Lessons from the $30 million Harriman estate battle Lessons from the Harriman estate wars

(MONEY Magazine) – Having trouble deciding how to divvy up the family wealth? Who'll get the silver service? Or the grandfather clock? It could be worse, a lot worse. Take the Harriman estate -- which has turned into a battle royal that may offer lessons for you and yours. In September, eight heirs of legendary statesman Averell Harriman by a previous wife sued his socially precocious widow, Pamela Harriman, 74, plus two big-name trustees: former Defense Secretary Clark Clifford, 87, and ex- U.S. arms control negotiator Paul Warnke, 74. The charge: Bigwig Democrat Pamela (now the U.S. ambassador to France), Clifford, Warnke and others squandered more than $30 million of trust funds on high-risk investments. , Averell's daughters from a previous marriage, 76- and 77-year-old Kathleen and Mary, say they're each getting $200,000 a year less in income from family trusts than before all the losses. The daughters claim that the three, as well as trustee William Rich III, a longtime Harriman family adviser, did a rotten job managing the estate. "This kind of thing happens in many middle-class families where trustees were not well chosen," says Howard Zaritsky, an estate attorney in Fairfax, Va. The Harriman estate battle began back in 1986, when Averell died at age 94. His will, drawn by Clifford in consultation with Pamela, Averell's wife of 15 years, left her the bulk of his $65 million estate: $33 million, the lifetime income from an $11.6 million trust and four grand homes worth millions more. Each of his six grandchildren received $100,000. By contrast, his daughters got $4,000 each. Wrote Averell: "I have intentionally refrained from making substantial provision for my beloved daughters. . . because I know them to be otherwise well provided for ((by income from trusts set up earlier and by their wealthy husbands))." The daughters' smoldering resentment -- Kathleen had been an intimate of Pamela's before the marriage -- caught fire last February, when family members got a look at the trusts' books. From 1984, when Averell named Clifford and Warnke trustees, until early '89, according to the suit, the trusts nearly doubled in value, from $13 million to $25 million. Beginning in mid-'89, however, the complaint says the trustees stopped informing the beneficiaries about the investments while at the same time funneling $24 million into "high- risk, non-income-producing, illiquid investments." The biggest bet was on the insolvent but still operating Seasons Resort & Conference Center in McAfee, N.J., a former Playboy resort. According to the complaint, Rich poured $21 million into the resort run by a corporation whose directors and part owners included Eugene Mulvihill and Robert Brennan. Their backgrounds: Mulvihill had pleaded guilty to fraud, theft and conspiracy charges in 1984 and was barred for life from the securities industry. Brennan has been investigated by the Securities and Exchange Commission for years over his brokerage's penny-stock trading. Pamela Harriman, Clifford and Warnke maintain they have done nothing wrong. The ambassador's lawyers say she was never an estate trustee, merely a general partner of the Harriman Partnerships. Clifford (who was charged with fraud in the BCCI scandal but was later ruled too sick to stand trial) insists he supervised the trusts honestly. Warnke says that the first he heard of the dispute was when he saw the complaint. The Harriman story carries three basic lessons for all trustees and heirs. Trustees should 1) communicate regularly with the beneficiaries and 2) not be too closely connected to one or more of them. Beyond that, 3) there's the question of how suitable real estate speculation is for any estate. If you're a trustee, says Zaritsky, remember: "A trust is like an 80-year-old retiree: Invest it conservatively."