Attorney's report calls theBy Rick Daysog
investment plan prudent, but
scolds Bishop trustees
A controversial reorganization of the Bishop Estate's investments is backed by "significant and valid" business and legal reasons, according to a report by a court-appointed special master.
But the estate's five trustees should have sought probate court approval before implementing the plan last July, said local attorney Benjamin Matsubara, who was appointed by Circuit Judge Kevin Chang to review the transaction.
Matsubara called the estate's decision to transfer its passive investments in Goldman Sachs Group L.P., Columbia/HCA Health Care Corp. and WCI Limited Partnership into a tax-exempt organization known as Kamehameha Activities Association a "prudent" move that gives the estate more control over those assets and shields it from liability.
The reorganization also will make funds more readily available for the estate's ambitious expansion of its educational programs and create significant tax savings worth tens of millions of dollars each year.
The estate - which asked the probate court to approve the reorganization four months after it was completed last July - previously held its investments in Goldman Sachs, Columbia/HCA and WCI in its Pauahi Holdings Corp. for-profit subsidiary.
By moving the assets into the nonprofit Kamehameha Activities Association, the estate was able to shield those holdings from federal and state capital gains taxes and income taxes.
For instance, when Goldman Sachs goes public later this summer, the Bishop Estate's initial $500 million investment will be worth $1.5 billion. The reorganization could protect the estate from significant capital gains taxes when it sells any of that stock to the public.
Matsubara's findings - which were filed with the state probate court Monday - will be the subject of a court hearing Friday.
The reorganization is opposed by the attorney general's office, which said that it could mean the transfer of billions of dollars of trust assets out of the oversight of the Internal Revenue Service, the attorney general's office and the state probate court.
The reorganization also would eliminate public disclosure requirements, the attorney general's office said.
Matsubara said the reorganization does not remove assets from the trust and he urged the court not to reverse the transfer.
But the master also criticized the estate for not seeking court approval before making the transfers last summer given the importance of the decision and the controversy surrounding the actions of trustees and the estate.
Bishop Estate Archive