What Wealthy Families Can Learn From a Rock Star’s Estate

Tasha Dickinson, a trusts and estates attorney at Day Pitney in West Palm Beach, Florida, has guided numerous high-net-worth families through challenging circumstances. In a recent interview with ThinkAdvisor, she explained why appointing an independent executor or trustee, or pairing family members with a neutral third party, is critical to defusing tensions before they spark litigation.

“There’s no simple checklist or playbook for these situations,” Dickinson said. “Each situation is unique, and getting to the best outcomes requires a mix of savvy planning and clear communication.”

Dickinson commonly crafts trust structures that balance a surviving spouse’s lifetime interest with benefits earmarked for children from prior marriages. She also frequently employs prenuptial and postnuptial agreements, combined with transparent family conversations, to proactively head off disputes over intangible assets.

Here are highlights from our conversation, edited for length and clarity:

THINKADVISOR: Does the estate planning situation facing Ozzy Osbourne’s family resemble any client situations you have navigated before? Would you be surprised if a dispute ensues?

TASHA DICKINSON: So, just to start I want to be very clear that I am not directly involved in the Ozzy Osbourne situation, but I do think it represents an important teaching moment for financial advisors who are serving clients with significant assets and blended families.

I also want to be clear that we don’t know that anything will go wrong in the inheritance process for Ozzy’s family, but I know from my significant experience working in this area that there could certainly be problems. It’s just the reality when so much wealth is on the table, particularly when multiple marriages and groups of children are involved. The royalties issue also adds complexity.

Something else I would say off the top is that the situation faced by the Osbourne family may be unique because of his celebrity status and the amount of wealth involved, but the basics of this situation are actually very common. The divorce rate in the United States is between 50% and 60%, so by definition, there are just a lot of blended families out there.

I’m in Palm Beach, Florida, for example, and it’s very common to see this. Frankly, I deal with planning issues facing blended families on almost a daily basis. When it comes to the advice we give in this situation, the most important thing is proactivity. You need to create a plan, communicate that plan, and regularly revisit and reaffirm the decisions you have made.

THINKADVISOR: Is this one of those situations where a poorly conceived plan can be worse than no plan at all?

DICKINSON: You know, I think that’s right. If a client has no plan in place at all, then state law will dictate what happens. Obviously that’s not a perfect outcome, and there can be some dispute about who is ultimately put in charge of the estate, but it does provide clarity and it’s almost easier from a dispositive point of view.

I would say the more difficult thing is when some amount of estate planning has been done, but the client and the planner haven’t really considered or appreciated all the potential disputes that could come up. A good plan is specifically drafted in a way that identifies and works around the potential disputes that could arise.

It’s very common to see clients who are the heads of blended families believe that their family is unique. They don’t believe that their kids and current and former spouses could become highly litigious. Sadly, I can tell you, that’s often just wishful thinking. Money changes people, and so does the loss of the glue that holds a blended family together.

THINKADVISOR: Can you talk us through some of the best practices that you use to avoid tension and create alignment among stakeholders?

DICKINSON: Every situation is unique, like I said, so there’s no single checklist of best practices to follow. But the overall goal is avoiding setting up a plan that puts different stakeholders at cross-purposes.

You’d be surprised how often a well-intentioned estate plan is actually almost guaranteed to create a heightened degree of tension and even outright animosity among the stakeholders — particularly between children from a first marriage and a second surviving spouse who does not have blood ties to the kids. Dad is often the glue holding these two parties together, and things can change once he’s gone.

A typically ill-conceived plan in this situation would be to just set up the assets in a single trust for the benefit of the surviving spouse during her lifetime, and upon her death, the remaining assets and interests flow to the children equally. Sounds like a simple and straightforward approach, right?

Wrong. By definition, this arrangement puts the surviving spouse’s interests and the children’s interests at cross-purposes. The kids are waiting around for the spouse to die, frankly, and they want her to spend as little money as possible during her lifetime so that they eventually get more.

Often, this plan will put the surviving spouse in charge of the estate, as well. That adds even more pressure between her and the kids. The surviving spouse is in charge, yes, but she still has to answer to the kids, who have certain rights in some states. They generally have a right to know how the money is being invested, for example, and to have a sense of what the distributions are.

On the flip side, a client may decide to set up the estate for the benefit of the spouse for the remainder of her lifetime, but they opt to put one or more of the kids in charge of the estate as a kind of balance.

Seems like a reasonable compromise, right? Well, not really. It’s going to create a difficult situation where the surviving spouse is basically having to go to the kids and ask for money, which can create real tension.

THINKADVISOR: Seems like these situations are ripe for litigation?

DICKINSON: No question. In Florida, where I practice, a controlling trustee has a duty to account for their actions to the qualified beneficiaries. Say the surviving spouse is put fully in charge, but they are just blowing through the money and they’re making really poor investment decisions. Or, maybe they’re making smart investments but they’re treating themselves to $40,000 vacations to France every few months.

Well, the kids in that situation have the right to go to court and say, “Hey, we have an interest here and the trustee is not following the express intent of the estate plan. We’re filing a lawsuit to ensure our rights and interests are respected.”

Sadly, these outcomes can really destroy families. They can also eat through a lot of the wealth during the litigation process. And generally, the outcome of the litigation isn’t going to be satisfactory for anyone involved. The parties almost always come out disillusioned and disappointed.

How do we prevent this? I counsel my clients to avoid creating a plan with multiple layers of beneficiaries whose interests are always going to be at odds. Is there a smarter way that we can separate the interests of a surviving spouse and children from a prior marriage so that there can be more separation after death?

Maybe the plan dictates that the spouse gets the house and a certain amount of the liquid estate, and the rest of the estate and the future royalties goes to the kids equally. The key is getting out ahead of the tension — and to communicate the plan clearly and consistently so that everyone involved knows exactly what to expect and why the wealth-creator wants it that way.

Unfortunately, clients often have trouble communicating about all this with their current spouse, let alone with their ex and their kids. That leads all the stakeholders involved to fill in the blanks and create inflated expectations that are eventually dashed.

THINKADVISOR: What causes this lack of communication?

DICKINSON: It’s many things. First of all, it’s not fun to deal with death and mortality. Estate planning is a process that requires deep discussions about mortality, about the importance of kids versus spouses, versus widows, etc. People just don’t like to deal with that. It can cause angst.

Talking about money across generations is also just really tough for most families. People will so often say to me, “I don’t need to worry about this stuff because my family is so close. They’re not going to fight about money.” That’s just naive, unfortunately.

Lastly, I think it’s about a sense of losing control, and there’s also a concern about sapping the work ethic of the next generation via disclosures about big future inheritances. They worry that their beneficiaries can lack purpose, and I think they’re right to be worried about that. It’s actually very common to see beneficiaries with life issues.

As in so many other areas of life, one has to balance all these different factors to come up with a plan that is going to work for everyone. It’s not easy, but it is essential.

(Credit: AP Photo/Alastair Grant)