Perhaps the most appropriate musical ode to disgruntled estate beneficiaries that I’ve ever heard is the late Tom Petty’s I won’t back down. This track was the first single off of his 1990 album, Full Moon Fever, and has been a fan favorite since the day it was released. The single opens with the narrator defiantly telling the world, “I won’t back down, no I won’t back down. You can stand me up at the gates of hell but I won’t back down.” One of the more frustrating things about the time I spent practicing law was dealing with beneficiaries who must have constantly had Tom’s song playing in the back of their heads as they wasted attorney’s fees trying to settle some ancient score with a sibling, stepchild, or other beneficiary.
It has recently come to light that, almost two years after Mr. Petty’s death, several of his surviving family members are taking sides and none appear to be willing to back down. The parties arguing in Mr. Petty’s estate are two of the most common types of beneficiaries to never back down: a surviving spouse on one side and children from a previous relationship on the other.
There is no bigger red flag when planning for the generational transfer of assets than families that have children outside of the marriage. The reason this area generates so much in legal fees is that the surviving spouse is often pitted against surviving children who are not their own. This is further complicated when the surviving spouse has children of his or her own — these children may put the surviving spouse in a conflicted position in which spending funds out of one account versus another can dramatically change the inheritance that passes to the children and stepchildren when the surviving spouse dies.
Consider the following basic example in which a widow is left both a trust and a retirement account by her husband. The trust carries with it directions about who is to receive the funds after the widow passes away. (In limited cases the widow has the ability to alter who receives the trust funds upon her death, but most of the time, trust documents spell out who the remainder beneficiaries are and how they are to receive the assets.) The retirement account, on the other hand, rolls over to the widow after her husband’s death. Once this rollover happens and the account becomes a Spousal IRA, the widow has complete control to name whichever beneficiaries she’d like.
In Tom Petty’s case, it appears the structure of a Limited Liability Company (“LLC”) is at the center of the dispute about the use of Tom’s likeness and song catalogue. The LLC was created by Mr. Petty’s estate planning documents and sought to divide power among his surviving spouse and two daughters. The management of his estate has gone sideways and each side has filed cases against the other in Los Angeles Superior Court. With any luck, the parties will be able to settle out of court and the estate will release loads of “Tom Petty and the Heartbreakers” material from the digital vaults.
The Petty family case is instructive because it demonstrates one of many possible scenarios where commonly used planning tools may inadvertently give leverage to one side of the family over the other. Every family is different, so you should talk with your estate planning team about the unique structure of your family when you prepare your own legal documents and asset transfer plan. Please contact our team if you’d like to talk about the ways that Arnerich Massena’s team can help facilitate this dialogue.