Will Your Estate Plan Be Followed?
Sometimes an estate owner goes overboard and the effort ends up backfiring. When an estate plan becomes too detailed or restrictive, it might not be followed. Before executing an estate plan with restrictions or detailed rules for the future, consider the case of Albert Barnes and his estate plan.
A general rule is you can put almost any restrictions and rules in your estate plan, as long as they aren’t against public policy and don’t encourage violations of the law. But there always are exceptions to legal rules.
When someone leaves money to charity or with the intent it will benefit more than one generation, often attached are some instructions or directions about how the money is or isn’t to be used. These are known generally are directed trusts or directed bequests. Sometimes they are called conditional bequests.
The idea is that the intended recipient has to agree to follow the directions in order to receive the bequest, and the beneficiary can lose the bequest if the conditions aren’t followed over time. But beneficiaries can skirt the rules and sometimes courts allow them to ignore some or all of the directions.
Barnes was a chemist who became very wealthy from an invention. He used his wealth to accumulate a widely-admired art collection, estimated to be worth $25 billion or more today.
In his will, Barnes established a foundation that would own and manage his art collection. But he established a lot of rules for the foundation to follow in perpetuity.
He directed that the art never would leave the facility he built for it in the Philadelphia suburbs. It also had to be displayed exactly as he arranged it at the time of his death. No pieces could be lent to other museums, and tours couldn’t be arranged to display the pieces elsewhere.
In addition, the art would be available for public viewing only one day a week and the amount that could be charged for admission was limited.
Over the following decades, the trustees of the foundation periodically went to court to have various restrictions changed or eliminated for being impractical or outdated.
Ultimately, a court ruled the collection could be moved permanently to the museum district in Philadelphia and be controlled by the art establishment Barnes disliked.
The court said the trustees showed that it was impossible to maintain the collection with the restrictions in place. The foundation needed more money to protect the collection, keep it intact, and ensure it is used for education purposes as Barnes wanted. The general purpose of using the collection for education purposes overruled the specific directions in the will.
While the Barnes case involved a charitable foundation, the same principles can be applied to a bequest to a family member or a trust for the benefit of family members.
The key lesson of the Barnes case is that it’s difficult to anticipate all the things that could happen in the future when developing an estate plan. The longer you want the legacy to last and the more you want to control how assets are used, the more difficult it is to achieve the goals. That’s why many estate planners discourage specific directions for or restrictions on bequests, especially when there is a trust or charitable foundation that is expected to last for generations.
Planners often recommend that general principles and goals be established instead of detailed rules. Many estate planners now also recommend that charitable trusts and foundations be required to terminate their operations and distribute all their money and assets after a certain period of time has passed.
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