Clear and Present Inheritance Dispute: The Battle Over Tom Clancy's Estate
I am an estate planning and elder law attorney with offices on Long Island. In addition to extensive estate planning and elder law services, I also provide tax and financial coaching to individuals and families. My primary focus is helping families protect their assets from the high cost of nursing care if they become ill, and addressing hard-to-discuss topics like how to avoid family in-fighting by preparing a comprehensive legacy wealth plan, arranging care for heirs with special needs and anticipating issues that may affect children and grandchildren. I incorporate all of these experiences, along with my knowledge of the law, into my weekly blog on Forbes.com. I am a Fellow of the American Academy of Estate Planning Attorneys, a member of the National Academy of Elder Law Attorneys, the American Bar Association and the New York State Bar Association. More information on the firm is available at www.myestateplan.com
The author is a Forbes contributor. The opinions expressed are those of the writer.
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If you haven’t heard of Tom Clancy — for novels and movies like Hunt for Red October, Patriot Games, Clear and Present Danger — then your kids have, due to a series of video games inspired by his work. Many of his books featured CIA analyst turned president (a really common career path) Jack Ryan, along the way creating the “techno-thriller” genre with extremely realistic plots that in some cases foreshadowed real-world developments.
Clancy was known for his attention to detail, especially with military tactics and hardware. But evidently he didn’t put the same level of detail into his estate plan… a mistake that will cost his heirs millions of dollars in estate tax.
Here’s some background. Clancy made millions from books and movie rights and leveraged those funds into a number of other possession: penthouse condos at Baltimore’s Ritz-Carlton, an estate on the Chesapeake Bay, and even an ownership share in the Baltimore Orioles. His estate was worth approximately $86 million when he he died suddenly in 2013, an impressive feat since he first started writing part time while working as a full-time insurance salesman.
The problem stems from an issue many parents who divorce and later remarry face. He could have chosen to leave as much of his estate as he wanted to his second wife; doing so lets his assets avoid being taxed until she died. Or he could have chosen to leave it to his children from his first marriage; doing so would allow the IRS to take 40% when he passed away.
A common solution is a Qualified Terminable Interest Property Trust, also known as a Q-TIP. A Q-TIp would allow his second wife to enjoy income from the trust during her lifetime and defer tax on the principal in the Trust when it passes to his children when she passes.
In Clancy’s case, his Will left the real estate to his second wife and divided the rest of his estate into three portions: a marital Trust for his second wife, a Family Trust for his second wife and Clancy’s and his second wife’s daughter, and a Children’s Trust for his four children from his first marriage. Typically the Marital Trust would avoid tax; the Family Trust and the Children’s Trust would pay those taxes. But after Clancy created and signed that original Will, he added a Q-TIP provision to the Family Trust and a “savings clause” designed to protect the marital deduction to the maximum amount possible.
And therein lies the problem.
When Clancy died, the Will stipulated that taxes were to be paid out of what is called the residuary estate: the Family Trust and the Children’s Trust. That would have resulted in a $15.7 million tax bill split between the two trusts. But that also created a problem: if Clancy’s executor used money from the tax-exempt Family Trust to pay the tax owed, that amount would also become subject to tax. (I know; it just got complicated.) Clancy’s second wife and widow objected, instead seeking to take advantage of the Q-TIP provision and savings clause. Doing so would lower the tax bill to $11.8 million but would also mean those tax payments would all come from the inheritance of the children of his first marriage.
Clancy was known for his attention to detail, especially with military tactics and hardware. But evidently he didn’t put the same level of detail into his estate plan… a mistake that will cost his heirs millions of dollars in estate tax.
Here’s some background. Clancy made millions from books and movie rights and leveraged those funds into a number of other possession: penthouse condos at Baltimore’s Ritz-Carlton, an estate on the Chesapeake Bay, and even an ownership share in the Baltimore Orioles. His estate was worth approximately $86 million when he he died suddenly in 2013, an impressive feat since he first started writing part time while working as a full-time insurance salesman.
The problem stems from an issue many parents who divorce and later remarry face. He could have chosen to leave as much of his estate as he wanted to his second wife; doing so lets his assets avoid being taxed until she died. Or he could have chosen to leave it to his children from his first marriage; doing so would allow the IRS to take 40% when he passed away.
In Clancy’s case, his Will left the real estate to his second wife and divided the rest of his estate into three portions: a marital Trust for his second wife, a Family Trust for his second wife and Clancy’s and his second wife’s daughter, and a Children’s Trust for his four children from his first marriage. Typically the Marital Trust would avoid tax; the Family Trust and the Children’s Trust would pay those taxes. But after Clancy created and signed that original Will, he added a Q-TIP provision to the Family Trust and a “savings clause” designed to protect the marital deduction to the maximum amount possible.
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When Clancy died, the Will stipulated that taxes were to be paid out of what is called the residuary estate: the Family Trust and the Children’s Trust. That would have resulted in a $15.7 million tax bill split between the two trusts. But that also created a problem: if Clancy’s executor used money from the tax-exempt Family Trust to pay the tax owed, that amount would also become subject to tax. (I know; it just got complicated.) Clancy’s second wife and widow objected, instead seeking to take advantage of the Q-TIP provision and savings clause. Doing so would lower the tax bill to $11.8 million but would also mean those tax payments would all come from the inheritance of the children of his first marriage.
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