Recent newspaper stories reporting on multimillion dollar lawsuits involving two of the wealthiest families in the United States, the Pritzkers (reported here by the New York Times) and the duPonts (reported here by the Daily News), are interesting for many reasons. The angle I find most interesting is to ask myself what could have been done to avoid litigation in the first place. Both cases seem to revolve around disputes over the administration of family trust funds (versus a zero-sum dispute over a set pot of money by conflicting parties). Without knowing more about these cases, I’d guess the manner in which the subject trust agreements were drafted is in all likelihood at least partly to blame for the current litigation. Trust documents that may (either initially or over time) govern huge sums of money and span several family generations must be drafted with (1) enough specificity to accomplish the original founder’s goals while (2) also allowing for enough flexibility to work through unforseen future contingencies – without having to go to court. A poorly drafted trust agreement gives the parties only two choices: do nothing or sue. A properly drafted trust agreement provides multiple options for conflict resolution/avoidance between those two extremes. As I previously wrote here, the amount of wealth flowing into multi-generational trusts or “dynasty trusts” is skyrocketing (current estimates are in the $100 billion range). In the absence of carefully drafted trust agreements, more trust litigation of the type reported above seems inevitable.
- The following are excerpts from the New York Times article on the Pritzker trust litigation:
The Pritzker clan, [Chicago’s] first family of fortune and philanthropy, has been riven by accusations of betrayal, self-dealing and conflicts of interests, according to court records unsealed here Tuesday. The revelations come halfway through a secretive decade-long process in which the Pritzkers must untangle and liquidate huge holdings, including their signature Hyatt hotel chain and the 60 companies in the $6 billion Marmon Group, in order to divide the assets by 2011. The family fought fiercely to keep the records sealed – and the schism secret – but The Chicago Tribune successfully sued to bring them to public light. The current fight began in July 2000, months after Jay Pritzker’s funeral, when six of the cousins – Dan, James, J. B., John, Linda and Tony – wrote the others questioning “whether the structure of our family enterprise needs to be updated.” Quoting “Great Grampa Nicholas,” the cousins worried that as the growing clan developed divergent interests, members would “feel unfairly treated, and that strains and tensions may develop among people who should be a loving family.” Their letter said information about the family’s fortune was too tightly held and asked for more independence in making charitable gifts. “We do not want a divisive process that leaves hurt feelings,” it said. But when the requests were refused, the cousins hired lawyers, and soon conference rooms were filled with documents. They settled about 18 months later, devising a 10-year plan, and went to court only for a limited proceeding to make the agreement binding on future generations. (Emphasis added.)
- The following are excerpts from the Daily News article on the duPont trust litigation:
He’s a direct descendant of one of America’s wealthiest families, but Alexis du Pont de Bie Sr. says he’s now “literally destitute and homeless” – at least by du Pont standards. He grew up in a house with 20 bedrooms and 13 bathrooms, set on a 260-acre estate in Delaware, but now he sleeps on the sofas of kindhearted friends. He once had a trust fund worth $7 million, but now it’s worth only $2.7 million – trimming his monthly allowance to $3,000. De Bie is suing two management companies, Tredegar Trust Co. and Middleburg Financial Corp., both of Virginia, for mismanaging the trust fund, forcing him to live on a working-class salary. Neither Tredegar nor Middleburg returned calls for comment. The suit seeks $60 million – $10 million based on what the trust would be worth had it been properly invested and $50 million in punitive damages. It also seeks to have a new trustee appointed. (Emphasis added.)