Why an Institutional Trustee Can Be a Good Idea

You may have heard of Dr. Robert Atkins, who started popular carb-hating diet craze.  Dr. Atkins died in 2003, but was survived by a spouse and a trust that has become the subject of some interesting litigation.

It seems that Dr. Atkins’ widow, Veronica, became depressed after his death.  But, fortunately for her, she doesn’t have to worry about paying the bills.  She has a small fortune left to her in trust by her late husband.

In situations like this, many people will turn to an institutional trustee (such as a bank trust company).  Although institutional trustees charge for their services, the cost is often warranted by the professional expertise, fiduciary accountability, and investment services that the trustee provides.

In this case, though, Veronica turned instead to three people, which she referred to as the “Three Musketeers.” The Three Musketeers consisted of a “self-described entrepreneur,” an accountant, and an attorney.  Veronica had the trio appointed as trustees of the marital trust that Dr. Atkins created for her benefit.  They also became officers of Dr. Atkin’s private foundation.

It turns out that this was a favorable arrangement for the Three Musketeers. Under their arrangement, Veronica:

• Agreed to pay each of them $1.2 million per year.  Because this salary was excessive under the statutory limits on trustee commissions, some of this was paid from Veronica’s own pocket.
• Gave them 10-year contracts with built-in extensions.  The Three Musketeers read these contracts to make them lifetime employees of Veronica.
• Consented to the purchase of a $5 million life insurance policy on Veronica’s life, naming the Three Musketeers as beneficiaries.

But, as these things tend to do, the relationship has soured.  Veronica has remarried.  Her new husband, Alexis Mersentes, is a Palm Beach socialite that is referred to in the litigation as an “opportunist skilled in the art of seduction.”  She has also fired the Three Musketeers, claiming that they breached their fiduciary duties by engaging in self-dealing and permitting waste of the trust assets.  As expected, the Musketeers aren’t going down without a fight.  They claim that their termination was improper.

Here’s the moral of the story:  Consider an institutional trustee.  The annual fees charged by a professional trustee can be far less expensive than the damage caused by incompetent individuals and the litigation it takes to straighten out the mess.