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Is JP Morgan Really Starving Doris Duke’s Billion-Dollar Legacy?

The tobacco heiress’s relatives are begging for relief while her beloved gardens have been belittled as “conspicuous consumption.” But the trustees may not be the villains here.

Doris in her prime; the kids today. Riches to rags or the trustees doing their job?

Doris in her prime; the kids today. Riches to rags or just a case of the trustees doing their job?

The fight over Doris Duke’s massive fortune was settled over a decade ago, but a new generation of hostilities is putting some of the industry’s top firms back on the defensive.

The latest controversy centers on the way JP Morgan administrators have treated Duke’s relatively distant relatives – a deceased nephew and now his children – over the years.

Now 15, the kids are making the tabloid circuit and filing court affidavits that are generating endless noise and a little unwelcome heat for the real power brokers.

Cut through the noise

First, the trustees have not whittled the Duke estate from $1 billion down to the barely $60 million that Georgia and Patterson Inman currently stand to inherit when they turn 21.

The billion-dollar Duke family bonanza went to Doris and her will bequeathed the bulk of it to a complex of interlocking foundations.

The Inman twins were never part of that line of succession. Their money comes from their great-grandmother, who married Doris’s father after the death of her first husband.

But while Georgia and Patterson are only incidentally “Doris Duke’s heirs,” their claims that the Inman money was initially doled out freely to their drug addict father and now withheld from them are not exactly for small stakes.

Georgia in particular argues that their trustees at JP Morgan were happy to distribute as much as $180,000 a month to subsidize their father’s ultimately self-destructive adventures, so restraint on their behalf now seems hypocritical.

The twins and their ex-dancer mother reportedly have to make do now on less than a tenth of that income, which is why they’re lobbying to get the trust to accelerate the final big distribution.

The trust itself can almost certainly make bigger distributions without running out of money over the next five years. As it is, the family is probably not even living on the interest, much less burning through the principal.

But JP Morgan administrators have fired back that mom is not exactly promoting a safe environment for the beneficiaries whose interests they are bound to protect.

As they note, the custody court passed her over in favor of her legendarily eccentric spouse when they split up – and now she’s romantically involved with a known child molester who already has a restraining order keeping him away from the kids, but not her accounts.

If he’s the source of recent “erratic” requests for distributions to pay for Vegas jaunts and gold bullion, the trustees have every right to clamp down on suspicious expenses.

After all, their job is to ensure that the kids get the maximum possible inheritance, and not to fund the foibles of anyone hanging around the household. Should mom burn through the money now, JP Morgan is on the hook for failing to live up to its fiduciary responsibilities.

Dad, on the other hand, was an adult and so was free to spend his regular trust fund checks as he pleased, subject of course to the terms laid out in the trust documents. He bought a lot of guns and a lot of drugs.

When the kids are legally free of their mother, they’ll get the same privileges. Let’s hope they enjoy better outcomes.

So where’s the billion dollars?

While insinuations that JP Morgan mismanagement drained the family trust are more than a little overwrought, the topic does raise the question of where the Duke fortune went.

Turns out that it’s right where it’s been since 1996, when the controversies surrounding Doris Duke’s multiple conflicting wills finally resolved and a massive foundation was set up to inherit most of her wealth.

Since that time, some of the biggest players in the trust world have drifted across Doris Duke Charitable Foundation annual reports.

U.S. Trust was removed early on as executor of her estate due to apparent conflicts of interest, while it took another eight years for Citi to complete transfers from her own trust fund. JP Morgan was involved for much of the first decade and John Mack of Morgan Stanley – a Duke University graduate — personally sat on the board.

Now the only real controversy around the foundation is whether the directors are spending their $1.6 billion endowment in ways Doris would have wanted.

The closure of the famous Duke Gardens greenhouses to the public in 2008 raised eyebrows for belittling the family’s “personal passions and conspicuous consumption,” but it’s an open question whether Doris wouldn’t have approved of the property’s new environmental research focus.

In any case, nobody lodged a formal protest and the land has since quietly reopened to the public after extensive “green” renovations.

Likewise, claims that the gardens and sister properties in Rhode Island and Hawaii have had to sell off Doris Duke’s furniture and personal possessions to pay the bills seem a little exaggerated.

While the estate has been working through the memorabilia over the years, she had a massive amount of stuff. The 2004 auctions alone raised $34 million and at various points the foundation has thought seriously about simply donating her chattels by the crate to less-fortunate organizations.

Besides, the mansions and parks have drawn about $250 million from the primary foundation’s checkbook – 22% of its overall grant activity – so there’s really no room to complain that they’re being short-changed here.

If anything, the endowment looks too well run and too sustainable even by institutional standards.

The portfolio is a treasure chest of high-end hedge funds, blue-chip stock and fixed income instruments that collectively generated $136 million in interest, dividends and capital gains last year.

On a portfolio of $1.6 billion, that’s a healthy 8.5% return, more than enough to cover the foundation’s $96 million expenditures.

It’s not like the advisors are gouging here, either. Direct management fees barely topped $8 million, so the foundation is roughly paying 50 basis points for that performance.

Administration costs are also lean at $4 million.

With efficiencies like this, foundation staff should have plenty of money to pursue Doris Duke’s interests into perpetuity – the only real question is whether their interpretation of her wishes will hit the mark.

She clearly wasn’t thinking too hard about her nephew’s kids when she wrote her will, but they’re not exactly on their own either as long as their trustees are looking out for them.

At the end of the day, that’s all any estate planner can hope for.

Scott Martin, senior editor, The Trust Advisor

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