Jimmy Buffett passed away last year with an estate plan that detailed his wishes as to the disposition of his assets upon his passing. All of Jimmy’s assets passed into trust for the benefit of his surviving spouse, Jane, and his children are the beneficiaries of that trust after Jane’s passing. The trust requires two co-trustees – Jimmy’s surviving spouse, Jane, and his long-time financial adviser, Richard. One of the co-trustees must be an independent trustee, which means that the independent trustee has no beneficial interest, both presently and in the future. All income of the trust must be distributed to Jane and if the income is insufficient for Jane’s health care, living expenses and “any other purpose” that the independent trustee deems to be in Jane’s best interest additional principal of the trust can be distributed.
On the surface, this appears to be an appropriate estate plan that benefits Jimmy’s wife during her lifetime, preserves the assets for his children and provides a co-trustee to help his wife manage the trust assets. However, the estate has recently devolved into competing lawsuits because both Jane and Richard have filed competing petitions to remove each other as trustee of the trust. This means that the estate is now in legal limbo until this issue is resolved.
This raises the question – what could Jimmy have done in his estate plan to avoid these lawsuits and ensure that his estate passed according to his wishes without unnecessary legal expenses? Here are a few of the estate planning lessons to be learned from this situation:
- Be Clear and Transparent with Your Spouse: It is highly recommended that the estate planning process be done in collaboration with your spouse to make sure that you are both on the same page and understand each other’s estate plan. It is common in estate planning for the same attorney to represent both husband and wife provided that the spouses understand the representation and waive any potential conflict between the two. Here, the competing lawsuits may have been avoided if Jane fully understood the terms of the trust for her benefit and Jimmy’s reasons for appointing his financial adviser as co-trustee with her. This transparency could have prevented feelings of distrust and resentment if Jane had known what to expect upon Jimmy’s passing.
- Take Care with Naming Your Fiduciaries: Selecting fiduciaries in your estate plan is one of the most important aspects of the estate planning process. The personal representative (also known as the executor) of your estate is in charge of proving the Will, gathering the assets, notifying creditors, and distributing the assets according to your estate plan. It is important that this person have an understanding of your estate and your wishes. Another consideration for this role is the relationship this person has with the beneficiaries of your estate. If there is tension between the personal representative and the beneficiaries before your death, then this tension will likely increase during the estate administration and may lead to litigation. In Jimmy Buffett’s estate, it appears that Jane and Richard did not get along well before Jimmy’s passing and that relationship has become more strained during the estate administration process. If there are existing personal issues with the potential fiduciary and the beneficiaries, then another option would be to have a neutral corporate fiduciary manage the estate, but this will lead to increased costs for the estate.
- Have Clear Provisions for Removal of Trustees: It appears that one of the reasons that the estate is now enmeshed in litigation is that there was no clear way for Jane to remove Richard as a co-Trustee and appoint a replacement. Jimmy may have done this intentionally as he may have wanted Richard to remain in that role; however, this situation has now led to two lawsuits. One example of how this could have been avoided is that Jane could have had the right to remove Richard and appoint a successor independent co-trustee. This would have allowed Jane to have a co-trustee that she is comfortable with. Our trust language typically gives this power to the surviving spouse, and it is common to add a limitation period, such as once every 24-month period so as to provide stability to the trust.
Overall, estate planning should be a collaborative and transparent process to avoid potential issues with the surviving spouse upon the passing of the first spouse. This is even more important with complex and large estates such as Jimmy Buffett’s estate.
