It’s important to keep your promises… or your estate could be sued for $10 million.
At least, that seems to be the lesson in the case of oil and gas magnate Aubrey McClendon. McClendon, who co-founded Chesapeake Energy Corp, promised Duke University $10 million in donations before he passed away last March.
Both he and his wife had been important benefactors to Duke University. The school was McClendon’s alma mater. However, there were $10 million in donations still unpaid. So after McClendon’s death, the University filed a claim asking for the money that was promised.
As you might imagine, filing a probate claim against someone who was a charitable donor is kind of an awkward position for Duke to be in. They don’t want to seem ungrateful or they could risk alienating other donors and potential donors. However, $10 million is a huge chunk of money to simply forget about.
Here is the statement that Duke made about the situation: “It is common for the executors of large and complex estates to solicit claims from charitable organizations with pledges that were not fulfilled at the time of the donor’s passing. This is a routine transaction that in no way diminishes Duke’s respect for the McClendon family and our gratitude for their relationship to Duke, and we regret that news reports have portrayed it in a negative light.”
Perhaps even worse news for Duke is that this claim isn’t guaranteed to be fulfilled. There are two main factors that could prevent the university from getting the donation it was promised: competing creditors and binding agreements.
Let’s take a closer look at each of these things.
Duke is not the only creditor filing a claim against the McClendon estate. Other creditors include The Wilmington Trust and Deere Credit, Inc. This is a common and fairly well-known occurrence. When someone dies, creditors from all over tend to suddenly appear.
What’s less well known is that what each creditor gets – or doesn’t – is determined by the size of both the estate and the claims filed against it. This makes complete sense if you think about it. If an estate is valued at $5 million and three different creditors are asking for $3 million each, obviously they’re not going to get that amount. Because it’s just not there.
So let’s start with the size of the estate. One of McClendon’s largest assets, a 20% interest in the Oklahoma City Thunder basketball team, is being targeted by creditors and has been the subject of debate since McClendon’s death. With $3 million in McClendon’s cash accounts and a smattering of devalued oil and gas companies, the Thunder is considered McClendon’s biggest and most desirable asset.
The time for creditors to file a claim against the estate is winding down, so it will soon be time for the estate to be divided. If the McClendon estate is not large enough to satisfy all creditors, some parties may not get the share that they hoped for.
However, another factor has now come into play where Duke University is concerned: the binding agreement in which McClendon pledged $10 million to Duke.
This is not the first time probate courts have seen a situation where a donor’s estate is being divided and the commitment to a donation is put into question.
While a pledge is a promise, written and physical documents are considered more important and more binding than a mere pledge. These documents are typically negotiated between the donor and the charity, and can handle the donor’s death in different ways.
In some cases, the donation is declared invalid if it has not been paid by the time the donor passes away. In other cases, the pledge becomes the burden of the donor’s spouse, children, or other beneficiaries.
Even though Duke has been receiving some criticism for filing a claim, it views the situation as a learning opportunity for other similar organizations. When speaking about why charitable organizations decide to file probate claims, University of Pennsylvania philanthropy professor Richard Marker said, “We’re willing to take the heat because we need people to understand these are binding commitments of which we have built some expectation.”
In other words, Duke planned for that money. If they now don’t get it – or only receive some of it – their ability to meet their budget could be hampered.
What This Means for You
With all this talk of creditors, you might wonder where the McClendon family fits into all of this. It’s pretty simple, really: dividing too much of the McClendon estate amongst donation recipients and creditors will mean a smaller inheritance for them – or possibly none at all.
In other words, if you or your loved ones are in the habit of making any sort of monetary promises, pledges, or commitments, it is important to be very careful and very specific. Because you could end up harming your family financially.
So when these actions are first taken, it is important to document how they will be carried out either during or after your lifetime. For example, if you make a pledge to a charitable organization but would prefer your estate to be divided amongst your family and loved ones after your death, it is possible to make the pledge revocable, or invalid, after you pass away. It is also important to keep track of potential creditors who may come after your estate after your death and plan accordingly.
A knowledgeable Florida estate planning attorney will be able to help you and your family prepare for all of these situations and more. Get in touch with us today to get your estate in order for the future and minimize potential legal battles for your loved ones.
About the Author:
Christopher Q. Wintter is the President of Wintter & Associates, P.A. , a four-lawyer trust and estate firm. Mr. Wintter is a Florida Bar Board-Certified Expert in Trust and Estate Law. With more than 28 years’ experience as a practicing attorney, he also serves as an instructor and faculty member for the National Institute of Trial Advocacy (NITA)—the nation’s leading provider of legal advocacy skills training to practicing attorneys—and has earned the AV® Preeminent™ rating with LexisNexis Martindale Hubbell. He was also selected for inclusion in Florida Super Lawyers Magazine for 2011, 2012, and 2014-2016 in Estate and Trust Litigation, and was selected for inclusion to the Best Lawyers in America in 2016 in the area of Estate and Trust Litigation.