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Sometime before the end of 2013, Bank of Hawaii will distribute the last $5.6 million in assets of the George Galbraith Trust to more than 1,300 current heirs. That final distribution will terminate both the trust and the bank’s own role as trustee, just over 109 years after Mr. Galbraith’s death.
As Hawaii trusts go, Galbraith isn’t near the top tier. But its history provides repeated examples of how, for most of a century, the primary benefits went to everyone but Galbraith’s legal beneficiaries. Instead, the trust and its lawyers, corporate interests with insider connections, and the tax man, all prospered while beneficiaries waited several generations to share in the trust’s good fortunes. All legal. No scandals. But perhaps not what Galbraith imagined.
Not to be overlooked, though, was the recent sale of the bulk of the Galbraith Trust’s agricultural land to the Trust for Public Lands, and its transfer to the State of Hawaii, with a stipulation which ensures that it will be dedicated to farming in perpetuity.
George Galbraith was born in County Down in what is now Northern Ireland.
He left Ireland in 1850 on the British Barque Orion bound for San Francisco, according to an account by David Dickinson, a descendent of Galbraith’s brother. The ship stopped in Honolulu after a 214-day voyage before continuing on to SF, which took another 25 days. But it seems George liked what he saw here, and soon made his way back to the islands.
George had vowed not to return to Ireland until he had enough money to buy a farm back home. By the time of his death in November 1904, he owned three farms in Ireland, along with about 2,000 acres of land stretching from Wahiawa to the boundary of Waialua, which was used primarily for ranching at that time, producing income of $10,000 a year. The Wahiawa land included the spot known as Kukaniloko and its birthing stones, the site where high ranking Hawaiian women traditionally came to give birth.
Galbraith also owned a residence described as being “on the corner of Nuuanu and the road to Pauoa.” He also owned held bonds valued at $58,000, 250 shares of Waialua Agricultural Company valued at $25,000, and cash savings of about $60,000. His total estate came to more than $250,000, at that time quite a healthy sum.
Not much seems to be known about Galbraith as a person. His longtime attorney and agent, Cecil Brown, later described him as “a very peculiar man, eccentric and suspicious.”
“At one time he used to drink a good deal,” Brown testified in a court proceeding after Galbraith’s death. “He had a failing once in a while, but towards the latter part of his life he reformed … the last ten years of his life he was a different man.”
Galbraith, who never married, also befriended my great-grandfather, Robert William Cathcart, who arrived in Honolulu in 1881. Cathcart was from the same part of Ireland as Galbraith, and the two apparently became good friends.
A story passed down in our family is that the will was actually prepared by Cathcart pursuant to Galbraith’s directions. That would not be inconsistent with testimony by Cecil Brown, the attorney.
Brown said he had known Galbraith for 40 years, and had handled all of his business affairs for over the two decades before his death, but was not asked to prepare Galbraith’s will.
According to testimony by two of Brown’s employees, Galbraith came to their office in January 1904 and asked them to witnesses his signing of the will. Galbraith told the two men he did not want anyone else to know about the will, and asked them not to say anything about it or their role as witnesses. Brown was traveling and was not present.
Galbraith returned a couple of days later carrying a tin box which contained the will, which had been prepared elsewhere. A 1943 court decision described the will as “inartistically drawn …the product of a layman and not of a lawyer or of one learned in the law.” Consistent, perhaps, with it being drawn up by Galbraith’s friend, Robert Cathcart.
The will provided initial bequests to a list of friends and relatives, most back in Ireland. It then assigned all of the remaining assets to a trust, which was to continue as long as legally possible, before finally being distributed to the beneficiaries.
Galbraith’s will named Hawaiian Trust Company, which later merged into Bank of Hawaii, as trustee.
It didn’t take long to see how this game would play out.
Galbraith’s will provided for annual payments to a list of annuitants, and later their heirs, during the life of the trust. The will originally provided for 19 annuity groups with 49 individual annuitants. The total initial payout each year was $8,450, later reduced to $7,500 because certain annuities were for the life of the named beneficiary and ended with their deaths. At least one annuity lapsed when original annuitants died without heirs.
The problem is that the amount distributed annually was fixed, and did not grow over time. And as the decades passed and the trust’s assets grew, expenses also mounted while beneficiaries still split that total of $7,500 each year. Some individual heirs received, literally, just pennies. The checks cost more in postage than many received.
In a 1971 Master’s Report to the probate court, attorney Tom Gill stated the unpleasant truth: “It doesn’t require much insight to note that the chief ‘beneficiaries’ of this estate at the moment are the government and those who provide services to the trust.”
By 2005, for example, the trust reported total income of $1,653,710.11. But it had expenses totaling over $2.6 million, including trustee fees of $564,000, legal fees of $759,000, real estate expenses of nearly $492,000, and $796,000 in state and federal taxes.
Payments to the trust’s beneficiaries, meanwhile, were still locked in at $7,500, or less than three-tenths of one percent of the total expenses for the year.
Gill’s 1971 master’s report probed another area — “the possible conflict of interest between the trustee acting on behalf of the estate and the trustee acting as a stockholder and director of a company with which the trust does business.”
Gill called attention to “the question of arms length dealing” when the trust was doing business with a major Hawaii company in which it also held stock. And, Gill noted, stock in local companies held by the various trusts managed by a corporate trustee, like Hawaiian Trust, “allows the trust company, in its own right, to exercise substantial control and influence over those local companies.”
Hawaiian Trust’s links to Castle & Cooke, then one of the fabled “Big Five” companies that controlled the islands’ economy and politics, were flagged as most problematic. Hawaiian Trust controlled a significant amount of Castle & Cooke stock. The chairman of the board of Hawaiian Trust was also a director of Castle & Cooke. The head of Castle & Cooke, in turn, was a Hawaiian Trust director. And for years, Castle & Cooke enjoyed favorable leases on agricultural land owned by the Galbraith Trust.
Gill returned to the issue again in a 1977 report, pointing to “the basic and formidable problems of possible conflicts of interest,” and the “possibly delicate situation in which the corporate trustee may find itself in dealing or competing with landholding, using, and developing entities, such as Castle & Cooke, with which it shares certain officers and directors.”
Gill, with unusual insight, also pointed to “the opportunity for misrepresentations and speculation in the buying of annuities from persons not fully aware of their rights.”
Gill noted the fixed annual annuity payments, and the dilution of inherited interests with the passage of time, created a large number of people with minuscule shares of the annual payouts who might not know or understand their potential ultimate value.
“Opportunity for speculation” referred to a small group of Honolulu attorneys who purchased interests from Galbraith heirs or, in some cases, accepted them in lieu of legal fees, and then gave (or sold) fractional interests to relatives, friends, and business associates. These transactions represented speculation that anyone with an interest in the Galbraith Trust, no matter how small, might eventually share equally in the ultimate distribution of assets.
Some of the speculation was fueled by behind-the-scenes maneuvering by certain attorneys planning potential court action to break the trust early, but the rumored lawsuit never materialized. Instead, the trust survived its full term to 21 years after the death of the last original annuitant.
The speculative potential came from one of those problems with Galbraith’s original will, which provided: “On the final ending and distribution of the trust, the trust find to be divided equally amongst those persons entitled at that time to the aforementioned annuities.”
Years ago, an official with Hawaiian Trust told me: “The word ‘equally’ leaves much to be desired.”
It could be taken literally, meaning that each annuitant would receive an equal final payout, regardless of whether their annuity share was a fraction of a penny or $250 or more. This would have been the ultimate reward of prior speculation.
The number of annuitants had grown from the 49 named in the original will, to around 600 just a few years ago, to a count of 1,353 made in preparation for the final distribution.
“Equal” could also mean an equal split between the 13 groups of annuitants set out in the original will, and then divided among those in each group either proportionately to their annual annuity or simply split “per capita.”
Ultimately, a court ruling in 2010 put the speculation to rest by defining “equal” in this case to mean an equal division of the assets between the 13 annuity groups, and then sharing within those groups in proportion to each heir’s annual annuity payment. Those holding shares bringing pennies, or fractions of pennies, in annuity payments will receive only nominal final payouts. Not everyone was happy, but it put speculators in their proper place.
By the time it is terminated, the George Galbraith Trust will have distributed more than $60 million of trust assets to its 1,353 beneficiaries, in addition to the 109 annual payments of $7,500 each. I do not know the total amounts paid out in legal fees, trustees fees, and other expenses over the same 109 years.
Galbraith died in Queen’s Hospital, just days after being found collapsed at his home. He was taken to William’s Mortuary, then the body was taken by train to Pearl City for burial at what was then the relatively new “Loch View Cemetery,” built on 17 acres of land deeded to the Hawaiian Cemetery Association in 1900.
Today, almost all traces of Loch View Cemetery have disappeared, leaving behind a few broken gravestones and lots of unanswered questions. There are records of several hundred burials being relocated to make way for highway improvements, but the whereabouts of Mr. Galbraith’s remains, and those of several thousand others, are unknown.
Read Ian Lind’s blog at iLind.net.