Anyone who likes to go hiking, biking or camping probably knows what Gore-Tex is. The breathable, waterproof fabric made W.L. Gore and Associates into a huge success. The privately-held company hit #134 in Forbes’ most recent list of America’s largest private companies, with an estimated $3 billion in annual revenue.
Founder Bill Gore passed away in 1986 and his widow, Genevieve Gore, died in 2005. The couple, way back in 1972, finalized a trust to pass most of their stock in the company onto the children, and ultimately their grandchildren. They smartly planned ahead, realizing how valuable their Gore-Tex invention could become and how much growth their stock could achieve. So they funded the trust through a holding company, early on, to minimize estate taxes.
Wanting to treat their heirs equally, the Gores set up five equal shares, for their five children. They created a supplemental trust so that each of the grandchildren could receive an equal amount of stock as well.
The plan worked very well … almost perfectly. There was only one problem. The Gores’ daughter, Susan, only had three kids, unlike her siblings who each had four. Under the formula established by the trust, that meant her family would receive less stock than each of the families of her siblings, because Susan’s three kids would collectively receive less of the grandparents’ stock than if she had four kids.
Susan and one of the grandchildren led a campaign asking the rest of the grandchildren to change it so this wouldn’t happen. When they didn’t agree, they asked Genevieve to change the plan. She declined.
So Susan got creative. She proposed adopting one of her grandchildren as her “child” and therefore, a grandchild of Bill and Genevieve Gore. That would make it equal, right? The problem was that Susan’s ex-husband refused to allow it. He jokingly suggested that Susan adopt him instead.
Susan didn’t laugh. She took the idea seriously. In fact, she did adopt her 65-year old ex-husband, without telling the rest of the family of course. The adoption became final in Wyoming, on July 10, 2003. The ex-husband/now child, Jan C. Otto, promised in writing ahead of time that he wouldn’t keep any financial benefit from the trust, but only wanted to help his children get more stock.
But Otto apparently had a change of heart. A few days after the adoption, he began to consider changing his mind. By the end of 2004, that’s exactly what he did, deciding he’d hold onto the stock after all. When Susan learned about this in January 2005, she considered “un-adopting” her ex-husband. Before she got the chance, however, Genevieve Gore passed away. Her death was the triggering event under the trust that potentially made Otto an heir, as a grandchild. That couldn’t be changed once Genevieve was gone.
Susan started legal proceedings in Delaware to sort out the mess. She first claimed victory over her ex-husband/son, when a judge ruled he couldn’t keep the stock. He promised in writing not to keep any financial benefit from the arrangement, and that promise was enforced in court. So far, so good.
Susan pressed on, fighting to ensure that Otto’s “share” of the trust would be honored and kept in her family. Not surprisingly, the rest of the family fought back. They argued that the court shouldn’t recognize the adoption, because the trust was set up to ensure that the stock passed onto the Gore’s grandchildren and keep the wealth in the family. Susan argued that the State of Wyoming recognized the adoption as valid, so Otto was technically her child and a grandchild under the trust. That made him a beneficiary of the trust, according to Susan and her legal team.
The Supreme Court of Delaware laid the matter to rest recently, once and for all. It determined that even assuming the adoption was legal, the Gores intended to benefit those grandchildren who enjoyed a parent-child relationship with the Gores’ five children. An adoption of a grown man (of retirement age no less) for strategic reasons did not fit within this intent. Without an actual parent-child relationship, neither Otto nor Susan’s family was entitled to receive any additional stock from the trust. Susan’s unusual adoption ploy failed.
Was this the right result? It’s hard to argue with the outcome. Who would have thought that someone would be so desperate to increase her family’s share of an inheritance pie that she would adopt her 65-year old ex-husband? Even though the trust didn’t have language to deal with this situation, there was enough wiggle room in the definition of the word “grandchild” in the trust document that the court was able to fashion this result. Sometimes, the law is about fairness in the end.
On the other hand, unusual adoptions for family inheritances aren’t unheard of — just ask the Florida millionaire who adopted his girlfriend to try to shield his family fortune from a lawsuit. An adoption does create a legal parent-child relationship, so why shouldn’t it count?
This case shows what great lengths some people will go to when they want more of the family fortune. Probate court fights over wills, trusts and estates — not to mention joint bank accounts, real estate deeds and gifts — are quite common in a wide range of estates, from billionaire estates like this one to even modest estates of no more than a hundred thousand dollars.
That’s why doing the proper estate planning ahead of time is so important. While a good estate plan can’t always prevent an inheritance fight — as this story demonstrates — it can dramatically improve the chances of your client’s wishes being followed. If the Gores hadn’t done such a good job with their estate planning, Susan may have been able to achieve her goal of more stock for her children. But, the Gores’ estate plan — dating all the way back to 1972 — was created well enough to stand up to even Susan’s unusual approach.
It’s even more important to do this planning ahead of time when there is a family-owned business involved. We’ve recently shared some stories with you about succession planning gone awry. This is a great example of how succession planning can go right, for you to talk to your clients about.
Sure they likely won’t have to worry about their children adopting ex-spouses, but all business owners need to plan how to pass their businesses along to the next generation, in order to minimize taxes, reduce the chances for a family fight, and ensure that their legacies are carried on as they’d like.
By Danielle and Andy Mayoras, co-authors of Trial & Heirs: Famous Fortune Fights!, husband-and-wife legacy expert attorneys, and hosts of the national television special, Trial & Heirs: Protect Your Family Fortune! For the latest celebrity and high-profile cases, with tips to protect yourself, your loved ones, and your clients, click here to subscribe to The Trial & Heirs Update. You can “like” them on Facebook and follow them on Twitter.