(Courtesy of Haas and Zaltz) Matthew Perry was probably best known for his role as the sarcastic, neurotic and always witty Chandler Bing on the hit-tv show Friends. He died suddenly at the age of 54. He was unmarried, had no children, and was survived by his parents, five half-siblings, and legions of fans. His estate plan differs from many of the cases that this blog examines because there likely won’t be a huge fight in court over his substantial fortune at least in part because he created a revocable trust and, as of this writing, no other documents exist. This lack of public fighting doesn’t mean that we can’t draw important lessons from this situation.
At the time of Matthew’s death, it’s estimated that his estate exceeded $120 million. He earned most of that from his time on Friends and the continued royalties from the show. While tragic, Matthew’s death and an examination of what we know about his estate plan remind us, regardless of the size of your estate, it’s vital to have a comprehensive estate plan suited to your particular needs. While Matthew had a revocable trust, he didn’t have a will. In many celebrity cases, the celebrity dies with no estate plan, or an insufficient will, or a document that purports to be a will which causes the fighting and gives the public insight into the decedent’s affairs. That likely won’t happen here because Matthew chose to create a revocable trust.
The revocable trust avoids many of the problems typically associated with celebrity estates. First, a revocable trust serves as a will substitute thereby avoiding probate that a will requires. Additionally, the revocable trust provides centralized management of assets, allows for disability planning during life, and protects the privacy of the decedent, the plan, and the beneficiaries. In creating the revocable trust, Matthew ensured the privacy of his plan and beneficiaries and avoided the probate process altogether. He did that right; but that alone is not a comprehensive estate plan. Any good trust and estate practitioner would advise their clients to create both a will and a revocable trust to direct what happens at death because each document serves different functions. In addition to being the only instrument that does certain things (for example nominate guardians for minor children), the will acts as a backstop to the trust. If the decedent failed to retitle any assets in the name of the revocable trust prior to death, then the will contains provisions directing distribution of those assets to the trust, but first, those assets need to go through probate which can be a long and expensive process depending upon the state of residence. Except rarely, probate is a public process.
While it’s unclear how Matthew’s assets will pass because of the privacy a revocable trust affords the family, it’s clear that unless certain provisions were included in the revocable trust, they will bear significant taxes. When Matthew died, the Applicable Exclusion Amount was $12.92 million, about 10% of his net worth. In other words, the other 90%, or approximately $107 million, will be subject to estate tax at a rate of 40%. That means there will be a federal estate tax bill of approximately $42.8 million ($107 million *.40). While it’s possible that the trust included provisions that would have decreased the tax liability, for example, by naming a charity as a beneficiary, we likely won’t know that because the terms of the revocable trust remain private. Interestingly, shortly after the actor’s death, the National Philanthropic trust created the Matthew Perry Foundation. Had Matthew established that Foundation either through the terms of his trust or as a stand-alone entity, assets given to the Foundation would have provided a charitable deduction for his estate saving substantial taxes.
As this author has often opined – celebrity estates make great blogs. They demonstrate the myriad of issues that arise when an individual fails to undertake appropriate estate planning. No one is immune from having an estate plan regardless of the size of their estate. It’s important to speak with a qualified estate planning attorney regarding your estate plan and your unique circumstances. Many estate planning attorneys recommend the use of revocable living trusts as will substitutes to avoid probate and to provide certain other protections during life, including simplified asset management during periods of disability or incapacity. But, as this article demonstrates, revocable trusts alone do not cover every circumstance. Had Matthew created a proper estate plan, he could have ensured that his legacy would live on in the way that he desired, quite possibly through the Matthew Perry Foundation or any other charitable organization he created. Make sure that a qualified estate planning attorney guides you through the creation of your estate plan. Your family will consider you a true “Friend” if you do.
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