CNN and Fortune Magazine recently featured a fascinating article about the legal battle between John Randolph "Bunky" Hearst, Jr., and his ex-wife. Bunky is one of the grandsons of famed media mogul William Randolph Hearst, who left behind the powerful Hearst Corp.
William Randolph Hearst died in 1951 with a trust and estate worth about $400 million in today's dollars. But, more importantly, his trust established a corporate framework that enabled his board of trustees to expand the Hearst holdings into a multi-billion dollar media empire, owning hundreds of magazines, newspapers, television stations, 20% of ESPN, and more. Here is the wikipedia page about Hearst Corp. that overviews how expansive it is.
William Randolph Hearst's estate plan is a great example of how trusts can be used to maximize financial legacies and protect your heirs. While most people don't have to establish complicated boards to manage extensive business holdings like Hearst, everyone can learn a lesson here.
Livings trusts are the best way to pass along assets (be they vast or limited) because they can be individually tailored to meet the needs of any family. Do you have modest assets and children who are good with money? Maybe you want your trust to leave it to them all at once.
Or do you have a greater net worth, or perhaps heirs who would do more harm than good with money left to them? If so, consider following William Randolph Hearst's example.
He wanted to make sure his money was used to benefit his heirs for decades. So he didn't pass his money onto his children and grandchildren outright. Instead, he created a board of 13 trustees, five of whom are family members and the rest are current or former Hearst Corp. executives. This trust owns and helps manage Hearst Corp. and its vast holdings, and makes yearly distributions to Hearst's descendants, like Bunky.
Bunky reportedly was a favorite grandson of his famous grandfather. He holds one of the trustee seats and received a reported $9.5 million from the trust in 2006 (with similar payouts yearly). The trust also helped Bunky's cousin, Phoebe Hearst Cooke, grow a fortune worth more than $2 billion. (You can read my articles about Phoebe here). But the specifics of how the trust, its management and distributions work are kept very secret.
The secrecy started in 1974, when Bunky's cousin, Patty Hearst, was kidnapped. The trustees were able to convince a court to seal William Randolph Hearst's will and trust so others wouldn't have a roadmap to encourage them kidnap other Hearst beneficiaries. The trust continued to function, even with its vast holdings, in private. (Note: When trusts are used properly, they are private even without a court-ordered sealing of records. Wills, however, are always public records when they pass through probate).
But that privacy was recently put to a test. Bunky went through a very bitter divorce from his wife Barbara. Bunky had been dating her in 1989 when he suffered a severe stroke. He slurred his words, couldn't lift one of his arms, and was hospitalized for an extended period of time. During this time,
Bunky asked Barbara to marry him rather than risk losing her.
As the CNN/Fortune Magazine article details, not long after their marriage, Bunky and Barbara began spending more and more time apart. Yet she took control of his entire financial legacy, transferring assets out of his name into her own. Bunky was completely at her mercy because, legally, she owned everything and he owned nothing.
Bunky tried to divorce her and recover his assets. But, because New York is the only state to require divorces to be "for cause," Bucky couldn't get a divorce or recover his money without first proving she committed fraud, infidelity, abandonment or something similar.
But Barbara had covered her tracks well, and Bunky lacked proof (even though he believed she had multiple affairs, including with one man who died from a bad reaction to black-market Viagra). While Bunky and his attorneys were convinced that Barbara was a gold-digger who took advantage of his weakened, post-stroke condition, they couldn't prove it without a long and ugly legal battle. They did try, by alleging she committed fraud in taking all of his assets.
This was no easy task. Barbara and her lawyers were crafty. They subpoenaed detailed records from the Hearst Corporation and Hearst Trust, dating back many years, to prove that Bunky was financially sophisticated enough to help manage that media empire. They argued, "How could she take advantage of a man coherent enough to make those decisions?"
The Hearst Corp. and Bunky couldn't let years of important financial documents be released into the public eye. They argued that Bunky was still legally competent to make those decisions, but vulnerable enough to be taken advantage of by Barbara. They tried to walk a fine line. If they said he was not competent to make those decisions, then that gave Barbara and her lawyers the right to examine all of the documents the Hearst trustees wanted to be kept private.
Rather than put that position to a test in the lawsuit, Bunky settled the divorce fight. He got back some of his assets, but had to give up cash and property to Barbara worth more than $10 million, as reported by the CNN article. That same article painted a picture of Barbara as someone who took advantage of her husband after his stroke.
It's a sad tale, but at least Bunky was able to end it, eventually. Many lonely, elderly people with assets are taken advantage of by greedy members of the opposite sex. It happens far too often. And no, not just people with millions like Bunky Hearst. It happens frequently to middle class people too, especially in this economy. I've seen it in my probate litigation practice first-hand.
Yet the Hearst Trust did offer Bunky a measure of protection. He still will get his yearly trust distributions. If he had been given his fortune all at once, it would have been much easier for Barbara to get her hands on it. While $10 million is a lot, he gets millions each year from the Hearst Trust -- and that money is safe.
So William Randolph Hearst's vision allowed his trust to protect Bunky and his other heirs decades after he passed. That's what a good trust can do.
And for those who have an elderly loved one and are worried about exploitation by a member of the opposite sex, but don't have the protection of an wealthy trust, what can they do? There are no easy answers, but open, frank conversation and keeping a watchful eye are the first steps. The next step is to see an experienced attorney and see what options the family has.
But, most important of all, families must be proactive and careful, because this type of exploitation happens, even to families who would never expect it.
Posted by: Author and probate attorney Andrew W. Mayoras, co-author of Trial & Heirs: Famous Fortune Fights! and co-founder and shareholder of The Center for Probate Litigation and The Center for Elder Law in metro-Detroit, Michigan, which concentrate in probate litigation, estate planning, and elder law. You can email him at awmayoras @ brmmlaw.com.Follow us on Google+