Earlier this week, Wall Street Journal blogger Robert Frank wrote (here) in "Shutting Out the Kids From the Family Fortune" about a wealthy man who left his fortune in trust.
Wellington R. Burt was a rich timber baron from Saginaw, MI. He died in 1919 with a multi-million-dollar fortune – one of America’s largest at the time.
Yet rather than risk messing up his kids lives with a huge inheritance, he created an unusual will.
He stated that his fortune would be distributed to the family – but only 21 years after his grand-children’s death.
When I first read Frank's account, I thought the disposition was unremarkable. Long-term trusts are nothing new. I knew that if Mr. Burt's trust was to terminate "21 years after his grand-children's death," the instrument probably contained a standard perpetuities clause. If I had to guess, I would have said that the decedent's will likely read something like this:
The trusts created hereunder shall terminate in any event no later than twenty-one (21) years after the death of the last to die of my grandchildren who are living on the date of my death.
If that were true, then there's not much of a story. Trusts terminate. Ho-hum. In the meantime, the beneficiaries might have received distributions of principal or income or both. Trusts can protect beneficiaries from their own improvident decisions, etc. etc.
But this particular story appears to be more complicated.
A series of articles in the local Saginaw (MI) News (here, here, here and here) explains that Mr. Burt died in 1919 with an estate worth $40 million to $90 million. Very few distributions were made from the trust, except pursuant to a court order. In other words, Mr. Burt's immediate descendants never benefitted significantly from Mr. Burt's fortunes.
Now that 21 years has passed since the death of the last of Mr. Burt's grandchildren who were alive on the date of his death, 12 of Mr. Burt's remote descendants will divide the trust assets upon its termination:
Today, Christina Alexander Cameron is a 19-year-old Lexington, Ky., basketball and tennis fan with sights set on a nearby community college.
By month’s end, she’ll become a multimillionaire thanks to a man she never met, who earned his fortune a century earlier in a Michigan community more than 400 miles away.
Cameron is the youngest of 12 heirs of Wellington Burt’s estate. While she’s never met most of the other beneficiaries, by month’s end, she will split with them her great-great-great grandfather’s long-dormant inheritance, which a local probate judge valued between $100 million and $110 million.
Ms. Cameron stands to collect $2.6 million to $2.9 million from the estate. That's a nice chunk of change, no doubt, but it's not eye-popping. What is eye-popping is that the trust's current value is $100 million to $110 million. How can that be, if Mr. Burt's estate had a date-of-death value of $40 million to $90 million?
The trustee, Citizens Bank Wealth Management, has asked to retain a reserve for termination fees and expenses, as is standard in these types of proceedings. If I were representing the trustee, I'd be worried about more than just termination fees, though. I'd be worried about a breach of fiduciary duty claim due to poor trust performance.
As a former Trusts & Estates lawyer, I am proud to have a Cadillac Escalade of an estate plan, even though I have Tata Nano in terms of assets. When I first started teaching, I used to tell my students that I never met a trust I didn't like. But the longer I've been out of practice (8 years now), the more ambivalent I feel about certain trusts.
Who really benefits from a trust like the one created by Mr. Burt? Seems to me like the big winners are the trust professionals (bankers and lawyers) whose fees have and will be paid out of the trust.
H/T James Healy