Clear and Present Estate Taxation

When Tom Clancy died two years ago, he distributed his real estate to his 2nd wife, then left the remainder of his $83 million estate in equal thirds as follows:

1.  In trust for his wife,

2.  In trust for his wife and adult children from his first marriage, and

3.  In trust for his adult children from his first marriage.

The  primary asset was his 12% interest in the Baltimore Orioles which was valued at $65 million.  The last codicil signed by Clancy directed that his wife should receive her inheritance "estate tax free."  His wife and adult children then proceeded to fight over whether the trust for her and them (Trust No. 2) should pay any estate taxes.  A Maryland court recently decided that the trust for the children (Trust No. 3) should pay the entire estate tax bill.

Several points:

1.  Poor drafting leads to expensive disputes.  I have never used the vague term "estate tax free" in any document I have drafted.

2.  If a trust for a surviving spouse is carefully drafted, it can postpone the taxation of its assets until the death of the surviving spouse which is what seems to have occurred here at least with respect to the trust for the spouse only (Trust No. 1).

3.  Shed no tears for anyone in this dispute.  Clancy's adult children will presumably also inherit the substantial assets his first wife received upon their divorce while his 2nd wife is reportedly an heiress to a Pepsi bottling fortune.  Even the IRS receives nearly $12 million with significantly more millions coming when the 2nd wife dies.

4.  The second wife aka Evil Step-Mom likely cannot die soon enough for his adult children.

(Thanks to Chip Workman for bringing this to my attention)