Last month, I spotlighted some good lessons from America’s wealthiest families in preserving and protecting wealth. In this issue, I want to highlight some examples where estate planning has gone terribly wrong, resulting in some famously bad and oftentimes ugly results.
Cautionary Tales
Despite the successes of families like the Rockefellers, many families fail to preserve their fortune beyond a couple of generations. In fact, there are many more cautionary tales than success stories. According to Nasdaq, 70% of families lose their wealth by the second generation, and a staggering 90% by the third.
By examining some high-profile estate failings, key lessons emerge about the importance of careful planning.
Jimi Hendrix: It’s Never Too Early to Have a Plan
Jimi Hendrix, despite his fame and wealth, tragically passed away at the age of 27 without any form of estate plan. As a result, his estate was distributed due to the laws of intestacy, and his $66 million fortune was inherited solely by his father. Hendrix was close to his brother Leon, yet Leon received nothing when their father later passed away and left a will that excluded him. The control of Hendrix’s estate eventually passed to his stepsister.
Lesson: If you have assets, it’s never too early to have an estate plan, especially if you want to ensure that your loved ones are taken care of in the manner you intend.
Princess Diana, Michael Jackson, and Leona Helmsley: Don’t Overlook Due Diligence
Princess Diana, Michael Jackson, and Leona Helmsley each had estate plans but fell short in their execution, highlighting the importance of due diligence in estate planning.
Princess Diana had a “letter of wishes” that her sons and godchildren would each inherit a substantial portion of her personal possessions. However, the letter of wishes was not properly drafted or enforceable, so her godchildren only received small trinkets despite Diana’s intentions.
Michael Jackson established a trust but failed to transfer all of his assets into the trust’s name. This oversight resulted in a highly publicized probate court battle among his relatives.
Leona Helmsley made headlines for her unconventional estate decisions when she disinherited two grandchildren and left $12 million to her dog. The excluded grandchildren successfully challenged Helmsley’s will and trust, questioning her mental fitness.
Lesson: Careful planning and follow-up are necessary to ensure your estate plan functions as intended. If Princess Diana had an attorney draft her letter of wishes, it likely would have been enforceable. If Jackson ensured all his assets were properly transferred into his trust, probate could have been avoided. And, individuals considering unusual or potentially controversial estate decisions, like Helmsley, should obtain a formal assessment of mental competence as it can preempt capacity challenges.
Doris Duke: Select the Most Competent Fiduciary
Virtually all estates require a fiduciary, such as an executor or trustee, to manage administration after the owner’s passing. A fiduciary is legally obligated to act in the best interests of the estate and its beneficiaries, prioritizing their financial well-being over personal gains.
Doris Duke, an heiress with an estate valued at approximately $1.3 billion, serves as a cautionary example of the pitfalls of selecting a fiduciary based on personal relationships rather than professional qualifications. Duke appointed her butler as executor and trustee of her estate, roles for which he lacked the necessary expertise. His management was so problematic that a judge eventually removed him from his role and created a board of trustees to oversee the estate.
Lesson: The role of a fiduciary encompasses a broad range of responsibilities. While loyalty and trust are important, these qualities alone do not guarantee the skills necessary for effective estate management. Especially in cases of complex assets, the fiduciary must possess a high level of expertise in financial and legal matters. Individuals should carefully evaluate potential fiduciaries for their qualifications and experience, noting that their closest friend may not necessarily be the best fit for the role.
Florence Joyner: Ensure Your Family Knows Where to Find Important Documents
Renowned Olympian Florence Griffith Joyner prepared a will but failed to inform anyone of its location. Her husband was unable to file the will within the 30 days required by state law, leading to litigation between her husband and her mother. Ultimately, the administration of her estate was handed over to a third party.
Lesson: It’s not enough to have estate planning documents; the relevant parties must know where they are. To prevent disputes and ensure the smooth execution of one’s final wishes, store copies of important documents in a secure location and let designated individuals know how to retrieve them when necessary.
Whitney Houston and Heath Ledger: Keep Your Plan Updated
Whitney Houston and Heath Ledger both highlight the need to update estate plans in response to significant life changes.
Houston had an estate plan that primarily benefitted her daughter, Bobbi Kristina, with disbursements set for specific ages and milestones. However, the plan had not been updated in nearly 20 years. At the time of Houston’s death, Bobbi was struggling with substance abuse, and her father, Houston’s ex-husband Bobby Brown, sought a conservatorship over her. Tragically, Bobbi Kristina passed away only three years after her mother, and disputes over the estate escalated, affecting even the proceedings at Bobbi’s funeral.
Heath Ledger's will left his assets to his parents and sister, but it was created before his daughter's birth. His failure to update the will after her birth led to public disputes among family members over the rightful distribution of his assets.
Lesson: It’s imperative to review and update your estate plan regularly, especially after life changes such as births, adoptions, marriages, divorces, or deaths. Keeping your estate plan current ensures that your intentions are clear and can be properly executed without unnecessary conflict or legal complications.
The Vanderbilt’s: Educate Your Family and Discuss Succession Plans
Despite amassing one of the largest fortunes in American history during the late 19th century, the Vanderbilts experienced a significant decline in their financial legacy through mismanagement, extravagant spending, and personal vices such as gambling and alcoholism. By the mid-20th century, the once vast Vanderbilt fortune had largely evaporated, with some heirs living in poverty. Today, no Vanderbilt-founded companies remain under family control, and while some trusts continue to support various descendants, the wealth has dwindled dramatically.
The root of this decline was a glaring lack of communication and succession planning. The Vanderbilts failed to engage in open discussions about wealth management or educate their descendants on the responsibilities of wealth. The younger generations did not understand the family’s financial strategies or the founder’s intentions for the family enterprise, which left them ill-prepared to manage or preserve their inheritance.
Lesson: Open conversations about money, coupled with strategic planning and education, are essential to equip future generations with the knowledge and skills needed to manage and grow their inheritance effectively.
Consider the Complexities
As these examples show, even the wealthiest families have challenges. There are many complexities that must be considered, with one of toughest being educating the next generation on the importance of preserving wealth so that they and their children can benefit from the wealth creators’ efforts.
As I noted earlier, statistics show that many estates are depleted within three generations. Second generations often believe the business makes the money and can run without family management, or they aren’t capable or have a desire to manage. They continue to enjoy the benefits while the business declines in value or goes out of business. The third generation has expectations and if the income does not give them what they expect, they spend the principle.
As a result, a succession plan for the business that generates a family’s wealth is essential. There is an old saying, “Perpetuate or liquidate.” The person who developed the business must pick the right successor and get the family buy-in, or it may be time to sell to remove any conflict that will fracture the family. I had one extremely wealthy client who, knowing his family members, directed the trustee to sell everything and distribute the proceeds to the family so they could make their own decisions.
As always, please reach out to your Hood & Strong tax advisor to discuss your estate planning options. It’s imperative to put protections in place now to preserve your wealth for this and future generations.
