The International Journal
of Not-for-Profit Law
Volume 3, Issue 2, December 2000
the United States
Bishop Estate Settlement
By Benjamin Plummer, ICNL Legal Intern
The IRS has signed-off on a $20.1 million agreement between the Attorney General of Hawaii and the former trustees of Hawaii’s wealthiest charity. The trust, commonly known as the Bishop Estate, has a total worth estimated between $6 billion and $10 billion. The bulk of the funds of the agreement, $15 million, will go to the Kamehameha Schools that suffered under both the corrupt practices of the trustees, and their apparent complete lack of oversight of the trust’s funds. Though paid as a result of actions of the trustees, the money will come from the Federal Insurance Company, the trust’s insurer, and ironically, includes $4 million dollars to reimburse the trustees for the legal fees they incurred personally while denying allegations of wrongdoing. The remainder, $1.3 will go to Hawaii’s Attorney General to cover legal expenses.
Allegations of wrongdoing surfaced in 1997 when the Honolulu Star-Bulletin published the article “Broken Trust,” alleging mismanagement of the trust’s assets and conflict of interests of the trustees. A costly and lengthy investigation ensued which uncovered enormous overcompensation for the trustees, abuse of power in asserting undue influence over the president and staff of the school, and kick-backs to state politicians in an environment that fostered corruption.
The will establishing the trust in 1884 delegated the task of choosing trustees to the Supreme Court of Hawaii, and the position of trustee had become one given in exchange for political favors. The eventual result of the investigation led to the resignation of the five trustees, payment of some $13 million dollars to the IRS (including back taxes and penalties) and a barrage of press coverage that has tainted this longstanding charity.
The state had initially sought over $200 million dollars in damages in compensation, but the settlement agreed to, barely more than a tenth that amount, was seen as the most expedient way to end the matter and in the best interests of the children who had lost the most under the policies of the former trustees.