GPSolo March 2007
ESTATE AND FINANCIAL PLANNING
Estate Planning in World Mythology
Every human culture has its unique myths and legends that express that culture’s character and values. Many recurring themes involve the stewardship of family wealth and status in difficult times, such as during absence or incapacity, on the occasion of marriage, and at death. This article examines certain well-known myths, discusses the estate planning issues they raise, and considers what advice modern advisers might have given in today’s world.
What planning advice could Tom Hagen, the family consigliere, have offered to Don Corleone?
Greece. The Iliad and The Odyssey of Homer relate the classic tale of the wanderings of the Greek hero Odysseus. One day Odysseus left on a business trip to the distant city of Troy. He departed on what he thought would be a brief sojourn. Unexpectedly, the business at Troy required ten years to conclude, and then Odysseus spent a further ten years trying to make connections back home.
During this long and unanticipated absence, suitors filled his household, offering legal, financial, and insurance services to his wife, Penelope, who was unaccustomed to selecting professional advisers. As Odysseus’ absence continued, the suitors became more brazen in their efforts to insinuate themselves into the family business. When Odysseus finally returned from his lengthy travels, he found his house filled with advisers he had not chosen. In a climactic scene, he confronted and killed the suitors and regained control of his household and family business.
This is a cautionary tale about the unavailability of the decision maker and its consequences for himself and his family. What advice could the Oracle have given Odysseus before he left Ithaca to address this possible dilemma? Odysseus should have executed a durable financial power of attorney naming an agent who could act for him in the event that he was hors de combat. A “springing” power that only became effective on his mental incapacity would not have been activated in this case, so he should have executed a presently effective power before departing on his trip.
Odysseus could have named Penelope as his sole agent. In light of the extent and complexity of his holdings, however, he might have concluded that this would impose a great burden on her. He might have selected a co-agent to act with her, such as a friend or relative. A better choice might have been an experienced professional, such as the family attorney or accountant.
The Oracle might have told Odysseus that, if he wanted to make more thorough preparations for his potential unavailability, he should create a revocable trust and transfer his business in Ithaca and his other assets into it. Odysseus could have named himself as the sole trustee with all investment powers for as long as his messages could reach home. The trust agreement, however, could have provided that once he was unable to communicate, Penelope and a co-trustee would be appointed as his successors. A careful definition of unavailability to encompass the settlor’s inability to communicate, as determined by the successor trustees, would avoid the need for Penelope to go to court to have him declared absent. Local law clearly delineated the powers and duties of trustees. Odysseus would have provided Penelope with the adviser of his choice, rather than leaving her open to the entreaties of suitors and con artists hawking their wares.
Arabia. The Thousand and One Arabian Nights is a collection of fantastic Middle Eastern tales. Many of these tales revolve around family succession issues. A typical story tells of a wealthy and elderly Sultan whose daughter falls in love with a commoner named Aladdin. The Sultan is understandably concerned that Aladdin sees his daughter primarily as a means of attaining status and power over the caliphate that she will someday inherit. What advice should the Vizier give the Sultan?
The Vizier might recommend that the Princess enter into a prenuptial agreement with Aladdin. Such an agreement could provide that the Princess’s assets, including inheritances from the Sultan, and the income and increases in value of those assets, will remain her separate property to dispose of as she wishes during the marriage, in the event of divorce, and on her death.
A prenuptial agreement is an important legal tool and an appropriate precaution in many situations. Such an agreement also has drawbacks, however. Negotiating a prenuptial agreement can create a strain between the parties, particularly for a young couple about to enter into a first marriage. Moreover, if the Princess asks Aladdin to waive claims against her assets, he will probably insist in return that she waive any claims against his current and future property, which may work to her disadvantage if he later becomes a successful investment banker.
A prenuptial agreement is often an essential prophylactic measure, but in this instance the Vizier can offer a better solution. The Princess does not yet have significant assets; it is the Sultan’s property for which protection is sought after his death. Therefore, instead of focusing on an agreement between the Princess and Aladdin, the Vizier should encourage the Sultan to reexamine his own estate plan. The Sultan could leave his assets in a long-term discretionary trust for the benefit of the Princess and her descendants rather than bequeathing them outright to her. He would thus insulate them from divorce claims and the spousal right of election at their death in most jurisdictions.
United States. The archetypal American myth tells of the rise of a hard-working youth from rags to riches and the passing of his wealth and his work ethic to the next generation. And the quintessential retelling of this myth is the Godfather saga.
Vito Corleone was an ambitious immigrant who built a substantial family business. As the story opens, Corleone Enterprises is a resounding success and Vito is at the peak of his powers. But the future for his sons Fredo, Sonny, and Michael is uncertain. Corleone Enterprises faces fierce competition and enormous pressure to diversify into new fields. Vito no longer has the energy to lead the family in these new and perilous times, and he must anoint a successor who is up to this demanding task. Michael, who had been expected to pursue a professional career, is drafted into the business against his father’s wishes when no one else is available to take up the family standard. Through unexpectedly forceful actions, he succeeds in carrying Corleone Enterprises into a new era, but the cost is high.
What planning advice could Tom Hagen, the family consigliere, have offered to Don Corleone to help him avoid this result? Hagen might have told the Don that it was not obligatory for Corleone Enterprises to remain as a unified, active family-owned business for another generation, and that in fact it might have been unwise for the Don to aim for this goal. Knowing when to cash out of a business and diversify investments is just as critical as knowing how to build a fortune.
Vito could have engaged an investment banker to take Corleone Enterprises public; alternatively, he might have sought a private placement of the business with the Tattaglia family or sold it to a private equity fund organized by Sollozzo the Turk. Vito could then have divided the proceeds among his children so that they could each pursue their separate careers and interests.
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This article is an abridged and edited version of one that originally appeared on page 65 of Property & Probate, July/August 2006 (20:4).
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G. Warren Whitaker is a partner of Day, Pitney LLP in New York City. He can be reached at email@example.com.