A New York real estate deal valued at close to $1 billion came to a grinding halt when the underlying animosities between a late developer’s widow and his children from previous marriages came to a head in court. Although the litigation involves multiple claims of breach of fiduciary duties, the roots of the dispute can be found in estate planning decisions made by the developer years ago.
It’s an all-too-familiar scenario: a decedent’s widow calling the shots, disgruntled children from earlier marriages and the contested distribution of assets. The family feuds over the estates of Robin Williams and Jerry Garcia (which we discussed in an earlier post here) are just two high-profile examples that follow this pattern.
In this case, at stake is the sale of the largest federally subsidized affordable housing apartment complex in the United States. Located in Brooklyn, the 145-acre complex houses 15,000 residents in 46 residential towers, and features its own shopping center, post office, power plant and schools.
Developer Disque D. Deane founded a partnership of investors called Starrett City Associates in 1972 to develop the complex, first called Starrett City and later Spring Creek Towers. When Deane died in 2010 at age 89, he left his estate to his third wife, Carol G. Deane, and their two children, and set up a trust for each of his five children from two previous marriages, which included shares in the complex. Deane’s widow became the managing partner in control of the partnership.
In early September, the partnership announced the sale of the complex to Rockpoint Group and Brooksville Co. for $850 million. But before the month was out, four of Deane’s older children sued the Carol Deane-led partnership and others to block the sale. LIHC Investment Group and Belveron Partners, whose $900 million bid for the complex had been rejected, joined forces with the adult Deane children as plaintiffs, notes The New York Times.
The plaintiffs accuse the partnership of breach of fiduciary duty for misrepresenting and failing to disclose important information to the plaintiffs in order to secure their agreement to the sale; failing to maximize profits for its shareholders by making a deal with a single bidder without conducting a proper auction; and ignoring conflicts of interest.
A dispute over the sale of the complex may have arisen regardless, but it’s easy to see that Deane made a number of key errors in his will that helped fuel the family feud. These include:
Giving considerable personal and business authority to his widow. Deane’s widow is currently the executor of his estate and took over control of the Starrett City partnership as a managing partner. Over the years, his older children and their step-mother have gone to court against each other several times – a costly endeavor in terms of time, money and emotional stress. Appointing a neutral third party or an institution as executor might have helped the family resolve their differences and keep them out of court.
Inequitably distributing assets among his seven children. Deane left his estate to his widow and their two children. Although he also set up trusts for each of his five other children, several of them later challenged the will in court, which laid the groundwork for future disputes. A more equitable division might have helped keep the peace. That is not to say that Deane was not entitled to leave his estate to whomever he desired; however, the scrivener of Deane’s will could have proposed certain steps that may have avoided a will contest—for example, suggesting an open dialogue between Deane and his children prior to his death about the reasons behind what appeared to be an inequitable plan, “defensive” estate planning by the scrivener to protect the validity of the will in the event of a will contest, and potentially suggesting the inclusion of an in terrorem clause in Deane’s will which may have deterred a challenge to the will to begin with.
Ignoring family dynamics. When it came to putting his affairs in order, Deane, like many other testators, did not address the animosity that had been growing between his wife and his oldest children long before his death. As The New York Times noted, Deane divorced his second wife of more than 30 years to marry Carol Deane, a friend and college classmate of one of Deane’s daughters. The family’s hefty emotional baggage is yet another reason that careful and thoughtful estate planning, with an emphasis on the family dynamics, and “defensive” estate planning to protect the validity of Deane’s plan, was required to potentially avoid prolonged litigation.