
Had Eileen Tweten died in 2008 or 2009, the Twetens' three children would have received the amount of federal estate-tax exemptions allowed by law in those years: $2 million in 2008 and $3.5 million in 2009. (It is now $5.12 million.) Legislatures in some states, but not California, passed laws to close the loophole.
Eileen and Len Tweten were married for 58 years and she, too, worked for the family audiovisual company. The couple signed their estate planning documents in 2008 after meeting for several months with financial planners and lawyers. Just 12 days before her death, her estate planning attorney, her husband and the couple's financial planner, Matthew McCutchen of the McCutchen Group in Seattle, visited. Her lawyer handed her the amendment that was intended to ensure that her half of the estate - $50 million - would pass to her husband through the marital trust and not the bypass trust.
Their adult daughters, Nancy Crowe and Janet Houston, contend that their mother was well aware of the absence of a federal estate tax in 2010 and wanted those funds bequeathed to them immediately.
"Everybody knew that was the law" in 2010, says Adam Streisand of Loeb & Loeb in Los Angeles, the daughters' lawyer. "The Twetens knew it. This trust simply said, 'Give the max amount to my kids and the rest defer into a marital trust until my husband dies.'"