Pamela Harriman, Clark Clifford and Paul Warnke were the crème de la crème of Washington politics, luminaries of the D.C. establishment and among the veritable best and brightest of the American political scene. Pamela had used her inheritance and status as the widow of Averell Harriman to enhance her lifestyle and advance her party’s political agenda, ultimately becoming the U.S. ambassador to France. She was “the belle of the ball.” They were the wisest of “wise men.” All three were trustees on various Harriman family trusts for the benefit of Averell’s children from a previous marriage.
Yet somehow, the glittering doyenne and the titans of probity managed to lose over $40 million of the Harriman trust assets, principally by relying too heavily on the advice of scoundrels and investing in a disastrous real estate project that had once been a Playboy Hotel. In addition, Pamela had borrowed funds from a trust of which she was trustee (a clear breach of her fiduciary duty of loyalty); when the trust terminated, almost all of the trust assets consisted of IOUs from Pamela.
Their excuses weren’t exactly compelling: Pamela claimed not to have been actively involved with the trusts (except to the extent of her self-conflicted borrowing); Clifford said that he had trusted the investment manager to make the investment decisions; and Warnke claimed to have been kept in the dark regarding all trust transactions. None of these arguments shielded them from fiduciary liability.
While we don’t know exactly how much the three trustees had to pay to the trusts in restitution, we do know that Pamela was forced to sell key items from her treasured art collection, and at one point Clark was expected to contribute $3 million of his personal funds. Everyone associated with the estate was sued, including Averell Harriman’s former firm and the law firm that had prepared the original estate documents. The case made headlines across the globe.
The moral of this story? It’s critical to select trustees who have the skills and judgment appropriate to the task. For even the best and brightest can do some of the worst and stupidest things when acting as trustee. And when they do so, they act at their own peril and risk frustrating the intentions of both grantor and beneficiaries.
ITA Master Certified Independent Trustee Daniel M. (Dan) FitzPatrick is an attorney and wealth management professional who led global personal trust and estate businesses for industry leaders including JP Morgan, Goldman Sachs and Citigroup. He currently serves as President of Northway Wealth Advisors, LLC, an independent boutique providing objective, expert fiduciary advice and assistance to wealthy individuals, families and their related charitable entities. Dan also serves as a mediator and expert witness in support of fiduciary-related dispute resolution.