Quality and Net Worth Are Not Synonymous*

Jack Kent Cooke started his business as a high school drop-out selling encyclopedias door-to-door, and grew until he owned a collection of media companies, sports teams, and real estate valued at $1.3 billion.  Most know him as former owner of the Washington Redskins football franchise.  Although a successful and sophisticated businessman, his estate planning failed miserably.

What Does This Have to Do With You? Though most of us don't have estates worth $1.3 billion, this is a great case study on how planning that is not well-designed and customized according to a client's wishes can result in devastating financial and emotional costs after their death.  This is not an issue of net worth.  It is a planning quality issue.

Jack Kent Cooke's Plan: Mr. Cooke has a will that was amended eight times.  It left seven executors, most of them former employees.  When presented with the will, most of them had never seen it before.

The Widow's Claim: Ms. Ramallo Cooke was Mr. Cooke's wife, whom he divorced once and then remarried.  Despite having signed a prenuptial agreement on her remarriage, a fight ensued, ending in a $10 million settlement to Ms. Cooke to end the expensive litigation ($6.8 million in legal bills.)

Sell Which Assets? An executor, Stuart Haney worked with Mr. Cooke to create the Jack Kent Cooke Foundation to help underprivileged students.  Due to a large estate tax bill, the only way the foundation could be funded was to sell assets of the estate.  Cooke's son (also an executor), has worked in management of the Redskins for most of his life, shared his father's passion for football, and dreamed of someday owning the Redskins.  Cooke, Jr. was adamant that the Redskins franchise not pass from family control.  However, because the sale of the team promised the best return, the executors, against the protests of Cooke, Jr., chose to auction the Redskins.  Cooke, Jr. was outbid an the team passed out of family control.

Paying the Executors: The will didn't specify how much the executors should be paid.  In Virginia, up to 5% of the estate is allowed.  Again, lawyers were hired, and litigation began.  Cooke, Jr. claimed that executors' fees exceeding $5 million were unreasonable.  The remaining executors felt that they earned and deserved the 5% fee ($37.6 million).  The case was decided in favor of the 5% fee.  Subsequently the count commissioner of accounts cut his fee to $415,000 to avoid further litigation.

In the End: Cooke, Jr. never received the Redskins, which he dreamed about and worked towards his entire life.  The executors were divided and bitter, and still have to work together as board members for the Foundation.  The estate settlement lasted 7 years and cost $64 million in professional fees.

Learning from Mistakes: Most clients believe that their situation is straightforward and simple and that they don't have a lot of money.  They may not have the wealth of Jack Kent Cooke, but proper planning is every bit as important for them as it was for him.  If they fail to plan well, or if their plan fails them, the result can be financial and emotional devastation for their families and loved ones after death.

*Adapted from the Planning Partners Press.