According to the U.S. Department of Commerce, in the next 15 years, nearly one in every five U.S. residents will be aged 65 or older, laying the groundwork for the largest generational transfer of wealth in U.S. history. (1) For context, 58 percent of ultra-high net worth (UHNW) individual wealth (those with a net worth of $30 million or more) is owned by those above 60 years of age, and estimates for the amount these individuals will pass on, just in the next decade, reach $4.1 trillion worldwide, with the United States contributing the largest proportion of total UHNW wealth. (2) Viewing this data from a perspective of sheer volume, it is probable that complications will arise in the planning, administration, and distribution of these individuals' estates in myriad respects. This article explores how a monumental uptick in generational wealth transfers in the next decade will affect 1) estate planning; 2) probate, trust, and fiduciary duty-related litigation; 3) corporate fiduciaries and wealth advisory firms; and 4) fiduciary jurisprudence as a whole.
Estate Planning in a Multinational and Multigenerational Landscape
With two-thirds of the world's wealthiest consisting of first-generation wealth creators, the coming decade will prove to be these individuals' first foray into estate and succession planning. (3) Consequently, it is imperative that attorneys judiciously draft these clients' estate planning documents in a way that effectuates the clients' intentions, while also providing clear guidance regarding distribution of trust assets, the potential impact of favoring one beneficiary (or class of beneficiaries) over another, the pros and cons of limiting or expanding the trustee's investment responsibilities, and the ramifications of appointing cotrustees or corporate trustees. (4) In so doing, attorneys should also stay abreast of any current changes or developments in the law which, if the next three years bring what President Trump promises, could result in several items to monitor: lower income-tax rates; elimination of gifts of appreciated assets to private charities; elimination of estate and gift taxes and presumably the generation-skipping transfer tax; and income tax at death or carryover basis. (5)
Technology and globalization have also fundamentally altered the way business is done, which, in turn, have resulted in more UHNW individual estates containing multi-jurisdictional assets. Similarly, the nuclear family has become less prevalent, causing more fragmented multigenerational families. In essence, UHNW individuals have become more international. This fact requires experienced and qualified lawyers who can navigate the complexities of large estates comprised of varying asset classes in numerous jurisdictions, while also simultaneously settling estate debts and litigating will contests.
In the same vein, maximizing the liquidity of unique, rare, or unusual assets will prove to be a challenge for personal representatives, especially in cases involving transitioning private, family-owned businesses, accessing and monetizing digital or online intellectual property, valuing commercial or residential real estate, and liquidating art and other collectibles. (6) In collecting and taking possession of the estate's assets, the personal representative should find, identify, protect, and store record books, title papers, and any other business documents that would be relevant to valuing the assets within the estate. These documents will aid in the proper administration, investment, and subsequent distribution of the assets of the estate, which should be exercised efficiently, expeditiously, and in a reasonable and prudent manner given the circumstances. (7) Managing and appraising these unique assets properly will, in certain cases, require delegating duties to specialists or experts. Such decisions to delegate are subject to a fiduciary standard. (8) Nonetheless, when the personal representative does not delegate these duties and performs them himself or herself, he may be entitled to additional or extraordinary compensation depending on several factors. (9) The way estate assets are inventoried and carried, the time it takes to marshal the assets within the estate, the method by which the assets are valued, the amount of personal representative and trustee fees, and to whom the assets are distributed, will all become frequent areas of dispute in the coming years.
A Surge in Probate and Trust Litigation
The crux of trust and estate litigation almost always involves fiduciary duty--a standard of care and one of the original tenets of our legal system by which all trustees are bound. (10) As fiduciaries, trustees are required to administer an estate or trust in good faith; to control and protect trust property; to be loyal to all beneficiaries; to keep clear, distinct, and accurate records; to show candor to and keep informed the beneficiaries of matters involving the estate and trust; to act impartially with respect to the similar or differing interests of the beneficiaries; to act prudently; to exercise reasonable care, skill, and caution; and to act as prudent investors would considering the circumstances. (11) The effectuation of these duties, the scope of the fiduciary relationship (whether expressly by contract or impliedly by relationship), and decisions made during the course of a trust or estate transaction form the basis for claims involving breaches of fiduciary duty. (12)
Disputes between generational family members or different classes of beneficiaries have always been prevalent in trust and estate litigation. Yet, the factual inquiries involved in deciding these disputes are growing more and more complicated, given the burgeoning number of UHNW individuals who operate internationally, often with prenuptial or post-nuptial agreements, constructive trusts, multiple partnership or corporate membership interests, and internationally held property. (13) For example, the Second District Court of Appeal recently looked to Israeli law in Cohen v. Shushan, 212 So. 3d 1113 (Fla. 2d DCA 2017), to determine whether spouses were considered married for purposes of an inheritance determination, and to Cayman Islands law in Ebanks v. Ebanks, 198 So. 3d 712 (Fla. 2d DCA 2016), to decide how a certain waterfront property in that jurisdiction would be divided. (14)
It is anticipated that as the number of UHNW individuals continues to grow steadily at an annual rate of 4.6 percent, (15) and as a higher percentage of this population is comprised of self-made fortunes as opposed to inherited fortunes, an increasing number of beneficiaries will clash for control over...