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May 13, 2011


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Alfred Brophy

Thanks for this, Bridget.

Shades of Thelluson v. Woodford, no?

As to the breach of duty, during most of the trust's existence it was governed by the prudent person rule I'd imagine. So I'm not sure I would have expected a huge increase -- wouldn't you think that from 1919 to the mid 1970s or so they were invested pretty heavily in bonds and perhaps the family business, which may not have done all that well post WWII? I'm guessing that the Michigan lumber industry wasn't wildly profitable or even profitable at all. Wouldn't surprise me if they lost a ton post WWII. (Willard Hurst might have a thing to say about this if he were still around!) Finally, this may also be a healthy reminder of just how fanciful the dynasty trust marketing literature is, too.


Is the $40 to $90 million before or after inflation? If there has been no inflation adjustment, then you would expect a huge increase just by inflation alone. A quick web-based inflation adjustment says that $40 million in 1919 would equal about $500 million today. It seems the bankers and lawyers have been robbing the beneficiaries blind.

Bridget Crawford

The article doesn't say whether the figure is inflation-adjusted. Even so, it doesn't look good for the trustee, IMHO.

Alfred Brophy

My guess is that the newspaper report of $40M is the actual value in 1919. Would have been a pretty sophisticated story to have adjusted that backwards, no?

But I'm not as convinced as TJ and Bridget that the trustees are in trouble. Recall that the years from 1919 to 1940 were lousy. Wouldn't suprise me if the corpus was substantially smaller in 1940 than 1919. I'd like to see the periodic accountings before coming to a conclusion that this was poorly managed.

Still, as Bridget points out, this is a grim reminder of the costs of using professional trustees. And I suspect that we'll be hearing more about the trustees' behavior in the coming weeks.


Alfred, "poorly managed" and "in trouble" are two different things. I'm absolutely convinced that the trust was poorly managed -- you could have done better just by putting the money in treasury bonds -- but I doubt that the trustees are actually in legal trouble. Plenty of trusts are badly managed, just as plenty of companies are badly run; it does not mean that the people running them will actually get sued, or lose if they are sued.

Alfred Brophy

TJ, you're the one who said "It seems the bankers and lawyers have been robbing the beneficiaries blind." That's what led me to think that you thought the trustees were in legal trouble. But now you're stepping back and saying just that you think the trustees were poor managers? Depending on how poorly managed the trust was, that may be a violation of the trustees' duty of prudence.

But I'm more skeptical based on what's publicly available -- of whether the trustees violated their duty of prudent management. Just because government bonds would have resulted in a better return that's not itself evidence of poor management. It may be evidence of what are in hindsight poor choices, but it's not by itself evidence of poor management. And as I suggested in my first comments, a large part of the trust may very well have been in the family business, which could easily have declined dramatically in value up to the time of WWII -- and after WWII, I'm not familiar with great returns in the Michigan lumber industry.


Alfred, I don't think there is any contradiction between what I said. I still think that the trustees have robbed the beneficiaries blind, and I think they will very likely get away with it. Implicit in your critique is an assumption that robbery will always (or at least usually) be appropriately punished. Count me a lot more cynical than you.

Orin Kerr

Great post, Bridget. Really interesting stuff.

Paul Johns

We can go on forever as to weather this trust was properly managed, and I think it wasn't, but it is a reminder that your trust may not end up being what you planned. A judge, any single judge, can make a ruling that changes all and if you have been involved in California trusts, you will know that. An incompetent, or crooked, trustee makes it even worse.

Bill Turnier

If the $40 million was the pre-tax gross estate, given that he died in 1919 and we got the estate tax in 1916, then if the rates were sufficiently fierce, the bank may not have performed so poorly.

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