If anyone needs proof of the importance of revisiting their estate plans annually, the case of the high-net-worth Tweten family on the West Coast should supply it.
A decision in the case this week also may set a precedent for other cases involving a death in the anomalous tax year of 2010 when the federal government did not levy an estate tax.
In a "tentative" ruling this week, a Superior court judge in Riverside County, Calif., found on behalf of Leonard Tweten, the founder of audio visual company Magnolia Audio Visual, that his two estranged daughters may not receive their late mother's half of the $100 million estate right away. Instead, the estimated $50 million in dispute will remain with their father, who will derive income and other benefits of ownership of the sum contained in a marital trust. The sum will pass to the daughters only on his death.
Attorneys for Leonard Tweten, 85, claim the decision demonstrates that courts will rule to support the intent of a decedent, regardless of technical glitches related to the anomalous tax year. The attorneys add that the case underscores why clients should always reconsider their estate plans annually given the annual flux in estate laws. If they don't, they could end up with fractured relationships among heirs like the Twetens.
"This suit has kind of torn the family in half," says Rodney Lee, an attorney for Leonard Tweten of Palm Desert, Calif., pointing out that Tweten's relationship with his grandchildren now is ruptured.
"Even the most skilled professionals may be there and it may not dawn on them that your estate plan may change as a result of a change in the law," says Lee, of Ervin Cohen & Jessup in Beverly Hills.
Had Eileen Tweten, Leonard's wife of 58-years and a longtime co-worker in the family company, died in another tax year, no opportunity for such a dispute could have arisen. The fact that she died in 2010 made all the difference.
Typically trusts and wills are constructed so that a portion of the estate equal to the annual estate tax exemption goes into a bypass trust in order to pass directly to the children. Any amount above that which is subject to an estate tax goes into a marital trust for the surviving spouse. The marital trust defers taxation on its contents until the death of the surviving spouse. In this way, and had their mother died in 2008 or 2009, the Twetens' three children (only two of which have sued) would have received the amount of estate tax exemptions available in those years: $2 million in 2008 and $3.5 million in 2009.
However, when the estate tax is zero - as it was in 2010 - all the assets in the estate enter the bypass trust to transfer to the children. Some, but not all, states have passed legislative fixes to the potential problem. California decided not to in order to give people the option of passing assets to the next generation this way, according to the daughters' lawyer, Adam Streisand of Loeb & Loeb in Los Angeles.
Leonard and Eileen Tweten signed their estate planning documents in 2008 after several months of meeting with financial planners and lawyers. Two years later, and just 12 days before she passed away, her estate planning attorney, her husband and the couple's financial planner Matthew McCutchen of the McCutchen Group in Seattle came to visit her. Her lawyer handed her the amendment that was intended to ensure those funds would pass to Leonard via the marital trust and not enter the bypass trust.
The daughters, now middle-aged, contend that their mother was well aware of the absence of a federal estate tax in 2010 and wanted those funds to pass immediately to them.
"Everybody knew that was the law" in 2010, Streisand says. "The Twetens knew it. This trust simply said give the max amount to my kids and the rest defer into a marital trust until my husband died."
Instead, Streisand says, no one explained what the amendment meant to Eileen Tweten before she signed it in a "terminal delirium," according to Streisand. The daughters allege their father or someone else used "undue influence" to obtain a signature.
Lawyers for the father say this is not the case and that Eileen Tweten was fully aware of what she was doing.
"Their kids just tried to push (a technical loophole) open to take advantage of it," Lee says.
After both parents died, he adds, "The mother wanted the money to go to the kids outright. The father wanted it to go to them in trust. They were both very respectful of each other's views. There was absolutely no evidence that in the off chance that one of them were to die in 2010 that they would take advantage of what some have called 'the home run,'" a term the daughters used in the case to describe the tax opportunity in 2010.
If the Twetens had revisited their estate plan the year before Eileen's passing they might have clarified their position on the matter, long before Eileen's mental state became a lightning rod.
"This case points out what a terrible mistake this was," says estate planning expert and attorney Martin Shenkman of Shenkman Law in Paramus, N.J. "Her advisors could have dealt with it in 2010 or 2009. The reality of estate planning is that there are always issues that haven't been addressed. It's a valuable lesson for everyone about how bad it can get."
Reached by phone, the financial planner McCutchen said it is against his company's policy to discuss client matters.
Indeed, the trial highlighted discord between family members. Eileen was described as regarding her daughters as her closest friends, Streisand says. "The greatest joy in Eileen's life was her family," an obituary for her on Legacy.com says. "We will all remember family celebrations over the years with her delicious dinners and presents under the Christmas tree."
By contrast, Leonard Tweten's relationship with his daughters was markedly different.
"You feel that your daughters have always had an extreme dislike for you," Streisand says he said to Tweten during the trial. "Do you feel you have any responsibility for this relationship?'" Streisand said Tweten responded, "None whatsoever."
Which may seem ironic given that, under the terms of the estate plan signed by Leonard Tweten, Eileen Tweten's half of the estate will still transfer to their children after his death. And because she passed away in 2010, that amount will not be subject to estate tax regardless of when Leonard dies.
"We had parents who were extraordinarily generous to begin with," says Jeffrey Merriam-Rehwald, also counsel for the father with Ervin Cohen & Jessup. Lee adds, "They had allowed [the children] to live lives of material comfort that very few Americans ever get to experience yet here they are suing their father to get money that they were going to receive anyway."
The impact of the ruling as a precedence on other cases will not be widespread, Shenkman says, because the number of outstanding estates involving deaths in 2010 is necessarily limited.
"But to the people it does impact," he adds, "the effect is going to be huge, potentially."
For the Twetens the battle is not over. The ruling in the case is tentative while the judge waits to consider any further response to it. The daughters are now considering whether they will ask for a new trial or seek an appeal, according to Streisand. Meanwhile, attorneys for both sides say their respective clients are devastated.
Shenkman says he hopes the case illustrates that the annual cost of reviewing estate plans is vastly outweighed by the price of following in the Twetens' footsteps.
"The damage to this family is forever," Shenkman says. "That is tragic."