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| The Top Estates |
The Bakal Estate
Elizabeth Harris
08/01/06
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As Richard Bakal sees it, just having money is no reason to spend it. The
second-generation wealth-holder has been the steward of his family’s fortune for
nearly 40 years. This responsibility, in his view, obligates him to ensure that
its nine beneficiaries, himself included, use the money very carefully. He
approves of his relatives tapping into the trusts for what he calls
“enhancements,” such as college tuition or medical bills. But he is adamant that
no one be able to draw a regular income from the wealth his parents earned
through entrepreneurship, scrupulous saving and opportune
investing.
Bakal describes this thrift as his family tradition. “I look at
wealth as being liquid energy, and you don’t waste that,” he says. “The needs
that we face, as a community and a world, are enormous. A key element in dealing
with those needs is resources. So to take that and use it foolishly or
extravagantly seems to me to be immoral.”
 He wants to be sure no Bakals grow
up with a sense of entitlement that can blot out motivation and ambition. “A
trust baby is a prime example of entitlement,” Bakal maintains. “You don’t know
whether people value you because of your money or because of you—you have not
demonstrated your own competence.”
Bakal never experienced that sort of
insecurity himself, growing up with parents who lived the classic
immigrants-make-good tale. His father, Max, arrived from Poland in the early
1900s and went to work in a New York sweatshop. He eventually earned enough to
launch his own business and became the successful owner of a large shirt-making
company. His business provided sufficient income that Bakal remembers living
comfortably in their Brooklyn home even during the Great Depression. The
family’s assets were greatly increased by his mother, Bessie, who discovered the
stock market in the late 1940s and had the foresight to buy and hold Polaroid
and several other legendary winners.
Bakal’s own company, the Wine Trust,
based in Ridgefield, Conn., sells vintage Bordeaux to restaurants. The wines
range from $100 to $2,500 each, yet he works out of an understated office in a
strip mall. A sign on his door urges, “Please turn off lights.”
The fiscal
conservation that he expects of himself and his staff has not always been easy
to impose on his family. Nor has he always been able to rely on his fellow
trustees to be as strict as he would like. In 1999, he realized that having only
two fiduciaries overseeing the trusts—he and one other—did not provide
sufficient safeguards. A retired family member asked for a disbursement for
living expenses that was $5,000 more than Bakal considered appropriate. His
fellow trustee approved the payout without even asking how that $5,000 would be
used. “The answer I kept getting was, ‘Don’t fuss about it, for goodness sake,
just hand out the money and forget about it; it’s not worth arguing about,’”
Bakal recalls. “That violates a principle of mine—these principles apply whether
it’s $10 or $100,000.”
He soon began researching alternative structures for
his family trusts. He considered simply replacing the existing trustee, but he
was unable to find anyone who would take on the kind of liability the job might
entail. “Trustees are used to having wide discretion,” says Rashad Wareh, a
partner with New York-based Kozusko Harris Vetter Wareh and one of the attorneys
who helped Bakal create his new structure. “If you go to any significant trustee
institution, they prefer, for their own liability purposes, for their own ease
of management purposes, not to be given guidelines that are open to easily
conflicting interpretations that can result in them being sued.”
Bakal sought
to acquire insurance to indemnify trustees against this liability, but found it
was too costly and limited in scope. He considered establishing a private trust
company, but discovered that because of the onerous expenses and regulatory
reporting requirements these are appropriate only for estates of $500 million or
more, several times larger than his family’s.
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