The estate plan of noted author Tom Clancy had three equal trusts, one for the children of his first marriage, a marital trust for his surviving second wife, and a family trust for the second wife and the daughter they had together. The trusts were funded from the residuary estate (whatever is left after paying expenses and any specific bequests), and Clancy’s will also called for estate and/or inheritance taxes to be paid from that same remaining fund. The personal representative of the estate (who also had drafted the will) proposed to pay half of the federal estate taxes due on Clancy’s $83 million estate from the trust for the adult children, the other half from the family trust. The taxes came to roughly $15 million.
Mrs. Clancy objected. Before his death, Clancy had executed a codicil to his will, to clarify that he intended both the family trust and the marital trust to qualify for the federal estate tax marital deduction. That suggests that the trusts for Mrs. Clancy should not be tapped to pay taxes, because assets that don’t share in the creation of the estate tax burden should not have to pay those estate taxes. To the extent that the widow’s share is used to pay the estate tax, the marital deduction must be reduced, which means still more estate tax, and a further reduction in deduction, and yet more taxes, in an extended circular computation. In fact, if Mrs. Clancy’s share is free from the tax burden, the actual estate tax due will drop by nearly a third, to roughly $11 million.
That’s what the probate court decided was proper, it’s what Clancy apparently intended with his codicil to the will. In a 4-3 decision, the Maryland Court of Appeals agreed with that conclusion in August. A savings clause in the codicil “explicitly directs that the personal representative not act to adversely impact the benefit of the marital deduction of the marital trust and the family trust.” Three dissenters believed that Clancy probably did not appreciate just how much that seemingly minor savings clause would upend the overall result of his estate plan.
The result is decidedly unequal for the five children. The child from the second marriage will get roughly one-third of the estate, undiminished by taxes. The share for the other four will be reduced roughly 40% for taxes, and then split four ways among them. Whether Mr. Clancy expected an outcome for his estate plan to have as many twists and turns as the plots of the books that he wrote remains an open question.
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