Descendants of Knott caught in web he feared

Estate: A multimillionaire's heirs disagree over the distribution of the family's wealth.

September 30, 2004|By Ivan Penn | Ivan Penn,SUN STAFF

Multimillionaire developer and philanthropist Henry J. Knott Sr. warned his children not long before his death of the "pitfalls of acquiring wealth," troubles he thought he could minimize with detailed wills drafted for him and his wife.

Despite the warning and the wills, the next generation of the well-heeled Baltimore family has found itself entangled in a dispute between two siblings responsible for their parents' estates and others on a family foundation board over spending as much as $17 million.

Board members say the money should have gone to their nonprofit organization as stated in the parents' wills. But the two siblings argue that they had the authority - and the moral obligation - as personal representatives of their parents' estates to fulfill commitments to various charities their father had planned to contribute to before he died.

Already torn apart over the dispute, members of the board - there are 34, all of whom are Knott family members - are threatening to sue those responsible for the spending if a settlement is not reached by the end of this week.

Patricia K. Smyth, one of the three Knott children who spent the money, said she is confident the matter will not land in court. Smyth said the issue is mostly an internal family dispute that should have been kept within the foundation and among the Knotts.

"It utterly amazes me that errant foundation members continue to violate the confidentiality of the foundation," Smyth said. "We are working very hard to resolve the issue."

Francis X. Knott, another one of the Knott children responsible for the spending of the money, declined to comment. Henry J. Knott Jr., a third sibling, who had served as a representative of the estate, is dead.

M. Gregory Cantori, the foundation's executive director, wouldn't comment beyond saying the organization is "working very closely" with attorneys for the children.

Stakes are high

The stakes are high for the foundation because the Knotts' contribution would have significantly boosted its assets, now at $43 million, giving the organization and the family name a much higher profile.

Henry J. Knott Sr., whose companies built thousands of homes and commercial buildings in the Baltimore area, died in 1995. Not long before his death, Knott's wealth was estimated at more than $150 million.

He and his wife donated tens of millions of dollars while they were alive to educational, cultural and health institutions, among beneficiaries. And they expected more contributions would be made after they died. In their wills, filed in Baltimore Circuit Court, they bequeathed their estate "after the payment of all debts, expenses, taxes, charitable pledges ... and other charges" to the Marion I. and Henry J. Knott Foundation Inc.

The latest rankings by the Association of Baltimore Area Grantmakers list the 27-year-old Knott Foundation at 25th among the top 100 area foundations. With the additional $17 million, the Knott Foundation would have moved to 17th.

Mike Janko, executive director of the National Association of Estate and Financial Planning, a Salt Lake City-based organization, said he routinely sees problems arise in families after parents die because wills were not clear and all heirs did not know the details of the plan.

"There's two things we recommend: of course, proper and clear drafting of wills and trusts, and more importantly, the creators of the trust need to sit down with their children and explain what they want and give everyone a copy of the will and trust," Janko said.

"Parents are really, really bad about following that advice," he said. "They're running a huge risk that their wishes are not carried out."

$17 million to charities

But Smyth and her two brothers - the personal representatives of their parents' estates - gave away $17 million from the elder Knotts' estates over the past eight years to help charities. Much of the money was given to charities to which the Knotts had long contributed.

A document obtained by The Sun shows that the contributions included:

$1.75 million to Loyola College in 1996;

$2.5 million to Loyola High School at Blakefield in 1998;

$7.5 million to the Johns Hopkins University in 1999.

The Knott foundation does not award grants of those sizes. Usually, the foundation gives amounts of $100,000 or less, officials said, mainly spending investment income generated by the assets.

The foundation has provided money to many causes, including grants and no-interest loans to help organizations involved in the arts and humanities, Catholic activities, education, health care and human services. Grants and gifts totaled $2 million in 2001 and $1.8 million in 2002, according to the most recent data available.

In a February 1996 memorandum, lawyers involved in the Knotts' estates warned Smyth and her brother Henry Knott Jr. not to give any money to Loyola College without discussing the matter with the foundation's trustees.

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