When I was growing up, one of my favorite treats was a Carvel chocolate-dipped vanilla soft-serve cone. And no birthday party was complete without a Carvel ice cream cake. Tom Carvel was able to parlay my sweet tooth and millions of others into an empire at one time valued at $250 million. When he died in 1990, he left behind his wife, the former Agnes Stewart, who had once loaned her future husband $15 to begin his ice cream business. It proved to be a spectacular investment.
Tom Carvel owed his spectacular good fortune to a flat tire. When Carvel began his business in Hartsdale, New York in 1929, he used a truck to bring his homemade confection to his clients. One day, a tire blew in the proximity of a pottery store parking lot. With his ice cream quickly melting, Carvel decided to start selling right from his parked truck. Thus began the idea for soft serve ice cream, which Carvel refined over time. He then worked out a deal with the pottery store so that he could sell his ice cream in the parking lot by running an electrical wire to keep his confection refrigerated. His sales took off.
In 1936 Carvel purchased the pottery store and formed the Carvel Brand Corporation. Carvel realized that there was money to be made from real estate as well. Having established a successful business model, Carvel proceeded to map out a plan to franchise his business. As part of his franchising model, Carvel purchased the properties upon which his franchisee’s store would be located, leasing back the space to the franchisee as part of the license agreement. Thus the expansion of the Carvel brand also meant the expansion of the Carvel real estate holdings.
A known control freak, Carvel fought for years with the Federal Trade Commission against antitrust charges. He required his franchisees to attend a three-month intensive training program, and the purchase of all supplies were to come directly from the Carvel Brand Corporation. While this mentality may have served him well in business, the Will that he executed reflected his need to control from the grave. The Will became the fodder for controversy and chaos.
His estate planning needs were relatively simple. He and Agnes had no children, and his intent was to provide for Agnes during her lifetime and after her death the estate would go to charity. There were several simple ways to accomplish this. One way would have been to purchase a non-probate asset, such as an annuity, with Agnes as the beneficiary. She could then have received structured payments immediately after his death.
By naming a disinterested executor (he would instead name seven interested executors), such as a bank or law firm, Carvel could have assured the continuity needed to administer his large postmortem estate without controversy. And while there are fees associated with this option, it may be a wiser course of action than the litigation costs associated with squabbling executors and beneficiaries.
His Will would still have provided for the statutory spousal elective share. Under New York Estates, Powers and Trusts Law (EPTL) § 5-1.1, a surviving spouse has the option of taking the the greater of $50,000 -or- 1/3 of the net estate.
The rest of the estate could have been given to charity through an irrevocable charitable remainder trust. §664 of the Internal Revenue Code of 1986 as amended provides for either the payment of a fixed amount through a charitable remainder annuity trust (§664(d)(1)(D)), or a percentage of trust principal through a charitable remainder unitrust (§664(d)(2)(D)). Carvel would have received two immediate benefits. He could have claimed a charitable income tax deduction. And given his sizable real estate portfolio, the estate would not have had to pay immediate capital gains taxes as the trust disposed of the trust property in its portfolio.
What Tom Carvel left behind instead when he died of a heart attack in 1990 was a chaotic estate. Nine years later, the estate was still in litigation. A lawsuit filed by his niece Pamela Carvel against the Thomas and Agnes Carvel Foundation in 1999 before the Second Circuit Court of Appeals (188 F.3d 83 (2nd Cir. 1999)) revealed that Tom and Agnes had executed “mirror wills,” or two separate but identical Wills, each naming the Foundation as the beneficiary of their entire residuary estate. At the same time, they executed a reciprocal agreement agreeing to refrain from changing their Wills or making certain transfers.
In addition to the Foundation, Carvel had created at least five other entities: a Florida trust for his wife, a charitable remainder unitrust, two real estate holding companies, and the estate created by the mirror Will containing the statutory spousal election share and bequests to 83 different beneficiaries.
A year before his death, Tom Carvel sold his 700 stores to Middle East investors for a reported $80 million. In the years following his death, a good portion of that sum was spent on litigation over the estate. His widow Agnes, one of seven named original executors of his estate, stepped down as executor and Foundation board member and fled to London in the wake of a call for a capacity hearing. She died in London in 1998, having herself litigated against the estate to received the $600,000 quarterly payments stipulated in her husband’s Will. A well thought-out estate plan could have avoided this strife and achieved Tom Carvel’s postmortem goals.
I invite you to join my list of subscribers to this blog by clicking on “Sign me up!” under Email Subscription on the left-hand side of the page so that you can receive a notification when the next installment has been published. Thank you.
If you would like to discuss your own personal situation with me, you can get a free 30-minute consultation simply by filling out this contact form. I will get back to you promptly.