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Monday, May 6, 2024
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Case Studies |
What is "Lucky" Williams' Favorite Charity?
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Case:
Robert "Lucky" Williams amassed quite a fortune during the early years of his life as a renegade wildcatter. Back in the 1950s, at the age of 25, Robert moved from his home in Iowa to Texas in search of "Black Gold." Acquiring the nickname "Lucky," for his unexplainable talent for locating oil, he quickly became an oil multimillionaire. As is common with many oilmen of that time, he lived a hard, rugged lifestyle that took its toll on his health. Sadly, Lucky died recently of heart problems at the young age of 60. He is survived only by his three children. Unfortunately, his spouse died in an accident many years ago and he never remarried.
At the time of his death, his estate was worth an estimated $12 million. Having spent so much time working, Lucky devoted little time, if any, to estate planning. About 12 years ago, his lawyer advised him to establish a will. Lucky would not consider a trust or other planning method. Finally, Lucky told his lawyer to draft a will leaving everything to his three children. "Keep it simple!" he instructed. When asked about any provisions for charity, Lucky responded, "No way am I giving away this money, that I worked so hard to make, to strangers!" Consequently, his lawyer drafted the will so that after taxes and costs were paid, the estate was divided equally among those of the three children living at his death. Therefore, each child is now entitled to approximately $4 million, but after estate taxes and costs that amount drops to about $2 million each.
Coincidentally, two of Lucky's children have large multimillion-dollar estates of their own; however, the third child is a spendthrift. Unlike their father, the two wealthy children are extremely philanthropic, with particular love for a local relief center.
Question:
Can the two wealthy children avoid the $4 million of estate taxes and pass the savings, along with their $4 million inheritance, to charity? Moreover, can they do this without their spendthrift sibling acquiring more money?
Solution:
Unfortunately, because there is no disclaimer provision for charity, the children's hands are tied. Under the current will, if the two children disclaim their inheritance under section 2518, it all will be distributed to the last residuary beneficiary - the spendthrift sibling. The children could accept their inheritance and then give it to their beloved charities, but Uncle Sam will already have taken a 50% bite out of their gift. Without the contingent provision for charity in the will, the two charitably inclined children cannot accomplish their goals.
Planning Pointer: Many attorneys and other advisors know a "Lucky" Williams. What Lucky did not realize is that his will included a $6 million bequest to what appears to be his favorite charity - Uncle Sam. If his attorney had explained that "charitable bequest" and suggested that an option be placed in the will to allow the children to disclaim part or all to charity, even hard-nosed Lucky might have seen the benefit of that provision. If possible, wills should contain a disclaimer provision for charity even when it seems unlikely to be used. There can and are many changes in the circumstances of children during the years between signing the will and the death of the testator. Including such a provision is simple and causes no negative consequences; however, as this case illustrates, leaving the provision out can create serious planning limitations and tax problems.
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