Since his death at the age of 81 in 2009, the widow and two children of Don Callender (Don), founder of Marie Callender’s restaurant chain, have battled in court for a larger slice of inheritance pie left behind by Don.
YOUR SENSE OF FAIRNESS
Without knowing the facts and laws, choose one or more scenarios from below that seem fair to you regarding distribution of assets in this case:
- Half of the assets to the widow and the other half to be shared equally between the two children.
- One-third of the assets to each the widow and two children.
- All of the assets to the widow and nothing to the two children.
- All of the assets to charities and nothing to the widow and the two children.
DON CALLENDER’S TRUST
Cathleen Callender (Cathe), Don’s daughter from a prior marriage, Catherine T. Callender (Katy), Don’s widow, and Donald Lucky Callender (Lucky), son of Don and Katy, disagreed on the division of Don’s assets held in the trust he had created in year 2003. The assets consisted of cash approximately $66 million, real estate valued approximately $22.5 million, miscellaneous assets valued approximately $5 million, and royalty for use of the name “Marie Callender’s,” the most valuable asset, valued between $51.6 million and $78.5 million.
Upon Don’t death, the terms of Don’s trust required the trustees
- to create three separate subtrusts, one for each Katy, Cathe, and Lucky;
- to transfer one-third of the assets to each subtrust; and
- to pay all estate (inheritance) taxes equally from Cathe and Lucky’s subtrusts only.
Has your sense of fairness changed after having more facts?
CALCULATING THE ASSETS
Before distributing any assets to the three subtrusts, the trustee paid $38 million of estate taxes. The trustee deducted $19 million from each one-third interest of Cathe and Lucky then recalculated the percentage to be distributed to each subtrust. The trustee’s recalculation changed the distribution from one-third of the assets to each subtrust to approximately 50% to Katy’s subtrust, 25% to Cathe’s subtrust, and 25% to Lucky’s subtrust. Future receipts of royalty would be allocated to each subtrust using the 50-25-25 formula. Cathe, Katy, and Lucky signed a document agreeing to the 50-25-25 formula.
The trustee later realized that no recalculation after the payment of estate tax was needed and that all assets, including future receipts of royalty, must be allocated one-third to each subtrust. Cathe wanted the 1/3 formula while Katy and Lucky (who would inherit Katy’s share) demanded the 50-25-25 formula.
Which formula did Don want the trustees to use?
DON’S WISHES CONTROLLED
The trial (lower) court ruled that the 50-25-25 formula should be used. The appellate (intermediate) court disagreed with the trial court and reversed the trial court’s decision. The appellate court found Don’s intent was to use the 1/3 formula.
DOCUMENTING SETTLOR’S INTENT
The intent of a settlor, person who creates the trust, is one of the most important factors to be considered by the court in inheritance litigations. Intent can be expressed in writing (trust document, will, journal), orally (telling the settlor’s attorneys, accountants, family members, friends), or by conduct (giving cash on a child’s birthday, paying for grandchildren’s college tuition). Consistent expression of intent by different modes is recommended.
Unfortunately, a settlor often changes his or her mind, creating conflicting intentions. An experienced trust and estate attorney understands the critical facts required by laws to interpret conflicting intentions. Thus, a settlor would greatly benefit from consulting an experienced trust and estate attorney when creating or changing an estate plan.