Back in the news this week is the Benson family. The Benson family owns multiple professional sports teams, including the Saints and the Pelicans. A conflict arose between Tom Benson’s third wife and his daughter Renee, leading Tom Benson to become estranged from his daughter and her two children. As a result, Tom attempted to transfer non-voting shares from the two teams with an equivalent value of promissory notes and by doing so cut his daughter and her family out of the family business. Renee and her children sued[i].
While the technical estate tax planning aspects of the ‘swap power’ given to Tom Benson as the grantor of the irrevocable trusts he created could be debated, or the valuation methods used for the non-voting shares of the two sports teams questioned, I’d like to concentrate on what often causes reasonable human beings to defy the advice of trusted advisors and lose sight of the costs of family fighting, not only in terms of money but vital family relationships and peace of mind.
In the article Donna LeBlanc and I wrote titled “Avoiding Family Feuds”, [ii] we identified five common dynamics that cause family disagreements and disputes. By identifying the dynamics, we’ve been able to create strategies that advisors and their clients can use to prevent or mitigate the problems that can develop into a full-blown family breakdown.
Our industry often focuses on strong documentation as the most effective firewall against family feuds. While a thorough paper trail will undeniably help lead to a positive outcome, there are a number of strategies that are powerful influencers.
Additionally, our industry often characterizes these issues as “soft issues” when they are relevant front-end problems and actually the most difficult to navigate.
Another case scenario is exemplified in the Wall Street Journal article, “Inside the Breakup of the Pritzker Empire.” (Das, 2013), but with a different outcome. In that situation, the family experienced years of fighting and lawsuits but was ultimately able to successfully navigate the succession and keep the companies intact. In fact, the value of the business doubled to $30 billion by 2011, a decade after the restructuring.
The critical ingredient for a positive outcome in the Pritzker case was that skilled advisors provided a guiding influence to manage the intense emotions and competing needs of the beneficiaries.
“By resisting the impulse to dispose of the assets in a fire sale to quell a family feud, people involved in the process kept the companies intact and helped boost their value,” Tom Pritzker said.
The Five Feudal Dynamics
Family feuding takes many forms and can be looked at through several different lenses, but for the purposes of this article, we’ll look at family feuding as it relates to the adult siblings in the estate planning arena and how advisors can identify the Five Feudal Dynamics to ultimately prevent or mitigate the problems that can ensue. It is extremely important that advisors are comfortable navigating strong human emotion, from rage and bullying to guilt and martyrdom.
- The Desire To “Win” At Any Cost
Wanting to win means one family member feels right so someone else has to be wrong. Winning is the only goal, yet it is often a Pyrrhic victory. In one situation, a woman lamented that she would have to share her inheritance with her father’s second family.
“I would rather spend all the money in legal battles than let them get any of it,” the woman said at the time. “I don’t care how bad I feel, I have to win. If I give in, I lose, and I just can’t let that happen.”
Although the woman’s response was somewhat understandable, she failed to realize the consequences to her own financial health. By seeking to win at any cost, she was throwing away her own inheritance.
- A Parent’s Need to “Punish”
Some adult siblings never forget lifelong squabbles or rejection. Often these problems are caused by parental neglect or favoritism.
Consider the much publicized Rollins family. The Forbes magazine article “Inside an $8 Billion Family Feud: Who poisoned the Orkin Fortune” (O’Connor, 2014), likened the feud as a Greek Tragedy. Brothers Gary and Randall Rollins created new requirements for their children to receive their inheritance from their grandfather, O. Wayne Rollins, which kept most of the children, who did not pursue the family business, from receiving money for multiple years.
Gary’s children sued, arguing the new distribution rules were taking away their personal privacy and unjust stringent requirements for estate money that was left to them, claiming they were being denied their rightful inheritance. The family spent well over one million dollars in legal fees over four years and certain members of the family do not speak to each other anymore.
- The Fear Of Losing Perceived Gains
Often, family possessions take on heightened emotional value and become the focal point of a family’s battle. In some cases, the actual value of these items – beyond sentimental importance – is relatively modest. In other cases, millions could be at stake.
In another family, the sibling trustees were divided over whether to sell $120 million in stock that their grandfather had purchased for pennies on the dollar back in the 1920s. Emotionally tied to the stock, two siblings wanted to hold on to the shares, and two wanted to sell. The dispute escalated, with each side rigid in their beliefs. Their wealth advisors encouraged the family to gradually sell to reduce the concentrated stock position, but no amount of discussion could break the stalemate. Ultimately, a legal battle ensued, the stock fell in value, and the family lost 95% of their money.
- The Desire To Be “Right”
There may be two sides to every argument, but when families fight, both sides feel they are right. Adult siblings may feel the need to be right at any cost, or they may feel a certain moral superiority. In either case, the desire to be right will make the stakes go up considerably.
In one situation, the father entrepreneur had created a business worth $250 million. He had three adult children with his first wife and a 12-year-old daughter with his second, younger wife. After he passed away it became necessary to sell the business to distribute the assets.
The families sought qualified appraisers yet continued to stalemate over the price. Feuding erupted between the two families and became so intense that forward movement was impossible. One side wanted to take the bid, while the other side wanted to get more. Communications ground to a halt and everyone hired their own legal counsel. Both families watched as the fees mounted and the value of the business diminished until ultimately it was sold off for its parts.
In an attempt to be “right,” both sides lost sight of what they were losing in the battle. For years after, each side blamed the other for the outcome, never seeing they both held some responsibility.
- A Sense of Entitlement
In many families, the children of the first generation wealth can be inadvertently cast with a profound sense of entitlement. The benefactors are often self-made men and women who overcame hardships growing up. Incredibly focused and self-motivated, they want to provide a better life for their families and descendants. The result is second and third generations are raised in what is sometimes called a “luxury bubble.” These younger family members may be more likely to want to rely on the family wealth rather than build their own careers.
Consider Harry Winston’s sons who fought over the luxury diamond business for over a decade. Winston, who built the company and was famous for designing the “Taylor-Burton Diamond,” and owning the “Hope Diamond,” died and his two sons fought continuously in two separate lawsuits for over 12 years for stakes in the company. His son Ronald was very involved in the company while the younger son, Bruce, was not. Mr. Winston left his estate “equally” to his sons; however, Ronald’s share was left outright to him, whereas Bruce’s share was left 100% in trust, appointing Ronald as trustee. Ronald ultimately cut Bruce off and increased his own salary to above $1 million because of the entitlement that he worked at the company and Bruce did not. Bruce sued Ronald for breach of fiduciary duty, and again later for the trademark of the Winston family name. Eventually Bruce was bought out of the company by Fenway Partners and the company was sold to Swatch Group in 2013.
Using sophisticated diffusion techniques, advisors can create more effective language, help focus advocacy on the goal of conveying an atmosphere of balance and agreement and navigate strong emotion to help prevent millions of dollars in losses for the family.
Continue with Part II of our series on this topic: 5 Techniques to Prevent Family Breakdowns
[i] Benson v. Rosenthal, Civil Action 15-782, U.S. District Court, Eastern District of Louisiana
[ii] Authors: Susan J. Hartley, C.T.F.A.; Donna LeBlanc, M. Ed., NYMHC “Avoid Family Feuds”, Trusts & Estates,
7 February 2014, pp. 1,2. Copyright Donna LeBlanc 2014. http://www.DonnaLeBlanc.com