Last Words from the "Queen of Mean":
By JOANNA GROSSMAN
|Tuesday, Sep. 18, 2007|
Real estate mogul and hotelier Leona Helmsley died last month at the age of 87, leaving behind billions of dollars, a spoiled dog, two disinherited grandchildren, and a gravesite to be maintained in royal style forever.
Leona Helmsley had many more than fifteen minutes of fame. She married Harry Helmsley (after he left his wife of 33 years) and together, they took the real estate and hotel business by storm. Their extensive holdings included the Empire State Building, among other valuable properties.
Much of Leona's time in the spotlight pertained to her difficult personality (thus her nickname "The Queen of Mean") rather than her real estate successes. To pick just two highlights, Helmsley was infamous for her poor treatment of employees. In 2005, she was sued (unsuccessfully so far) by a housekeeper who claimed Helmsley's dog had bitten her. (According to reports since Helmsley's death, that was not the dog's first alleged bite.) Earlier, in 1989, during the trial that resulted in Helmsley's conviction for tax evasion, a former maid famous quoted her as saying, "Only the little people pay taxes." Helmsley served 18 months in jail, but was, according to most reports, as mean when she got out as when she entered.
Helmsley's husband predeceased her by a decade. She inherited the bulk of his $1.7 billion estate, and at the time of her own death, she left an estate estimated to be worth between $2.5 and 8 billion, which she disposed of through a will and a series of trusts created both during her lifetime and at her death.
In this column, I will examine Helmsley's estate plan, which provides not only a window into her (narcissistic) idiosyncrasies, but also an opportunity to understand some basic principles of "succession" law - that is the law of who "takes" property when a person dies.
The Last Will and Testament of Leona M. Helmsley
Leona is survived by four grandchildren - the children (in legal terms, "issue") of her son, Jay, who predeceased her by 25 years - and an eight-year-old Maltese dog named Trouble. Her estate will presumably be disposed of pursuant to the terms of a 2005 will.
First, let's cover the gifts to humans:
$5 million as an outright bequest and $10 million to be put in trust for her brother, Alvin Rosenthal; $5 million outright and $5 million in trust to her grandson, David Panzirer; $5 million outright and $5 million in trust to her grandson, Walter Panzirer; $100,000 outright to her chauffeur Nicholas Celea; and $3 million in trust to maintain the final resting places of Leona (an ornate mausoleum) and a few close family members.
The mausoleum trust is designed to be perpetual - that is, to last forever. But each of the other trusts is designed to provide income only during their beneficiaries' lives. Her brother and grandsons are entitled to 5 percent of the value of their respective trusts each year (a so-called "unitrust") during their lives, but when each of them dies, the trust assets pour into The Leona M. and Harry B. Helmsley Charitable Trust, established in 1999. (The terms of this trust are not public, but reports suggest that its major beneficiaries include hospitals in New York where she has received care.)
Now, let's consider the treatment of her little dog, Trouble. Trouble is to be the property of Leona's brother, Alvin. Leona left $12 million in trust apparently for Trouble's care and feeding. (Technically, the will leaves the money to the Leona Helmsley July 2005 Trust. But because the bequest comes in a paragraph that deals otherwise exclusively with Trouble's treatment in life and after her death, readers have assumed the trust is for her care and feeding.) Presumably, the assets of this trust will
pour into the charitable trust when Trouble dies, as the assets of her other trusts do.
The Less Fortunate Heirs: How They Were Effectively Disinherited
Leona was survived by four grandchildren, but provided for only two in her will. (She was also survived by many great-grandchilren, none of whom are provided for.) She commented in her will, "I have not made any provisions in this Will for my grandson Craig Panzirer or my granddaughter Meegan Panzirer for reasons which are known to them." (Emphasis added.) This seems to be the Helmsley equivalent of Paris Hilton remarking of Nicole Richie during their estrangement, "She knows what she did."
Leona had no legal obligation to provide for her grandchildren (only spouses in American law have any claim to a forced share), and this provision is certainly sufficient to effectively disinherit them. She may have chosen to be circumspect about the reasons for their disinheritance because wills (unlike inter vivos trusts) are a matter of public record. Moreover, by omitting any explanation for the disinheritance, she protected her estate from a claim of testamentary libel, and protected her grandchildren from any public shaming that might follow from airing whatever animosity existed between them.
Control by the "Dead Hand"
Many aspects of estates law arise from a concern about control by the "dead hand." As a matter of policy, American law tries to limit the amount and length of control that can be exercised by the deceased. One result is the famous Rule against Perpetuities, the bane of law students and bar takers that ensures that the deceased's wishes do not hand over the heads of too many future generations. (The arcane complexities of this rule are such that some courts have found that it is not malpractice for a lawyer to draft a trust that violates it.)
Leona Helmsley is just the kind of testator jurists might have been imagining when they worried about the "dead hand."
Helmsley used her special provisions in her will to ensure that her wishes will be followed after her death. For example, Helmsley's will not only provides detailed instructions for dealing with her own remains - she asks to be interred, wearing her wedding band, next to her husband and her son in the Helmsley Mausoleum and, when the time comes, to be joined by Trouble and her brother - but also provides the means for all of the mausoleum's occupants to rest in style with a $3 million dollar perpetual care trust. (New York law seems to prohibit animals from being buried in human graveyards, however, so her wish to spend eternity with Trouble may be foiled.)
With the ability to tap into "any part of the trust income and principal" to care for the gravesites, the trustees should have ample resources to comply with the Leona's last demands, which include not only care, cleaning, maintenance, and lawn care, but also a once-yearly washing with acid or steam and inspections at least four times a year.
This type of trust would normally violate the Rule Against Perpetuities, because it has no definite ending point and does not serve a general charitable purpose. But New York, like many other states, has created an exception to the rule for trusts designed to maintain gravesites. (Because Helmsley was domiciled in New York, the will is governed by New York law.) Such trusts can exist in perpetuity, thanks to the exception.
Helmsley also conditioned some of her dispositions on compliance with other wishes. The will directs, for example, that her grandsons must visit their father's gravesite at least once a year - preferably, the will states, on the anniversary of his death
-- in order to maintain their rights as beneficiaries. Only "physical or mental disability" can excuse the failure to comply with this mandate. Trustees are instructed to keep a register at the mausoleum to be signed by each visitor and to check the register at the end of each calendar year to make sure the requisite visits have been made. A single unexcused absence by a grandson will cause his trust to terminate immediately.
Trouble's Trust: A Valid Bequest?
Certainly, the provision of Helmsley's will that has received the most media attention is the $12 million purported trust for her dog, Trouble. (Though Trouble has been tagged with the "World's Richest Dog" label in several reports, there is evidence of at least one, much richer dog. In 1991, a German countess left the entirety of her $80 million estate to her German Shepard. When that dog died, the estate passed to his heir.)
Though Trouble was left to Leona's brother, Alvin, press reports since her death insist that he has refused to take possession of the dog. So, for now, Trouble lives with the hired help in Connecticut. But what if the $12 million trust really does exist solely for the benefit of Trouble? Is it legally valid?
Devoted pet owners often try to provide for their animals in wills, but animals are not valid will beneficiaries (recall that Trouble was herself a piece of property bequeathed in the will). A trust, then, would seem like the perfect device to provide for a pet, since the nature of a trust is that money is given to one person to care for another. The problem is, however, that an age-old rule designed to limit the duration of trusts makes such trusts invalid, too.
Under the Rule Against Perpetuities, a trust can only last 21 years beyond the death of some "life in being" (that is, some live (or gestating) human) at the time the trust was created. An animal cannot serve as the "life in being," so a trust to an animal might theoretically outlast the perpetuities period, if all potential human "lives in being" died, and the animal lived for more than 21 additional years more.
In many states, however, legislatures have adopted a special rule - creating an exception to the Rule Against Perpetuities - for pet trusts, given the desire so many people have to provide for their pets upon their own deaths. By statute, New York allows an "honorary trust" for pets: a trust for the care of a designated "domestic or pet animal" that terminates upon its death.
Trouble's trust would seem to satisfy the terms of New York's statute, with one exception: The court may "reduce the amount of property transferred if it determines that amount substantially exceeds the amount required for the intended use." According to the statute, the amount of any reduction falls into the residuary of the estate. Thus, the question becomes whether Trouble requires the income from a $12 million trust (roughly $600,000/year) to live in the style to which she had become accustomed?
The answer: Certainly not. However, it may be the case that Trouble has substantially greater customary needs than, say, the two dogs I rescued from the pound. But the trust could certainly be reduced if someone challenges it.
Who Will Have the Legal Right to Challenge the Will?
Can anyone challenge Leona's will? And if so, who?
To answer those questions, we must look to the law of intestacy (that is, the law applicable in the absence of a will, or if a will is declared invalid). This body of law dictates who has "standing" (that is, the legal right) to challenge the validity of the will. That is because in order to pose such a challenge, individuals must show that they have a pecuniary interest at stake, in that if the will were to be invalidated in whole or in part, they would stand to inherit.
Generally, intestacy laws favor blood relatives over everyone else; descendants over ancestors or collateral relatives; and humans over pets.
Under New York's intestacy laws, which are typical of those in other states, the charitable Trust would be the biggest loser. As the residuary legatee under the will, the Trust stands to gain everything that was not expressly given to someone (or something) else - literally billions. The will, then, bequeaths a total of only $50 million out of an estate conservatively estimated at $2.5 billion. Intestacy laws grant shares only to relatives, however, and charitable intentions will not be given effect under the law of intestacy.
Trouble, poor dog, would be the second-biggest loser. There is no branch for pets in the intestate family tree. The Helmsley Mausoleum would also be out of luck, since a perpetual care trust is something a donor can create, but the law will not imply.
Leona's brother, Alvin, who inherits quite generously under the will, would also be left high and dry under the rules of intestacy; siblings of the decedent do not inherit unless there is neither a surviving a spouse nor any surviving descendants. A single living descendant (and here, there are a number of Helmsley grandchildren) trumps the inheritance rights of a decedent's parents and siblings, as well as those of any more distant relatives. Leona's chauffeur would be ignored under the law of intestacy as well, since intestacy laws make no provision for inheritance by non-relatives, however deserving and long-suffering they might be.
In the absence of a valid will, then, Helmsley's estate would be split in equal shares by her four surviving grandchildren -- the two whom she intended to benefit and the two whom she disinherited.
This analysis shows that all four of Helmsley's grandchildren would benefit by challenging the will in its entirety - and they are the only ones who would benefit. Thus, they are the only ones with standing to challenge the will in its entirety.
David and Walter would be better off under an intestate distribution, not only because they would receive one-quarter of a much larger total but also because they would receive everything in cash, rather than in trust. Craig and Meegan would obviously be better off - inheriting potentially as much as a billion dollars each, instead of nothing at all. I'll discuss below the likelihood of their prevailing.
Why the Charitable Trust Likely Won't Challenge the Will's Particular Provisions
Who, if anyone, has standing to challenge the particular provisions of the will, but to argue that the will should otherwise remain intact?
As noted above, the residuary legatee - the one who takes the leftovers - is the charitable trust. It is thus only the charitable trust that has standing to challenge particular provisions of the will, because only the charitable trust will gain by winning such a challenge. (The trust could be represented in court by the trustees or by the attorney general of New York, who has the power to act on behalf of all charitable trusts.) If the charitable trust could invalidate, for example, the bequest to Trouble, it would receive the money that would have gone to trouble.
Would the charitable trust make a partial challenge to, for instance, invalidate Trouble's trust? It's unlikely - for two reasons. First, the charitable trust will already take over a billion dollars under the will - perhaps as much as $4-7 billion. And the charitable trust is governed by the will's no-contest clause, which says that any beneficiary who challenges the will and loses receives nothing.
Second, the charitable trust will get the bulk of Trouble's $12 million when Trouble dies anyway. Trouble's Trust can only be used to pay expenses for her care and feeding while she is alive. How much money can an 8-year old Maltese blow through?
Could the Grandchildren Effectively Challenge the Entire Will's Validity?
Would a challenge to the will by the grandchildren be valid? Wills can be invalidated for any number of reasons, including the testator's mental incapacity, fraud, duress, undue influence, or the failure to comply with technical requirements relating to signing and witnessing the will. But none of these reasons seems to apply here.
A layperson might reasonably assume that leaving $12 million to a dog and $3 million to care for a gravesite, while leaving two grandchildren not a penny is indicative of mental incapacity. However, in Leona's case, these acts seem part and parcel of her life. Moreover, the legal standard for having sufficient mental capacity to write a will is extremely low. A person who can handle their own financial affairs - particularly with assets of this magnitude - is almost certainly legally capable of writing a valid will.
With little or no grounds for a challenge, David and Walter, the inheriting grandchildren, would be better served by deciding not to mount one. The challenge could be meritless, and losing would be a disaster: The will's no-contest clause would cause them to forfeit their substantial bequests. Thus, virtually any competent attorney would advise David and Walter to stick with what they will already receive.
In contrast, Craig and Meegan have nothing but their own attorney's fees to lose by making a claim. Possibly they could try to claim that Leona had some type of rage disorder that affected her thinking. Their claims may be meritless, but if they can somehow get them before a jury, that jury is likely to be very sympathetic. Moreover, everyone's anticipation of a sympathetic jury may at least get Craig and Meegan some substantial settlement, even if their ultimate chance of prevailing is very low.
In sum, let the Queen of Mean beware: There may yet be trouble in paradise.