Difficulties in Transitioning Wealth to the Next Generation

Difficulties in Transitioning Wealth to the Next Generation
Lisa L. Coggins, Esq.

The old adage ‘More money, more problems’ has often proven to be more than just a quaint saying, particularly for high net-worth families amidst the transitioning of wealth to the next generation.  Take for instance the struggles of Shari Redstone, daughter to media magnate Sumner Redstone.

A controlling interest – 80 percent – of her family’s fortune in media titans Viacom and CBS is held by her nonagenarian father.  According to a family trust, following Mr. Redstone’s death his interest will pass to his grandchildren.

Unfortunately for Ms. Redstone, such a transition is setting up to be anything but smooth.  Of particular concern to her had been her father’s refusal to resign from his role as chairman of CBS and Viacom despite shareholders’ concerns as to his ability to pilot the companies in light of his present physical condition.  Further compounding her concerns is a lawsuit filed this past November by Manuela Herzer, a former romantic interest of Mr. Redstone, questioning his overall mental health following Mr. Redstone’s revocation of a previous health care directive and removal of Ms. Herzer from his will.  According to the lawsuit, Ms. Herzer was designated to assume charge of Mr. Redstone’s well-being via the health care directive should he be found incapable of doing so himself.

In February, Mr. Redstone stepped down as executive chairman with CBS and Viacom.  With Ms. Redstone’s support, Les Moonves, chief executive for CBS, assumed Mr. Redstone’s former position.  However, Mr. Redstone’s personally appointed successor, Philippe Dauman, was named chief executive for Viacom despite Ms. Redstone’s objection.  Ms. Redstone likely views Viacom’s stock freefall under Mr. Dauman’s direction as the chief factor in her dissent to his appointment.  Regardless, so long as Mr. Redstone is considered mentally competent, there is little she can do in terms of recourse to remove Mr. Dauman from his role with Viacom.

As if this dilemma didn’t present enough to deal with for Ms. Redstone, there is also the matter of her father’s eventual passing.  If and when Mr. Redstone dies, his personal stake will be controlled by a trust with 7 trustees; specifically, Ms. Redstone and her son, Mr. Dauman, and 4 lawyers.  With that in mind, it is important to note that trustees have a legal duty to act directly in the interests of the beneficiaries for the trust.  The implications for such a duty could push for a sale of Mr. Redstone’s stake as well as possibly removal of Mr. Dauman from his Viacom position.