All is not well in Margaritaville. The US$275 million trust and estate of the late singer Jimmy Buffett—who built it over a 60-year-plus career with an ethos of sun, sand and relaxing that appealed to millions of “Parrotheads” around the world—is the subject of a court fight between the two appointed trustees. They are his wife, Jane Buffett, and his accountant, business manager and financial advisor of several decades, Richard Mozenter.
To summarize, Jane Buffett claims that Mozenter refuses to give her any information about the trust. She accuses him of mismanaging its assets and collecting excessive fees of $1.7 million a year. She also claims that Mozenter advised her to consider selling her own real estate to maintain her standard of living, as he said the trust would earn less than $2 million in net income for the year. (That is less than a one per cent annual return.)
Mozenter’s suit, meanwhile, claims that Jane Buffett hasn’t helped him in managing the trust and has interfered in business decisions, acted in “her own interests” and breached her fiduciary duties. He has also claimed that Jimmy Buffett told him he was concerned about his wife’s ability to manage the assets.
Looking beyond these claims, the lawsuits lay bare the risks for enteprising families in holding assets in a trust after death. Appointing both a family member and a business partner as co-trustees can help navigate the complexities of business operations and ensure smooth management after the founder’s death.
Except when it doesn’t.
Lessons to be learned
The biggest takeaway is that “you can do everything right from a legal standpoint, as far as setting up your estate and your succession planning, and still have the whole thing just completely fall apart because of the human element,” says Vancouver-based Brian Man, a business and estate planning lawyer at Segev LLP.
When creating an estate plan, it’s not just about picking someone you trust. It’s also about knowing how they’ll work with the people left behind.
“You might get along great with your financial planner,” Man explains, “but will your spouse or children mesh with them? Will the personalities clash?” (A majority of widows change their financial advisor after the death of their spouse.)
In addition to trust and competence, he stresses the importance of emotional intelligence and interpersonal dynamics. “We’re dealing with people, and when people get mad at each other, things can fall apart fast.”
So what can enterprising families learn from this situation?
First, in the case of Buffett, it appears that everyone should have sat down and agreed on what was going to happen after the singer died, Man says.
You can do everything right from a legal standpoint and still have the whole thing just completely fall apart because of the human element.
Brian Man, Segev LLP
“You put together this grand plan, which looks beautiful on paper, and you’re thinking it’s going to work well, but you can’t have this rosy projection that everybody’s going to be getting along just fine and work toward the same goals you have.”
Take a sober look at the personalities involved and evaluate whether they can mesh together. In the Buffett case, “it sounds like there hasn’t been any transparency and a breakdown of communication,” Man says.
In the United States, a tie-breaker trustee could be assigned. This person doesn’t act as a trustee per se, but they are authorized to resolve disputes. Canada has something similar, called a Trust Protector, Man says, who generally has oversight of the trustees. “They make sure that the trustees are doing their jobs, and they have the power to remove or appoint new trustees,” he says.
Some experts recommend having an odd number of co-trustees, so if there’s conflict, decisions can be made by majority rule. But Man cautions against that.
“Having majority rule would prevent the trust from becoming paralyzed,” he says. ”But now you have to pay three people’s expenses, and if one person gets overridden and overruled a number of times, it’s going to start breeding resentment and it’s not going to be long before things break down.”
Choosing professionals instead
Another path, if you don’t opt for family or friends as trustees, is to go with professionals, says Carey Abma, an independent estate consultant based in Burlington, Ont.
That involves choosing a trust company, investment firm or bank to manage the trust. The service often includes creation of the trust based on your wishes as well as managing it, keeping records and tax reporting. The trust is managed objectively, based on your will and estate plan.
If you’re shopping for a company to manage your trust, Abma says to ask about their services, fees, protocols and processes. “Each institution has a different minimum fee, offers different discounts if assets are held internally versus externally, and has different tiered pricing and blended fees, which can make it hard to compare companies.”
One trust company’s fees might start at one per cent on the first $2 million, then fall to 0.5 per cent on $5 million to $15 million, and fall again to 0.05 per cent on $100 million or more.
One more caution, Abma says, is that the trustee fees are based on what your estate has now, but they will be charged on what you have at the time the trust is set up, which might be difficult to know now.
As for what might happen with the Buffett lawsuits, Abma thinks the court may appoint a protector to manage the trust.
Man says that the key aspect here is relational.
“We are dealing with people. And when people get mad at each other, forget whether or not you can read a spreadsheet. You just know it’s not going to work.”
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