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Helmsley Will Includes Interesting Qualified Contingency and Other Provisions
When the late New York billionaire hotelier Leona Helmsley's will was made public in Westchester Surrogates Court last week, most of the attention of the press fell on the $12 million Helmsley left in trust for the benefit of her canine companion, Trouble. For charitable gift planners, however, the philanthropic components of her will also made for some interesting reading.
by Marc D. Hoffman
When the late New York billionaire hotelier Leona Helmsley's will was made public in Westchester Surrogates Court last week, most of the attention of the press fell on the $12 million Helmsley left in trust for the possible benefit of her canine companion, Trouble. For charitable gift planners, however, the philanthropic components of her will also made for some interesting reading.
The Helmsley will directs the following:
- $3 million to "The Helmsley Perpetual Care Trust" for the maintenance of the family mausoleum and other resting places - including annual steam cleaning or acid washing and quarterly inspections by trustees.
- Outright gifts of $5 million each to brother Alvin and to two grandsons, and $100,000 to her chauffeur.
- Two other grandchildren are disinherited "for reasons which are known to them."
- The balance of the estate is transferred to "The Leona M. and Harry B. Helmsley Charitable Trust."
Heir of the Dog
Regarding her pampered pooch, a careful reading of the will doesn't actually say the 8-year-old Maltese receives anything. Article I, Paragraph F directs $12 million to the trustees of "The Leona Helmsley July 2005 Trust." However, since that trust was created inter vivos, its provisions are not a matter of public record. Trouble is, however, mentioned in the next sentence. She is given to brother Alvin with instructions that when she dies, her remains will be laid to rest next to Mrs. Helmsley. Due to the proximity of these provisions, one can speculate the trust may name Trouble as a "bone-ficiary" for her life with the remainder to "The Leona M. and Harry B. Helmsley Charitable Trust." (Trouble was last reported summering in Cannes with veterinarian bodyguard in tow. Perhaps the cat didn't keep his tongue.)
In reality, AP has reported there may be trouble ahead for Trouble. First, New York law prohibits animal remains being buried in human graveyards, so Trouble will have to find other accommodations. Second, Trouble often lived up to her name by biting the hand that fed her. In fact, a Helmsley housekeeper sued her employer in 2004 over one of those bites, but lost on the grounds Helmsley was protected under Worker's Compensation Law. Now, the housekeeper is considering taking a bite out of crime by going after Trouble's trust.
Anything Bearing the Helmsley Name
The will also directs "that anything bearing the Helmsley name must be maintained in 'mint' condition and in the manner that it has been accustomed to, maintaining the outstanding Helmsley reputation." However, the vagueness of this provision might be difficult for the probate court to enforce, lest unrelated parties start renaming their yachts and airplanes "Helmsley" in a matching font and submitting maintenance receipts to the estate for reimbursement.
The Charitable Remainder Trusts
The will creates three charitable remainder unitrusts: $10 million to a trust for the benefit of brother Alvin and $5 million to each of two trusts for the benefit of two grandsons.
All three trusts will bear a 5% payout rate with standard payout format payable for the life of each income recipient with the remainder interest payable to "The Leona M. and Harry B. Helmsley Charitable Trust." If the Helmsley trust does not qualify under sections 170(c) and 2055(a) at the time of distribution, the trustees shall in their sole discretion distribute the remainder to one or more organizations having purposes similar to those described in the Helmsley trust.
Will the Grandsons' Trusts Qualify?
One question that should come to the minds of those familiar with CRTs is whether the trusts for the grandsons will satisfy the 10% remainder interest test of IRC §664(d)(2)(D). Imposed by the Tax Reform Act of 1997 to curb the abusive "Accelerated CRT," the value (determined under section 7520) of the remainder interest must be at least 10 percent of the initial net fair market value of all property placed in the trust. In the case of a testamentary CRT measured by life, the age of the income recipient on the date of the testator's death is used for the calculation. Since the grandsons are at least 25 years old, their trusts would satisfy the test; however, that might not have been the case when an earlier will containing this provision was drafted.
Although the reformation rules permit a trust that fails the 10 percent test to be modified to qualify (e.g., by reducing the measuring term from the life of the income recipient to a fixed term of up to 20 years), the Helmsley will anticipated this possibility and specifically overrides this option by stating:
"However, anything to the contrary notwithstanding, I direct that even if the value of the charitable remainder interest is less than the minimum amount which is required for a trust to qualify as a charitable remainder trust (such minimum is currently ten percent), I nevertheless direct that the unitrust amount of five percent not be changed, even if it means the trust would therefore not qualify as a charitable remainder trust."
If a trust fails to qualify, it will fail to produce an estate tax charitable deduction and operate as a complex trust for its measuring term with the remainder to the Helmsley trust. In the context of an estate that has been estimated at between $4 and $8 billion, the loss of the estate tax deduction was less important than ensuring income to the grandsons for their lives.
Leona Helmsley's son Jay died in 1982. Mrs. Helmsley apparently felt very strongly that her grandsons honor their father's memory by visiting his grave at least once every calendar year, preferably on March 31st, the anniversary of his death. Accordingly, she placed a qualified contingency in her will that will terminate her grandsons' income interests in their CRTs if they fail to honor this wish.
IRC §664(f) allows a trustor to terminate a charitable remainder trust prior to its stated measuring term based on the happening of a "qualified contingency." IRC §664(f)(3) defines a qualified contingency as, "any provision of a trust which provides that, upon the happening of a contingency, the unitrust or annuity trust payments will terminate no later than such payments would otherwise terminate under the trust." This provision offers trustors very broad latitude in determining when a trust will terminate. In the present case, the qualified contingency is the failure on the part of the grandsons to sign at least annually a register that has been placed in the Helmsley Mausoleum. The provision shall not apply, however, during any period the beneficiary is unable to comply by reason of physical or mental disability as determined by the trustees in their sole discretion.
Just as Mr. Crummey will live on in the minds of those who plan irrevocable life insurance trusts, imagine all of the "Helmsley Provisions" that will now require CRT income recipients to perform all sorts of interesting behaviorally-based tasks in order to continue receiving their income streams.