Based upon George Barr McCutcheon’s 1902 novel of the same name, Brewster’s Millions is the story of Minor League Baseball pitcher Monty Brewster (Richard Pryor). Though unintended, the story is a useful lesson in estate planning. Well, we’re going to use it for that purpose anyway and how North Carolina laws apply to estate planning, wills and such. So here’s the story, Monty and his friend, Catcher Spike Nolan (John Candy) are happy playing for the minor league Hackensack Bulls (who happen to have a railroad running through the outfield!). Brewster and Nolan are arrested (after getting involved in a bar fight) and find themselves before a municipal judge. Unable to make bail, a stranger comes forward and posts bail for them. The stranger then escorts them across the river to a Manhattan law office, where Brewster and Nolan are informed that a great uncle whom Brewster has never met has left Brewster his entire fortune.
But there are strings attached. Brewster’s uncle left behind a video in which he attributes his fortune (in excess of $300 million) to the intense frugality he has developed during his life. He goes on to explain his concern that his fortune will be wasted by Brewster, who has no concept of money, but that he has no other relatives to whom he could leave it.
So the will provides that Brewster can take $1 million dollars and go, no questions asked. This would leave the balance of the inheritance in a charitable trust managed by the NYC law firm (no doubt for a less-than-charitable fee). Or he can accept the challenge: spend $30 million dollars in 30 days. He may donate only 5% to charity and lose 5% gambling. If he hires people, he must receive value. He can buy anything he wants, but at the end of the 30 days can have no assets. He can tell no one the terms of the deal. A paralegal from the law firm will be dispatched to maintain the financial records. If he succeeds, he gets it all. If he fails, he gets nothing.
So you can order a pizza and download the movie to see if he makes it. We will discuss a couple of legal issues raised by the movie.
The first is the video of Great Uncle Rupert delineating the terms of his will. While video wills are not valid in North Carolina (see a past blog post on the use of video wills), the idea of explaining to your heirs why you have done something is less common than it should be—especially if what you are doing is unusual. If one or more of your heirs won’t like what you are doing, it may help it to be accepted (or at least understood). It will diminish the likelihood of bad feelings and family damage. And it may make your instructions substantially less prone to legal challenge. Now if you are using a will, remember that a will is a public document open to viewing by anyone and everyone. This may or may not matter to you, but you should realize it. One of the BIG advantages of a trust is that the trust documents are NOT public, so the only people who will know what you are doing are those impacted.
What about the challenge: spend $30M in 30 days to get the inheritance? This raises what we call “spendthrift” and “incentive” issues. Of course there are also some serious issues about the vagueness of the terms—I can’t imagine that the terms of the challenge and Brewster’s satisfaction of them would not get litigated given the amount of money involved. But those are drafting issues (i.e., related not to the idea itself but how the document was constructed) of a technical nature. There was also a conspiracy to prevent Brewster’s success which would certainly be actionable.
Back to spendthrift and incentive issues. At Sorrell Law Firm we automatically put some general spendthrift terms in any RLT we draft. But we can do very specific and detailed things for clients that are interested. In general, spendthrift terms are about protecting the inheritance. Specifically, these terms can allow the trustee to refuse to distribute money from the trust to an heir who has creditors on his or her heels. This prevents the inheritance from going to the creditor (or that nasty soon-to-be-ex-spouse). Though in theory such terms can be put in a will, because they are more difficult to enforce and more open to challenge it is preferable to use a trust if this is important.
If, as with Brewster, the concern is not so much creditors as the heir’s own profligate spending, a discretionary trust may be a useful tool. The discretionary trust allows you protect the inheritance from the heir. It does so by allowing you to appoint a trustee who will exercise “discretion” in giving money to the heirs. You can “direct”, or order, the trustee to pay certain kinds of expenses for your heir (medical bills, tuition, a set allowance, etc.), put certain things entirely off-limits (e.g., no money to build a life-size replica of the Starship Enterprise), and give the trustee discretion over other potential expenditures (with or without stating your general goals as guidance). There is a lot that can be done with such trusts, and they are underused. In fact, if we can get it put into words it can probably be done—but it takes a trust, a will won’t suffice. And it requires having the right trustee, thinking through things carefully, and proper drafting, but more on all of that elsewhere…
Incentive trust terms have some similarity, but are different in approach. The similarity lies in the fact that they are usually founded upon some concern either for what an heir will do with the money once he has it, or what the heir will do (or not do) with her life once she has money. But with incentive terms, rather than protect the money (or, more often, in conjunction with protecting the money) you are incentivizing behavior. So, for example, you might say “pay ½ to my daughter when she graduates from law school, and the other ½ when she becomes partner or opens her own practice”. Again, we can do almost anything we can put into words, the major exception being that courts may not enforce terms that are deemed to violate public policy. However, it is rare that this is an issue. At least not for our clients, anyway.
At Sorrell Law Firm we work with our clients to tailor estate plans to accomplish their goals and address their concerns. Spendthrift and Incentive Trust terms are just two of many tools we have to accomplish that. We would love to have the opportunity to count you among our clients and to help you achieve your goals!