February 21 is the day on which we celebrate several US presidents who made noteworthy contributions to our country. As with any discussion that involves politics, a discussion about US presidents risks generating a variety of opinions about which reasonable minds can disagree. However, politics is not the focus of this month's newsletter. Instead, our aim is to examine a few of the important lessons we can learn from the estate planning of some of our country's most famous political leaders. Armed with these important lessons from history, you can help your clients make better decisions for their own estate planning.
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MEREDITH | PC
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Flower Mound Texas 75028
Washington was arguably the most universally beloved and revered US president. Volumes have been written about this man and what he accomplished during his life. One significant achievement that few people know about is the care Washington took to ensure that his final affairs were in order and that those who relied on him were cared for to the best of his ability. Washington's last will and testament, widely available online in its entirety, shows that he thought carefully about his final affairs and about those who depended on him; he also remembered many individuals by making very thoughtful decisions and gifts of items of personal property or specific bequests.1
It is worth mentioning that Washington had a rather nontraditional family situation and had to carefully consider how his estate should be distributed among his loved ones. At age twenty-six, Washington married a widow, Martha Custis, who had two children of her own from her previous marriage, whom they raised together. After his stepson, John Custis, died during the war from an infection, Martha and George Washington raised John's two youngest children as their own.2 As a result of his blended family, Washington carefully crafted the language of his will to provide very specific bequests to each of his surviving family members to ensure that they were well cared for long after he was gone.
Washington provides an excellent example in the level of thought and care with which he crafted his estate planning. Even if we do not have the wealth that Washington died with, we can still be very deliberate and thoughtful when it comes to how much, and to whom, we leave our wealth and meaningful items of personal property. By spending sufficient time and effort to think about and memorialize how we want to leave our possessions to our loved ones, we can leave a real legacy that has the potential to benefit generations.
While equally as famous as George Washington, Thomas Jefferson's financial situation was far less favorable than Washington's upon his death. Despite being a brilliant intellectual and the principal author of the Declaration of Independence, Jefferson nevertheless struggled to manage his financial affairs during life. In addition, he was saddled with both debts inherited from his family and that he had assumed by cosigning on a loan for a friend who died prematurely. When Jefferson passed away, he still had significant debts that his family had to repay. Because Jefferson had valuable real property but very little liquid cash with which to pay his debts, his executor ultimately had to sell the family land at depressed market prices to raise enough cash to pay his debts.3 The unfortunate result of these circumstances was that very little of Jefferson's property was able to be passed down within his family.
Many families today face similar problems with illiquid or insolvent estates. This issue arises most often when a business or farm owner has significant wealth tied up in their business or land but little cash in reserve to settle debts or pay transfer taxes at death. This can cause the families left behind to feel intense pressure to sell the business or the land at significantly less than they might otherwise be able to sell it for under better conditions in order to raise the cash necessary to pay the debts or taxes that will shortly come due.
Life insurance is an important estate planning tool often used to provide sufficient cash to pay a deceased individual's debts or transfer taxes. With the proper type and amount of life insurance, and by using certain estate planning tools such as irrevocable life insurance trusts, an individual can prevent a “land rich, cash poor” situation like that experienced by Thomas Jefferson's family.
Another well-known and beloved US president—a lawyer, no less—very surprisingly died without a will or any other type of estate planning in place. Lincoln, like so many of us, quite possibly believed that he had many more years to address this important task. His tragic murder at the hands of a political malcontent plunged Lincoln's family into a confusing and completely unfamiliar situation as they attempted to settle his affairs with no knowledge of where to begin. His oldest son, Robert, reached out to US Supreme Court Justice David Davis to take charge of Lincoln's affairs.4 Justice Davis generously stepped away from his duties on the court to assist the Lincoln family with the local court process for settling Lincoln's estate. His estate was divided between his wife and his living sons, most likely according to the default laws of the jurisdiction. However, it remains unclear whether this is how Lincoln would have wanted to see his property divided.
A key lesson is that no one knows when they will pass away. Even someone as important and well-versed in the law as Abraham Lincoln was caught unprepared for his untimely demise, sadly leaving others to guess what his wishes would have been with respect to his property. The family undoubtedly experienced significant distress and frustration by not having a clear understanding or plan in place for handling Lincoln's final affairs. Had Lincoln put some basic planning such as a will or a trust in place prior to his death, perhaps he could have helped ease his family through a very challenging time when he was no longer available to them.
Learning from These Presidents
There is a great deal more that could be discussed and learned from the experiences of these and other US presidents as it relates to estate planning. As you discuss some of these lessons with your clients, we hope that you will be able to help them think about their own estate planning and what they might want to do differently going forward. If any of your clients have circumstances similar to those discussed above and you would like to learn more about how to craft an estate plan that is designed specifically for their unique situation, give us a call. We would be more than happy to visit with you or your clients and discuss these matters further. Until then, Happy President's Day!
This newsletter is for informational purposes only and is not intended to be construed as written advice about a Federal tax matter. Readers should consult with their own professional advisors to evaluate or pursue tax, accounting, financial, or legal planning strategies.