If any clients need proof of the importance of revisiting their estate plans annually, consider the case of a wealthy family that sold its retailing business to Best Buy.
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.'"
Instead, Streisand contends, no one explained what the amendment meant to Eileen Tweten before she signed it in a "terminal delirium." The daughters allege their father or someone else used "undue influence" to obtain a signature.
Lawyers for the father say this is not the case and that Eileen Tweten was fully aware of what she was doing. "Their kids just tried to push [a technical loophole] open to take advantage of it," Lee says.
"The mother wanted the money to go to the kids outright'' after the father's death, Lee says. "Leonard Tweten wanted it to go to them in trust. [Len and Eileen] were both very respectful of each other's views. There was absolutely no evidence that in the off chance that one of them were to die in 2010 that they would take advantage of what some have called 'the home run,'" a term the daughters used in the case to describe the tax opportunity in 2010, according to Len Tweten's lawyers.
If the Twetens had reviewed their estate plan the year before Eileen Tweten's death, they might have clarified their position long before her mental state became a lightning rod.
"This case points out what a terrible mistake this was," Shenkman, the estate planning lawyer, says. "Her advisors could have dealt with it in 2010 or 2009. The reality of estate planning is that there are always issues that haven't been addressed. It's a valuable lesson for everyone about how bad it can get."
McCutchen, the planner, would not discuss the case, citing firm policy.
The trial highlighted the discord. Eileen Tweten was described as her daughters' closest friend, Streisand says. And an obituary on Legacy.com says, "The greatest joy in Eileen's life was her family. We will all remember family celebrations over the years with her delicious dinners and presents under the Christmas tree."
Len Tweten's relationship with his daughters was markedly different.
"'You feel that your daughters have always had an extreme dislike for you,'" Streisand recalls saying to Tweten during the trial. "Do you feel you have any responsibility for this relationship?'" Streisand said Tweten responded, "None whatsoever."
His lawyers say the parents provided well for their children. "They had allowed [them] to live lives of material comfort that very few Americans ever experience, yet here they are suing their father to get money that they were going to receive anyway," Lee says.
The battle for the Tweten fortune is not over. His daughters have appealed the ruling. But, attorneys for both sides say their clients are devastated.
"We're talking about an 85-year-old man," says Jeffrey Merriam-Rehwald, one of his lawyers. "How would you feel if you were sued by your children?"
Shenkman hopes the case illustrates that the annual cost of reviewing estate plans is vastly outweighed by the financial and emotional price of the Twetens' saga. "The damage to this family is forever," he says.
Ann Marsh a senior editor and the West Coast bureau chief of Financial Planning.