GTH Estate Planning Blog

Our rich guy Ken, married to Donna in 2001, died in 2009. He was 84. Donna took his estate to Court over the validity of their premarital agreement. This week and next we will look at the decision of the Court of Appeals.

There were several issues other than validity for the Court to decide. One was on admission of certain evidence under the dead man's statute. That law (found in Revised Code of Washington 5.60.030) prevented Donna from testifying in her favor about things Ken had said to her, now that Ken was no longer able to contradict her. The trial Court had stricken testimony including the following: "Ken asked me to quit my job and fly to South Dakota to get married... I was never provided with any financial statement showing Ken's assets and liabilities before signing the prenuptial agreement. It wasn't until 2005 that I learned that in December 2001, Ken had assets of approximately $93,000,000, approximately $16,000,000 in liabilities, and [therefore] approximately $77,000,000 in equity [net worth]." The first part of that is pretty obviously forbidden by the dead man's statute, the latter part not so clearly because it doesn't include direct statements by Ken. However, the Court of Appeals held that it was all properly stricken as taking unfair advantage of Ken's inability to contradict it. Score one for Ken here.

A second issue was judicial estoppel. The principle here is that what happens in one ruling body should be binding in later-arising matters in Court. The lawyers for Ken's estate had succeeded in the trial Court with the argument that the decision of the South Dakota Gaming Commission, granting Donna a casino license based on her assertion of the separateness of her assets and Ken's, should be held against her in this later claim in his estate. This trial Court decision was reversed by the Court of Appeals. It found the doctrine only applies if the earlier proceeding is a judicial one. The Gaming Commission was not a judicial body but rather an administrative one. Donna scores on this one.

It probably wasn't Coldplay on the radio when Ken proposed. Ken was a little old for that, 75 or 76. And it probably wasn't in a car, because Ken was rich. More likely over dinner, or after dinner at his nice place.

Deadwood, South Dakota was featured in an earlier blog: Musings on Gambling. Wild Bill Hickock was fatally shot in Deadwood while holding what is called the Dead Man's Hand. Our wealthy and romantic Ken, the legality of whose premarital agreement was ultimately called into question, was an investor and a gambler.

Ken was an investor. His Deadwood connection went way back. At about 20 he spent a winter managing a coffee shop in the Franklin Hotel there. He moved to Blaine, Washington near the Canadian line and built up a chain of 17 duty-free border shops between there and Minnesota. He sold those for millions and bought a bank in Ferndale, Washington, and hotels and casinos back in Deadwood.

In June of 2001, maybe with Yellow by Coldplay emitting from his car radio, Ken proposed to Donna. She declined. He tried again in early September, this time with success.

Ken wanted Donna but he also wanted a written premarital agreement with her. He was wealthy, with a net worth of about $77 million. She worked as a waitress, although she also owned some real estate.

In his then-unjustified confidence Ken had had his attorney draw up a premarital agreement in June. It got shelved until she accepted on his second try.

They split the last of the Malbec, and ready for investment year 2013. Nils's precious metals lagged behind Lars's diversified trust mix in 2012, so he feels there will be some natural catching up in the coming year. "Gold will be up 15% easy in 2013." Lars suspects he may be right; there are a lot of potentially destabilizing forces and that favors gold, but doesn't that always seem the case? He has heard the phrase "In these turbulent times..." pretty much every one of the last thirty years.

Concurring with Nils's drift, Lars says he thinks his trust did overall too well last year, and there will be a reckoning for it. Stocks may have gotten ahead of themselves but he still thinks, without any technical analysis, that they will give a 5% return in 2013. He is more wary of bonds, feeling the world is stretching for return and will pull a muscle in the process; he predicts zero net return for bonds. REITs have the unfortunate combination of having done too well (like stocks), and being interest-rate sensitive (like bonds) at least in the short run, so Lars predicts a negative 5% for REITs. All in all he guesses it should be close to a zero-return year.

The first year is in the books, on the bet between our CPA friend Lars and his rich Uncle Nils. Bold Nils is betting his $500,000 on precious metals, mostly gold. Lars, both naturally more cautious and investing as fiduciary of a family trust, has diversified among stocks, bonds, REITs, and a portion of Nils's metals mix. They are having dinner in the first week of the new year, and comparing results.

Nils's small September 30 lead has vanished in the last three months. Gold, silver, and platinum are down at least by half since then. Only palladium has improved. Lars, neither scientific nor handy, has learned as a by-product of the wager that palladium goes into catalytic converters. He guesses maybe it's improved with car sales.

Lars's 13.30% increase for the year is nearly double Nils's 7.65%. REITs and global and US stocks have all gained more than 15%. Even intermediate corporate bonds yielded almost 7%; Lars sees that as coming to an end before long (more on that in the two men's predictions, in next week's blog).