Although this will not come as a surprise to those of you that know me, I find the circumstances of the case of the billionaire’s irrevocable trust along with the actions of the trustees and beneficiary to be fascinating. In reading between the lines, I can’t help thinking that there must be more to this story; a tale which likely died with billionaire Richard Mellon Scaife.
The trust in question was created by Scaife’s late mother, Sarah Mellon Scaife, who had left the assets in trust for her son’s ‘welfare’ with any residuary at his death to go to his ‘issue’. According to this article, the trustees had a duty to weigh the best interests of the current beneficiary against the interests of the future beneficiaries. It is this provision in the truszt that allows Scaife's children to challenge the distributions made by the Trustees to their father which, over time, resulted in a trust, once valued at $210M, to be completely devoid of assets at their father's death.
It is apparent to me, given his other assets which exceeded more than a billion dollars, that Richard Scaife had a choice as to which funds would be used to prop up his ailing Pittsburgh Post-Gazette and he purposefully chose to expend the assets from the trust that would otherwise go to his 53 year old daughter and his 48 year old son.
It is not unusual for me to recommend a ‘dynasty’ trust such as this one for my clients and their families. There are many valuable reasons for setting up this type of trust; reasons, it would seem, that Scaife deliberately circumvented. One of the most beneficial reasons in this case is the avoidance of the estate tax. Scaife’s entire estate, except for any assets in the trust in question, reportedly went to two charitable foundations thereby avoiding the estate tax because charities are not subjected to such a tax. The trust established by his mother would have avoided estate tax as well since any estate tax due would have been paid at his mother’s death.
What is the moral of this cautionary tale? One ‘fix’ is to make sure your children has a choice in which of your grandchildren receive any residual trust assets at their death. This is known as a ‘limited power of appointment’ and most of my clients opt for this planning in their own dynasty trusts.
You can learn more about this topic as well as other strategies on our website under the tab entitled: estate planning in Virginia. Be sure you also sign up for our complimentary e-newsletter so that you may be informed of all the latest issues that could affect you, your loved ones and your estate planning.
REF: Daily Mail.com (November 10, 2014) dailymail.co.uk/news/article-2829052/Late-billionaire-s-trustees-allowed-drain-children-s-210-million-trust-fund-prop-struggling-Pittsburgh-newspaper-10-years.html