CHICAGO — In a case that married dry-as-dust estate-planning issues with “Dallas”-like squabbling among wealthy family members, a Texas court has decided that King Ranch heir B.K. Johnson had all his faculties when he drew up his last will and that his widow and third wife didn’t manipulate him into excluding his children.
The decision, handed down by a Bexar County Probate Court jury in San Antonio last Thursday, came after a four-month-long trial in which Mr. Johnson’s adult children argued that he was too addled by alcoholism and too unduly influenced by wife Laura McAllister Johnson to make a valid will or set up a
trust.
Mr. Johnson’s children, his son’s widow and his eight grandchildren filed their suit against Ms. Johnson in 2003.
The case, advisers say, illustrates a problem that is becoming more common: wealthy clients grappling with what to leave spouses and adult children from former marriages, and the best ways to structure their estates.
Mr. Johnson, who died at age 71 in 2001, left an estate worth between $40 million and $60 million. The majority of the estate was placed in a
trust for Ms. Johnson, who receives an annual income of $800,000 to $900,000 from the
trust.
Upon her death, at least half of the money will go to charity, and the remainder to Mr. Johnson’s descendants or to charity. The choice is up to Ms. Johnson. Mr. Johnson included this provision to ensure that if one of his descendants were ill, Ms. Johnson would have the ability to provide money for that child.
During his life, Mr. Johnson crafted dozens of wills that included his children, but his final will did not. He created trusts for them, however, which are now each worth $10 million or more, according to Dale Jefferson, managing partner at Martin Disiere Jefferson & Wisdom LLP in Houston, who represented the widow. In addition, Mr. Johnson’s daughters, Sarah Johnson Pitt and Cecilia Johnson McMurrey, and his son’s widow, Cecilia Johnson Hager, received his $75,000 collection of vintage firearms.
Mr. Jefferson called the jury’s verdict “a great day for the memory of B.K. Johnson.”
The day was noteworthy for others, as well.
Attorneys for Mr. Johnson’s children and grandchildren were awarded $6.25 million in attorneys’ fees, while lawyers for the estate were awarded $4.8 million.
In addition, J.P. Morgan Trust Company of Delaware in Newark was found guilty of malice and assessed damages of $1.3 million in connection with a separate
trust that Mr. Johnson had set up for his grandchildren. At the time of their verdict, however, jurors were unaware that J.P. Morgan Trust and plaintiffs had reached a superseding agreement in which it would pay $200,000 and give up management of the Johnson grandchildren’s
trust.
That
trust is worth approximately $7 million, said Jim Hartnett Jr., an attorney with The Hartnett Law Firm in Dallas, who represented the plaintiffs. He said that J.P. Morgan Trust set up the
trust for Mr. Johnson but never notified the grandchildren of the
trust and that the company dipped into the
trust to pay Ms. Johnson’s legal fees.
Greg Hassell, a spokesman for J.P. Morgan Trust, said: “We’re pleased that most of the allegations were dismissed and that we put this matter behind us.” Earlier this year, the judge had dismissed other charges against J.P. Morgan Trust.
The issue of client competence is a sticky situation with which advisers may have to contend, observed Jim Holtzman, a financial adviser with Legend Financial Advisors Inc. in Pittsburgh. He suggested that videotaping a client as they sign their will can demonstrate that the person was of sound mind and not under anyone’s influence.
Mr. Holtzman also believes that letting adult children know their parent’s wishes for the estate while the parent is alive can help avoid suits. Also, he suggests that the adult children sign a letter saying they understand the parent’s wishes — even if they don’t agree with them.
Family dynamics
“You always have family dynamics to deal with. If a person was of a sound mind, it’s their money and their will,” Mr. Holtzman said.
Sidney A. Blum, a certified financial planner with GreenLight Fee Only Advisors LLC of Evanston, Ill., has seen cases similar to the Johnson case, where clients want to provide for their second or third spouses, and children are angry about it.
A popular provision he has suggested is to put a clause in the will that gives children some inheritance but removes them from the will if they protest it.
“If you have a no-contest clause, and someone fights it, then they’re in effect cut out of the will,” Mr. Blum said.
What quite often happens is that people want to provide for their current spouse, as well as their adult children, said Richard P. Breed III, an attorney with Boston-based Tarlow Breed Hart & Rodgers PC.
To do that, many clients use a qualified terminable interest property trust, known as a Q Tip. This approach is popular because the spouse will receive the income from the trust, and children will receive the remainder of the trust once the spouse dies.
