Before Arthur Blech died in 2011, the man who once handled Richard Nixon’s income taxes detailed how he wanted his $65 million estate divvied up. Yet his intentions for what his children were to inherit were found to mean more than the actual words he used in his will and living trust.
Son Raymond’s subtrust was to receive 35% of trust assets, with the proviso that this “shall include any interest that [Arthur] … owns in the ranch in San Luis Obispo County.” The ranch was worth $7 million when Arthur died. Three years later, Raymond sold it for $14 million, and got an idea: he’d save millions if only dad intended the ranch to be a specific gift to him, rather than a residuary gift—one that he received after everything specified in the trust was distributed—because that would hand the tax bill from the sale to the trust to pay.
Our Probate Code enumerates six types of at-death transfers, including specific gifts and residuary gifts, each with a potentially different tax consequence to the beneficiaries. After numerous lawsuits among the siblings, the appellate court found that 1) the intention of the transferor as expressed in the instrument controls; and 2) that Arthur intentionally didn’t include the ranch among his specific gifts to his kids. His trust made residuary gifts to them in different percentages that poured into individual subtrusts. The ranch partially funded Raymond’s subtrust, making it a residual gift. Raymond got the $2.3 million tax bill.
Consult an estate attorney to be sure your gifts match your intentions to keep your loved ones in conversation with each other and out of court. Blech vs. Blech, California, Second District, Div. Three, B268326 (2018)
About the author:
John O’Grady leads a full-service estate and trust law firm in San Francisco. His practice includes Estate Planning & Administration, Probate and Trust Litigation.