Fight Over Conrad Hilton Estate Gets Increasingly Bitter

A mystery writer might call it “The Case of the $641-Million Clause.”

Rather than a whodunit, though, this is a case of who gets it--and the story of how a single clause came to afflict the eloquent 16-page will of hotelier Conrad N. Hilton.

Hilton, who died Jan. 3, 1979, at the age of 91, gave more than 99% of his multi-hundred-million-dollar fortune to charity through the Conrad N. Hilton Foundation in Century City. His will counsels the foundation’s directors to promote world peace and to “shelter little children with the umbrella of your charity.”

But now a dispute over the will is growing increasingly bitter as it nears trial in Los Angeles County Probate Court. At issue is who is entitled to own the late Hilton’s controlling 27.4% interest in Beverly Hills-based Hilton Hotels Corp.--the Conrad N. Hilton Foundation or Hilton’s oldest surviving son, Barron.

The outcome will determine whether the Hilton Foundation’s $125-million endowment to finance charitable grants will ultimately grow to $264 million or as much as $905 million.

Barron Hilton, who presides over a $3-billion casino and luxury-hotel empire as chairman and chief executive of Hilton Hotels, is now at legal odds with several orders of Catholic nuns named in the will who have taken vows of poverty and devote themselves to serving the poor and sick.

In his will, Conrad Hilton advised his foundation’s directors to give “the largest part of your benefactions” to further the work of these Catholic nuns.

Catholic Archbishop Roger M. Mahony of Los Angeles, after lunching with Barron Hilton last week, wrote a letter inviting the parties to meet with him to mediate the dispute, which is to begin trial March 17.

Myron Harpole, the attorney for estate executor James Bates, said Bates has no intention of taking part in such a meeting. Harpole said it was “inappropriate” for the archbishop to intervene because the will leaves money to Catholic nuns, who are independent of the archdiocese. “Everyone on the charity side is dismayed” by Mahoney’s intervention, Harpole said. The archbishop did not respond to numerous requests for an interview.

The dispute turns on whether the value of the 6.7 million shares of Hilton Hotels stock in Conrad Hilton’s estate will benefit charity or Barron Hilton. The stock is worth $475 million, based on recent trading. Based on Hilton Hotels’ own valuation of its asset value, the stock is worth $780 million, or $641 million more than Barron Hilton says he should pay for the shares.

Barron Hilton, who owns nearly 4% of Hilton Hotels, has claimed a right to buy all of the stock in his father’s estate for $139 million, although he has offered to pay more. He contends that, because a foundation and the donor’s heirs together can own only 20% of a corporation, the only way to eliminate excess holdings is for him to buy all of the stock and give the foundation cash.

At the center of the dispute stands Donald H. Hubbs, a tax attorney and the $145,000-a-year Hilton Foundation president.

Hubbs told The Times that he has repeatedly recommended to the foundation board that it settle with Barron Hilton at a below-market price. He said a settlement would avoid appeals and allow the foundation to focus on making grants to charities.

Hubbs served Barron Hilton for three decades as his attorney, recently receiving a $25,000 annual retainer. He resigned in 1983 after Bates and attorney Harpole protested that the relationship conflicted with his ability to look after the foundation’s interests.

Hubbs said he perceives no conflict of interest, but he resigned anyway. He declined to elaborate but issued a written statement saying that “my sole objective since I became president of the foundation has been to carry out the charitable objectives of the foundation and the best interests of the foundation that Mr. Hilton created.”

Resigning as Barron Hilton’s lawyer did not end the close relationships between Hubbs and Barron Hilton, however. Hubbs recently confirmed to The Times that he continues to be Barron Hilton’s business partner in Eastridge Development Co., a $19-million Mandeville Canyon real estate venture. Hubbs owns 20% while Barron Hilton owns 80% of the firm, whose offices were in the foundation’s suite until last year.

Hubbs confirmed that he has done work for Eastridge in his foundation office, which is paid for with tax-exempt charitable funds.

In addition, Hubbs told The Times that he gets a “substantial” fee each year from the local Vita-Pakt Citrus Products Co., which Barron Hilton owns, but declined to say what work he does.

The degree of trust between Barron Hilton and Hubbs is also indicated in a document filed in the Los Angeles County Recorder’s office on July 30, 1982. Barron Hilton and his wife, Marilyn, gave Hubbs a general power of attorney.

Proposed Language in Will

Hubbs’ close relationship with Barron Hilton is an issue in the fight over Conrad Hilton’s estate, partly because he proposed the language in the late Hilton’s will that is now in dispute.

The language, Hubbs testified in a deposition, was intended to cure a problem that the 1969 Tax Reform Act created for Conrad Hilton’s charity plans.

Conrad Hilton drafted 35 wills in his lifetime, consistently reducing the amount of money he left to his children and grandchildren.

Bates, who was one of Conrad Hilton’s closest friends as well as his personal attorney and the estate’s executor, has testified that Conrad Hilton repeatedly expressed concern that he was leaving too much money to Barron Hilton. One will left Barron Hilton $2 million, Bates testified. The last will left Barron $750,000.

Conrad Hilton’s intent, Bates testified, was “to give this money to charity. . . . He wanted to do it to the exclusion of members of his own family, to whom he made very modest bequests.”

In his 1972 will, Conrad Hilton said his foundation was to get the maximum amount of Hilton Hotels stock allowed by tax law. The limit is 20% of a corporation.

In late 1972, Hubbs told The Times, he read proposed regulations implementing the 1969 Tax Reform Act and realized that Conrad Hilton would leave more stock to his foundation than the law allowed.

Hubbs has testified that he first spoke, briefly, to Barron Hilton about this problem and then telephoned Conrad Hilton’s lawyer, Bates, to propose a solution.

Hubbs proposed that Conrad Hilton grant his son, Barron, an option to buy any excess stock.

The language provides that, if “any part” of Conrad Hilton’s estate is “in excess of the permitted holdings of a private foundation,” then “I give and grant to my son, William Barron Hilton, an option to purchase such excess at the values as appraised in my estate.”

Hubbs, in an interview with The Times, revealed that when he proposed this language, he was also aware of another way to solve the problem created by the 1969 tax law. This alternative involved putting some or all of Conrad Hilton’s stock into a “public supporting organization,” an endowment that is similar to a private foundation but not subject to the 20% limit. While a foundation is free to make grants to any charity, a “public supporting organization” is restricted to a specified list of charitable groups.

Knew of Effect

Hubbs acknowledged to The Times that he was aware that creating a “public supporting organization” would have given all of Conrad Hilton’s stock to charity and nothing to Barron Hilton.

However, Hubbs told The Times, he never discussed this alternative with Conrad Hilton or Conrad Hilton’s attorney, Bates.

Hubbs has testified that Conrad Hilton asked his advice as a tax expert on whether he should sign the will with the provision granting Barron Hilton the option. Hubbs said he advised Conrad Hilton to sign. He also told The Times that he did not advise the foundation’s directors about the “public supporting” alternative until last year.

“This is the worst possible solution, the last solution,” Hubbs said in explaining why he did not reveal his knowledge of it earlier. He did not elaborate.

However, both Bates and the California attorney general’s office believe that a “public supporting organization” is the preferred solution because it serves the interests of everyone except Barron Hilton.

Last month, the Internal Revenue Service issued a ruling that would allow part of the stock to go to the foundation and part to a new “public supporting entity.”

Deputy Atty. Gen. James M. Cordi, in court papers, has accused Hubbs of avoiding this solution because of conflicts of interest created by his ties to Barron Hilton.

Cordi said that, under Hubbs, the foundation has at times pursued a policy of “capitulation to Barron Hilton’s interest at the expense of charity’s interest.”

The chief example that Cordi cited was the “foundation’s willingness in mid-1983 to seek jointly with Barron Hilton an IRS ruling favorable to his interest at the expense of those of the foundation.”

Cordi said this plan was abandoned only after he, Bates and Harpole made “strenuous” objections. Two years of complaints by Bates and Harpole and later by Cordi finally prompted the foundation to seek the IRS ruling approving a “public supporting organization,” which would allow all stock to remain in charitable hands forever.