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If securities lawyers have Enron and WorldCom to give them night sweats, trusts and estates lawyers have the Pritzker family. The Chicago dynasty, which owns the Hyatt hotel chain among other businesses and is one of the nation’s richest families, is currently embroiled in an intergenerational litigation that has become a Windy City obsession. Two of the family’s younger scions are charging that their $2 billion trusts were improperly drained by their father, other relatives and the family lawyer, Marshall E. Eisenberg of Chicago’s Neal, Gerber & Eisenberg. For trusts and estates lawyers, the prospect of one of their own facing crippling liability has served as a reminder of the special difficulties they face dealing with vast sums of money that frequently lie at the heart of fiercely emotional disputes. “It’s an example of what I do not want my clients faced with,” said John D. Dadakis, the New York-based head of Morrison & Foerster’s wealth management practice. But that cautionary tale arrives at a time when a handful of major law firms are launching or expanding their trusts and estates practices, bucking a trend that has seen many large firms curtail the practice recently due to measly profits and the prospect of further estate tax relaxation. Guiding these efforts is a belief that a revamped trusts and estates — or, as many firms prefer to call it, wealth management or private client — practice can not only be highly profitable on its own but can also, by giving large firms access to the nation’s rich and powerful, generate business across the firm and potentially beyond. Morrison & Foerster only recently joined the ranks of large firms that believe there is a future for practices servicing wealthy individuals and families. Dadakis arrived at the firm last month from the New York office of Clifford Chance, from which he also brought two associates and a dedicated client services manager. Other large firms that continue to maintain substantial trusts and estates practices include Milbank, Tweed, Hadley & McCloy; Sullivan & Cromwell; Schulte Roth & Zabel; Sonnenschein Nath & Rosenthal; and McDermott, Will & Emery. Several smaller firms and boutiques are also active in the arena, including New York’s McLaughlin & Stern, Connecticut’s Cummings & Lockwood and London-based Withers, which opened a New York office last year. But among large corporate firms, the trend over the past decade or so has been to de-emphasize trusts and estates, if not get out of the practice altogether, said Roy Adams, the New York-based senior chairman of Sonnenschein’s 30-lawyer trusts and estates practice. “In the main, they are determining that the practice is not sufficiently profitable to sustain,” said Adams, noting that a reasonably successful large-firm trusts and estates practice might gross only $14 million a year out of a firm total of $800 million. “The profits don’t match up with other practice areas,” he said. Trusts and estates practices also do not fit the leverage model that most firms bring to bear on major transactions and litigations, said William D. Zabel, head of individual client services at New York-based Schulte Roth. “A rich person wants to deal with partners,” he said. Truly rich clients are a rarity in many firms’ trusts and estates practices though. Adams and Dadakis both said many trusts and estates practices in large firms subsisted primarily by providing gratis estate planning to major corporate clients or to fellow lawyers at the firm. But relatively few lawyers or in-house counsel possess wealth on a scale that appeals to premium trusts and estates practices, and changes in estate taxes are likely to reduce those ranks further. The present $1 million individual estate tax exemption, itself a recent jump from $600,000, is scheduled to increase to $1.5 million next year and hit $3.5 million by 2009. Republicans in Congress would like to completely eliminate the estate tax by the end of the decade. Though repeal is by no means certain, the enlarged exclusions are more likely to remain in place. With a couple able to exclude $7 million by 2009, a huge number of wealthy people will likely be departing the active client lists of trusts and estates lawyers. “If your practice is primarily a tax practice, you’re going to be in trouble,” said Adams. He said the most successful trusts and estates practices are targeted at individuals and families who are rich enough that estate taxes will be a continuing concern and will also have a large number of other issues and interests that can generate legal work. Over 80 percent of his clients are worth more than $20 million, said Adams, and at least 25 are worth more than $1 billion. Zabel said his firm had handled a large number of major litigations, corporate acquisitions and other matters on behalf of clients who first came to Schulte Roth as trusts and estates clients. But such business generally only comes from very large estates, he noted. “A corporate executive with a $10 million estate can be a good client,” he said, “but he’s not going to have a lot of spin-off business.” Their ability to handle such spin-off business is one advantage large firm trusts and estates lawyers say they have over boutique practices that need to refer those matters. Zabel noted that Schulte Roth’s corporate practice was focused on hedge fund and private equity representations, a particularly good fit with a practice catering to extremely wealthy individuals. Adams said he also benefited from Sonnenschein’s corporate and tax practices. “I couldn’t have the practice that I have at a boutique.” But super-rich clients demand a higher level of attention than many trusts and estates lawyers are willing to give, said Dadakis. At Morrison & Foerster, he hopes to expand what he calls his family heritage practice, in which he plays a continuing and often non-legal role in helping the members of very rich families learn to use and enjoy their wealth in a socially responsible manner. “I become their personal general counsel,” he said, adding that 25 of his 300 clients presently fall within his family heritage practice. Adams agreed that extremely close relationships with clients are crucial. “I will do everything from mow their lawn to go with them to the doctor,” he said. But the coveted role of trusted family adviser also carries risks. In the Pritzker family controversy, 18-year-old Liesel Pritzker and her 20-year-old brother Matthew are accusing Eisenberg, the family’s lawyer since at least 1985, of breaching his fiduciary duty as a trustee by conspiring with their father Robert and other relatives to divert funds from their trusts to other family members. Eisenberg served as co-trustee for many of the trusts and designated Robert a trustee as well. Liesel is being represented by Lazar Raynal of McDermott Will & Emery in Chicago, which also possesses one of the nation’s leading trusts and estates practices. Raynal said Eisenberg’s decision to serve as trustee was unusual, noting that trusteeships were usually held by banks or other financial management companies. “There’s no doubt in anyone’s mind that if a bank did what Marshall Eisenberg did, people would say, ‘What the hell is going on?’” said Raynal. Raynal said most law firms have procedures in place to prevent lawyers from taking actions similar to those taken by Eisenberg. But Lewis Kaster, of counsel at the New York office of Bryan Cave and an emeritus lecturer on partnership and trusteeship law at Columbia Law School, said it was very common for lawyers who have long histories serving wealthy families to take such roles. “They know better than anyone else all the complicated transactions that have taken place over many years,” said Kaster. Difficulties like the Pritzker situation arise, he said, over how and to whom the trustee may interpret their duty. Zabel also said he thought Eisenberg’s conduct likely stemmed in part from his very close identification with the elder members of the Pritzker clan. “It’s a common problem that the family lawyer grows so close to the family members of their generation,” he said. Dadakis said one aim of his practice was to involve younger family members in managing family wealth, frequently by getting them to participate in family foundations. Trusts and estates lawyers’ close relationships with wealthy individuals and families may also make them natural candidates to take advantage of changes in New York state disciplinary rules in 2001 potentially permitting contractual relationships between lawyers and non-lawyers. In the view of some trusts and estates lawyers, such partnerships could vastly increase their practices’ profitability by making them the gatekeepers to a wide array of services to rich people. Others warn, however, that the rules would apply only to a small number of situations. Adams said many trusts and estates lawyers may be ready to push the envelope on these rules. The future may see lawyers shepherding wealthy clients to insurance agents, doctors, real estate brokers and others, he said.

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