"Crazy" Sister vs. "Power-hungry" Brother

Chronic mental illness impairs one in every eight or ten adults. Which of us doesn’t have a relative—an aunt, uncle, cousin or in-law if not a parent, child, sibling, or spouse—suffering from long term inability to behave rationally and reliably in the adult world?

Wealth doesn’t cause mental or emotional problems, nor does it prevent or cure them. On the contrary: Disturbed family members’ “failure” to follow norms, behave sensibly, care for themselves, and view their good fortune as other members do can lead to dysfunction in the whole business ownership group.

Marilyn is such a member of the Huffman family.

She’s the oldest of four siblings. Thirty-five years ago, when Huffman Aerospace was about to make its initial public offering on the New York Stock Exchange, Mark and Jane Huffman placed $500,000 worth of shares in a personal trust for each child and another $500,000 worth in a Stewardship Trust in each child’s name. The personal trusts’ explicit purpose was to give the children (when they reached age 21) independent incomes, freeing them for creative work and contributions to society. The trustees were instructed to distribute as much of the dividend income as a beneficiary requested, and could make additional distributions (selling HA stock as needed) to support his or her education, health, maintenance, and career opportunities.

The Stewardship Trusts were to distribute only dividends to each beneficiary. The shares in those four trusts were to be voted in a bloc by the common trustee together with the parents’ shares, and could only be sold in two circumstances: if the family agreed unanimously to divest from the company, or for an individual beneficiary “in cases of severe, unforeseen difficulties.” Today, the stewardship trusts are each worth $50M and give each of the siblings an annual income over $400,000. They represent a total of about 10% of HA’s shares, and with the mother’s shares the total bloc of about 25% is sufficient to control the Board of Directors, on which all four siblings sit.

Jane, the founder’s 82-year-old widow, lives well within her dividend income of about $2.5M. Upon her death, her trust will pass to the benefit of thirteen grandchildren equally, skipping their parents. The Stewardship Trusts will also eventually pass to each sibling’s children, irrespective of the siblings’ personal estates.

Marilyn and her brother give conflicting accounts of the litigation she threatens against him and against the co-trustee of her Stewardship Trust. They more or less agree about the current financial situation of the four siblings:

	Marilyn, 54	Janet, 52	Rick, 49	Sally, 45
HA stock in 1970 Trust	$0	$40M+	$32M	$50M
Other assets in 1970 Trust	$0	$10M+	?	$0
Assets in own name	One house, equity=$300K	?	?	?
Stewardship Trust income	$400K	$400K	$400K	$400K
Personal debt	$1M+ (tax liability)	?	?	$0

How did Marilyn burn through assets that would amount, if she’d held onto them, to more than $50M today? For 25 years, according to Rick, she has managed to “squeeze” the trustees (one of whom was her mother) to distribute millions for houses and household staffs, a horse breeding business, an antique auction business (both businesses paid substantial compensation to partners even as they were failing), divorce settlements, dubious “charitable” contributions to what the family termed “cults”, and three long psychiatric hospitalizations for anorexia nervosa.

Marilyn acknowledged all of that, except the word “cults”. Her two daughters and her son also respectfully refrained from using that word, though they said their mother had been irresponsibly generous to her “spiritual advisor.” Marilyn is deeply disturbed in reference to her own body, of course (she denies being 20 to 30 pounds underweight for her height), and my rough diagnostic guess would include both depression and paranoia. But she also has a number of realistic complaints on her side.

Rick, the brother and only sibling who has ever been involved in the business, has been Chairman and CEO for more than ten years, since their father’s death. He also holds his mother’s proxy for her voting shares, and is one of the trustees of his sisters’ Stewardship Trusts. In other words, he controls everything and will continue to do so as long as the shares aren’t sold. But here comes Marilyn claiming “severe and unforeseen difficulties.” She is, in fact, destitute. Her three children will have to support her when their grandmother dies, unless Marilyn is allowed to invade her Stewardship Trust. But that would establish a terrible precedent, in Rick’s view, especially as the family’s shares will soon be dispersed among 13 more trusts.

Rick is angry and frustrated at his “crazy” sister’s lifelong demands on their legacy. He calls the current demand “a crack in the dam,” likely to break through as a flood. It isn’t only a matter of retaining his own control over Huffman Aerospace and his two sons’ paths to succession. He also worries about the effect on the public market for HA’s stock (and thus the company’s capital investment opportunities), because if Marilyn does file suit, it will immediately become public information.

Their mother is cognizant of all this, but refuses to take sides or be drawn into the dispute. She has already bought Marilyn out of difficulties more than once with her own money, but to do so again would be “robbing my grandchildren,” she says. She understands Marilyn’s position that there’s still $50M of her own assets in the Stewardship Trust, but Jane won’t take a position contrary to her son as long as the other trustee agrees with his insistence on “stewardship not dissipation.” The sisters emphatically side with Rick. Although they feel bad about Marilyn’s decades of unhappiness, they ceased communicating with her about business years ago because of her “constant provocations” on the Board.

This case won’t be resolved through family meetings, but through mediation. Can you predict whether it will be settled Win/Win, Lose/Lose, or if Win/Lose, in whose favor?

copyright reserved 2006, Kaye Family Business Associates, Inc.