Tom Clancy’s widow once again scored a legal victory on Aug. 24, 2016, in what’s been a drawn-out battle over who will shoulder the tax bill on the late author’s $86 million estate. The Court of Appeals of Maryland (the Court) affirmed the lower court’s ruling that Mr. Clancy’s intent, as set forth by his will and the Second Codicil amending it, was to preserve the marital deduction for the benefit of Alexandra Clancy and their daughter (who’s a minor).
Savings Clause Trumps Will Provision
Mr. Clancy’s will created three residuary trusts: A marital trust and a family trust for Mrs. Clancy and a separate family trust (the children’s trust) benefiting his four adult children. The children asserted that their father intended that the federal estate taxes be paid out of the residuary estate, including that portion that was allocated to Mrs. Clancy’s family trust. Mrs. Clancy didn’t dispute that assertion but argued that the Second Codicil’s qualification of her family trust for the marital deduction and the interpretation of the restrictions on the Savings Clause, as amended by the Second Codicil, excepts her trust from having to bear the burden of estate taxes.
The Second Codicil didn’t directly address the will provision that instructed taxes to be paid out of the residuary estate (of which her family trust was a part). The Court instead relied on the “interpretive aid” of the Savings Clause to determine that the Savings Clause contained in the Second Codicil trumps the will provision relating to the payment of taxes from the residuary estate.
Payment of Taxes Violates Codicil
Lansing R. Palmer, a partner in the Litigation Practice Group at Akerman LLP, in West Palm Beach, Fla., who represents Mrs. Clancy, pointed out the Court’s language about the Savings Clause of the Second Codicil. The court noted that the clause “explicitly directs that the personal representative [the executor] not act to adversely impact the benefit of the marital deduction of the Marital Trust and the Family Trust.” Mr. Palmer said this language underscored his client’s position that burdening the family trust with payment of federal estate taxes is “contrary to the entire purpose of the codicil.” The Court also relied on decisions in similar circumstances by other courts and the Internal Revenue Service’s decision in Revenue Ruling 75-440 in support of its conclusion.
Had the Court sided with the children, the resulting estate tax would be nearly $4 million higher, an outcome that Mr. Palmer believes would have been an “unfair and absurd result.”
This high profile case is yet another reminder of the role an estate planner plays in preventing estate battles among family members. If not for the ambiguity and various omissions in the drafting of the codicil, Mr. Palmer believes that this particular dispute could have likely been avoided.