Bancroft Trusts' Lawyers Hold Key to Dow Jones

I can't imagine a more extreme example of trustee decision making under pressure-cooker conditions than the on-again-off-again negotiations for the sale Dow Jones & Co., which owns the Wall Street Journal.  As reported by the WSJ in Bancroft Trusts' Lawyers Hold Key to Dow Jones, at the center of that deal was a small group of lawyer-trustees:

The Bancroft family may own a controlling stake in Dow Jones & Co., but the final decision on whether to sell the publisher of The Wall Street Journal to Rupert Murdoch could well be made by a small circle of longtime family lawyers in downtown Boston.

Lawyers from Hemenway & Barnes sit at the center of dozens of overlapping trusts that hold power over most of the Bancrofts' 64% voting stake in the company .  .  .  . Those lawyers occupy two of the three trustee seats on a number of key trusts, with the third held by a family member. On one of the biggest trusts, lawyers from the firm are the only trustees. And the fact that the large Bancroft clan is divided over whether to sell further deepens the firm's influence.

"The vote really resides with them," says one family member who is leaning in favor of selling the company.

Risk management:

The best way to reduce the risk of getting sued as a trustee is to make sure the trust beneficiaries consent to your actions.  That seems to be what the trustees did in this case:

"There are 35 adult family members who have 35 points of view," Mr. Elefante said. "We've tried to be fair to all the family members by giving each of them all the information they need to make a good decision."

As the family's legal representative, Mr. Elefante likely would be reluctant to go against the family's wishes if a large portion of them oppose the deal. While trustees don't legally have to consult the beneficiaries of a trust before acting, ignoring their wishes might expose them to litigation. What's more, the Hemenway & Barnes trustees do not have to vote in concert. Mr. Elefante is expected to poll the family before deciding how the trusts would vote on a sale, a person close to him said.

Lesson learned -- plan ahead:

The earliest Bancroft trusts date back to the mid-1930s.  Back then no one could have possibly anticipated a sale of the WSJ in the year 2007 to a controversial media magnet from Australia.  Just like no one creating a trust today to hold a client's family business could possibly anticipate every contingency that trust will have to face in the decades (perhaps centuries - see here) that trust may be around for.

What you can do today is put in place a mechanism for trustee decision making that decreases the likelihood of future litigation while also making sure qualified trustees are at the helm when needed.  One way of achieving this balance is to design the trust so that an independent trustee, preferably a bank or trust company (see here for why), has ultimate decision making authority.  However, if trust beneficiaries feel their trustee isn't doing a good job or doesn't have their best interest at heart, sooner or later the parties will end up in court.  A way to avoid this type of showdown is to give the trust beneficiaries the power to hire and fire their corporate trustee at regular intervals.  Here's one way to do it:

  • Require a corporate trustee:

After my death or if my personal rights under this Trust Agreement are suspended, there must be at least one Corporate Trustee serving at all times.

  • Give trust beneficiaries periodic power to hire/fire corporate trustee:

Upon the third anniversary date of my death, and every three years thereafter, a majority in interest of the permissible current income beneficiaries most closely related to me who are then legally competent may remove any Corporate Trustee for any reason by giving 30 days’ written notice to that Trustee and to the permissible current income beneficiaries, including the natural or legal guardians of any beneficiaries who are then disabled.

  • Give senior generation greater voting power:

If there is ever a vacancy in the office of Trustee of any trust created in this Trust Agreement and no successor is appointed as provided in this instrument, a majority in interest of the permissible current income beneficiaries most closely related to me who are then legally competent (the “beneficiaries”) will nominate as a successor Trustee a Corporate Trustee as defined in this Trust Agreement. If the beneficiaries do not appoint a successor Trustee within a reasonable time, the terminating Trustee shall, or any beneficiary may, petition a court of competent jurisdiction to appoint a successor Corporate Trustee.

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