One hallmark of summertime in the U.S. is the onslaught of disaster movies. For me, there’s nothing like a great “the-world-is-under-attack-so-blow-‘em-up-real-good!” movie. So when temperatures crept into the 80s and trailers for “world under attack” started showing on TV, I couldn’t help but think about the “disaster” provisions in estate planning documents, aka “contingent beneficiary” provisions. Also, while reading a couple of cases and thinking about questions frequently asked by clients, I knew I had a winning screenplay, or a half-way decent blog post. So grab your popcorn and enjoy the move…I mean post.
Ornery old Great-Grandma Cornelia Stamper decides to write her will and leaves one of her oil wells to her son, Harry. She names it “Harry Stamper’s Well.” Before she dies, though, Harry marries Anna and he and Anna have a daughter, Grace. Cornelia isn’t so keen on Anna, so she draws up a trust leaving income from the “Family Stamper’s Well” to Harry for his life and upon Harry’s death, the income from the well should be distributed equally among Cornelia’s heirs.
Cornelia dies at the grand old age of 98 and Harry then draws up a trust leaving Harry Stamper’s Well to Grace and continues his life’s work – drilling in Alaska.
Suddenly one day, Harry learns from his buddies at NASA that an asteroid is headed for Earth. Harry then changes his trust and adds a charitable contribution provision, giving part of the income from Family Stamper’s Well to the Red Cross and Medicins Sans Fronteirs and the rest to his descendants. Also, Grace has a trust created and leaves the income from Family Stamper’s Well to the same 2 charities.
Fortunately, Harry’s NASA buddies blow the asteroid up real good and none of the particles cause any damage to Earth.
A year later, while drilling near Russia, Harry is told that aliens attacked Earth and wiped out all his relatives including, Grace. Harry’s heart can’t take it and he dies. However, Grace actually escaped the attack but is the only Stamper left.
Grace’s friends, David and Steven, however, blow up the alien ship real good and things return to normal – kinda. Half the world’s population is gone, so the Red Cross and Medicins Sans Frontiers have a lot of work to do. They are counting on Harry’s gift and know that the funds are available because the banks were saved. Go figure. Accordingly, they hire a lawyer; lots of us survived. But their meeting with the lawyer didn’t go well. My clients know why because these were their questions:
1. Can income from a life estate be given away by the owner of the life estate? In other words, could Harry bequeath income from Family Stamper’s Well?
No. Cornelia left the income to Harry for his life only and then to Cornelia’s heirs. So unless Grace is feeling charitable during her lifetime, the nonprofits are out of luck until Grace dies.
2. What would have happened if Grace died in the alien attack but Family Stamper’s Well had dried up? In other words, what happens when the “gift” is no longer in the estate?
If Grace knew the well was drying up and didn’t change her trust to provide for this event, then the gift would be considered “revoked,” or “adeemed” in legalese, and the charities out of luck. If Grace didn’t know and say the well was destroyed by the aliens, then the gift is still considered revoked unless she provided in the trust that the loss should be covered by insurance.
3. What would have happened if Grace died and she didn’t name anyone to take the income?
That’s the real disaster. With all of the Stamper beneficiaries dead and no charity named, the income and well would probably go to the remaining population – bankers and lawyers.