Who Gets the House? Estate-Planning Don'ts From Celebs
Should the daughter who moved in with her mother to take care of her be allowed to live in the house after Mom dies? Should the new wife get the home the first family was raised in? What if four siblings inherit a vacation home and all but one want to sell it?
Family dynamics and human nature transcend wealth and fame. The issues of how to pass on your real estate holdings have played out on a public stage, thanks to celebrities like Michael Jackson and Katharine Hepburn. There are lessons to be learned from them.
AOL Real Estate spoke with attorney Danielle Mayoras, co-author of "Trial and Heirs," for advice on how to avoid property-inheritance mistakes.
1. Don't rely on verbal agreements.
Singer Don Ho, according to several of his adult children, made a promise to his estranged first wife on her deathbed that he would let their six children inherit the family's beachfront home in Lanikai, Hawaii. The eight-bedroom house had been in the family for decades and was where his first wife lived until her death. The problem: Ho made his promise verbally, never in writing. He subsequently listed the house for sale, but his adult children reportedly didn't think he was serious, nor did they think anyone would pay the asking price of $10 million, so they took no legal steps to block it.
While the home was still on the market, Ho died of a heart failure. The trust lowered the price on the 17,000-square-foot estate to $6.8 million - at which point all heck broke out among Ho's 10 children, including four from subsequent relationships. The Lanikai house sold for $6.05 million in 2008, but that hasn't stopped the squabbling. About a month ago, six of the adult children were forcibly evicted by the police from Ho's Diamond Head property. Figure the only winners in this ongoing legal battle are the lawyers who are getting richer.
Much of the squabbling would have been eliminated had Ho's alleged verbal promise been put in writing, says Mayoras.
2. Don't just create a trust; fund it too.
As detailed in Mayoras' book, Michael Jackson created a family trust - but he didn't transfer his assets into it. A startling number of trusts are created and then left unfunded, she says. In the case of a home, a new deed must be prepared that transfers ownership of the property from your name into the trust's name, a transfer that must be signed and recorded. "It's like transferring your cash from one pants pocket to the other one," Mayoras says.
Because Jackson never took that step, his family had to go through probate court and expose all his dirty laundry to the public eye. If the trust had been properly funded, probate wouldn't have been necessary - although we suspect Michaelmaniacs would have still found a way to poke their noses into the affairs of the estate.
3. Prove your competency at the time you write your will.
More than one eyebrow was raised when Florida heiress Gail Posner left $3 million in cash and a house worth $8 million to her three dogs. She also left $27 million to her household staff, caregivers and body guards. Much to his chagrin, her only son got just $1 million. The case is in the court system right now and thus far, the son has not been successful in his legal challenge claiming the staff exerted undue influence on his mother, but Posner's mental competency has certainly been called into question.
Bottom line, says Mayoras, "if you are going to do something creative with your assets -- like give an $8 million house to your dogs -- make sure you dot your I's and cross your T's." Specifically, she suggests taking a few extra steps to prove you are of sound mind when you made these decisions. She suggests having a lawyer videotape you reading your will, maybe even explaining your choices. A doctor's letter confirming mental competency can be attached.
4. Expect post-mortem disagreements and address them while you are alive.
Whether you leave your assets to your pet, a la Queen of Mean Leona Helmsley, or to your favorite charity, you can pretty much expect your human children, spouses, former spouses and business partners to wonder why they didn't get more. Even in families that get along, there are frequently disputes about the division of assets after someone dies.
Know what you want to do and spell it out clearly -- which, of course, is often easier said than done.
In the case of actress Katharine Hepburn's New York townhouse (pictured), the listing agent recalls being mortified to learn that before putting it on the market, Hepburn's heirs stripped the Turtle Bay Gardens home of all personal possessions and painted the walls white.
"Imagine Katharine Hepburn with white walls," says an incredulous Eileen Robert of the Corcoran Group. All the celebrity premium Robert had hoped to use in marketing was gone. "You had no sense that Hepburn had lived here."
Robert remedied the problem of "where'd Katharine go?" by finding old photos of the elegant actress and blowing them up to life size. She placed them in the rooms where they had been taken - Hepburn in the kitchen, Hepburn at her dressing table, Hepburn writing a letter.
It worked, and the unit sold for around $4 million. The unit is now available for lease at $25,000 a month through Trudy Schlachter of Prudential Douglas Elliman Real Estate.