Taxing Tom Clancy

The Maryland Court of Appeals has decided a case involving the estate of the late author Tom Clancy.

A second codicil, executed several years after a will, had the effect of qualifying a family trust, created from the residuary estate, for the marital deduction for federal estate tax purposes. A savings clause, also in the second codicil, restricted the personal representative from paying taxes on property allocated to the marital deduction to avoid diminution of the marital deduction. As a result, the family trust was exempt from liability for federal estate taxes.

From the opinion

“The avoidance of taxes is the only intellectual pursuit that still carries any reward.” – John Maynard Keynes

“The legal right of a taxpayer to decrease the amount of what otherwise would be his taxes, or altogether avoid them, by means which the law permits, cannot be doubted.” – Justice George Sutherland

Acclaimed author Thomas L. Clancy, Jr., (“Decedent” and “Testator”) died in October of 2013, survived by his second wife, Alexandra M. Clancy (“Mrs. Clancy”) and a minor child by that marriage, as well as four adult children (“The Older Children”) from Mr. Clancy’s first marriage. Mr. Clancy died, leaving a will, as well as various amendments; the issue before us involves the interpretation of Mr. Clancy’s Will, as amended by a Second Codicil, with respect to not only the payment of federal estate taxes, but also to the question of upon which beneficiaries the burden of such taxes should be placed at the time of Mr. Clancy’s death. 

 Judge McDonald dissented

The Majority opinion appears to be based on the premise that the pre-eminent value for any testator is the avoidance of taxes. Perhaps there are people like that. If so, one would expect them to have bought a Yugo years ago and scrupulously maintained it to minimize and thereafter avoid the automobile excise tax.

In fact, while paying no more taxes than necessary is significant, most people have other values that also inform important decisions for their lives – and for their heirs. In the purchase of a car, for example, interests in function, reliability, comfort, and safety may dissuade a person from purchasing the cheapest – and least taxed – car, although that may mean paying more in tax. So also is the case in devising an estate plan. As this Court has observed, “[m]inimizing estate and inheritance taxes for beneficiaries … may not always be the ultimate driving force behind the testator’s decisions regarding the provisions contained in his or her will.” Noble v. Bruce, 349 Md. 730, 757, 709 A.2d 1264 (1998)

In essence, the Majority opinion, without explanation, reads the Second Codicil as expressing Mr. Clancy’s intent that the distribution of his estate maximize the marital deduction at all costs. There is simply no basis for this interpretation.

Two colleagues joined the dissent. (Mike Frisch)