Elwood Olsen thought he could save a few dollars on attorney’s fees when his wife passed away. It turns out he ended up costing his family thousands of dollars in extra taxes and expenses.
Elwood, and his wife Grace, created revocable trusts prior to Grace’s death in 1998. According to the terms of Grace’s trust, after she passed away, her trust was to be divided into separate sub-trusts. In part, the purpose of the sub-trusts was to minimize estate taxes when both Elwood and Grace passed away.
Elwood, who had advanced law degrees, didn’t divide the trusts as directed by the trust agreement. Or, even if he did, he didn’t leave a paper trail. After he died in 2008, the IRS claimed that all of Grace’s assets were subject to estate taxes. Elwood’s son, who was the trustee of the trusts, claimed that had his dad done what the trust instructed, none of the assets would be subject to tax, and therefore he didn’t owe any taxes.
Ultimately, it was up to the tax court to decide how much of the trust would be taxed. The court’s final decision was that 60% of the trust was taxable, resulting in as much as a quarter of a million dollars in additional taxes.
We don’t know all of the reasons Elwood didn’t divide the trust as Grace directed. We don’t know if he consulted with an attorney but received poor advice. Perhaps Elwood decided not to follow the attorney’s advice, or maybe he decided he didn’t need to talk with an attorney because of his legal training.
But what we do know—that Elwood didn’t do what the trust instructed—ended up costing his family in the end. Not only did the family pay unnecessary taxes, but the family also paid unnecessary attorney’s fees, court costs and other expenses. As the tax court dryly noted, this case was “not as straightforward as it would have been” had Elwood done what the trust directed.
At least we can learn from Elwood’s experience.
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