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A boy and his $400 million

Alex Hughes is to inherit the bulk of his father's Herbalife fortune. But in the meantime, his mother and the estate's trustees are in a bitter fight.

September 13, 2005|Robert W. Welkos | Times Staff Writer

His name is Alex. He is 13 years old. And when he reaches 35, he stands to inherit an estate now valued at about $400 million.

This L.A. golden child is the only son of Mark Hughes, the late founder of Herbalife International, a maker of nutritional supplements.

Hughes' death at age 44 on May 21, 2000, made Alex the sole beneficiary of a vast trust. The multimillionaire died of a lethal combination of alcohol and an antidepressant after a drinking binge. The death was deemed accidental.

But Alexander Reynolds Hughes is now at the center of a lengthy and contentious probate battle in Los Angeles County Superior Court pitting his mother, Suzan Hughes, a former actress, court reporter and Miss Petite U.S.A., against trustees of the Hughes Family Trust. Mark and Suzan Hughes divorced two years before his death, in 1998, after nearly a decade of marriage. She was the third of his four wives.

Suzan Hughes wants the court to oust the trustees, who include Alex's paternal grandfather. She previously tried -- and failed -- to persuade the courts to remove the trustees on grounds of violating their fiduciary duties. Now, she has filed another petition seeking their removal on other grounds.

Hillel Chodos, her attorney, claims the trustees have paid themselves millions in fees while ignoring Alex's needs.

"Basically, they got the gold mine and [Alex] got the shaft," Chodos said. "They have paid themselves at least $5 million in trustee fees to date -- maybe more. They paid their lawyers and accountants maybe $12 million to $15 million."

But attorneys for the trust have fired back in court papers, accusing Suzan Hughes of waging a "personal vendetta" against the administrators of the Hughes trust. They describe the case as "one of the most contentious trust and estate proceedings on record."

And this, they point out, comes even though the trustees have achieved "enormous success in administering the nearly $400-million estate Mark left behind (e.g. -- they saved more than $100 million in estate taxes, they structured a sale of Mark's company for a price that was approximately twice the market price immediately before his death, and they successfully opposed nearly $500 million in claims)."

"While Suzan complains loudly over the legal fees incurred by the fiduciaries, the plain facts show her to be the root cause of the expenses," the court papers state. "The fiduciaries submit that a review of the history of these matters leads to the conclusion that the administration has not been complicated by any fault of theirs, but instead by Suzan Hughes' desire to gain access to the money Mark left for Alex (and not for her)."

"The trustees are doing their best to grow the assets," said Kenneth A. Ziskin, an attorney for the trust. "If they are successful, there will be way more than half-a-billion dollars" by the time Alex reaches 35.

The trustees include Alex's paternal grandfather, Jack Reynolds, former Herbalife chief executive Christopher Pair, who was a longtime friend of Mark Hughes, and Conrad Lee Klein, an attorney who was Mark Hughes' personal counsel for almost 20 years. Klein is the husband of California Appeals Court justice Joan Dempsey Klein and served for many years as an executive officer of Herbalife. (None of the parties, including Alex and his mother, retained financial ties to Herbalife after its sale.)

Under terms of the trust, Alex will receive one-third of the trust's annual income -- or about $1 million judging by today's value -- along with an additional $35 million from a separate custodial account, when he reaches age 25. At age 30, he could expect to receive about $2 million annually. Then, at 35, he will receive whatever remains in the trust, Ziskin said.

"That's assuming they still have the money when he gets to be 35," Chodos said. "Suzan wants [Alex] to have the life his father intended for him.... Their basic attitude is they want to control everything. They loathe Suzan. She has criticized them. They don't like to be criticized."

A onetime juvenile delinquent, Mark Hughes founded Herbalife in 1980, using his tale of a rags-to-riches past and his mother's early death from addiction to diet pills to sell the world on his weight-loss program. Herbalife relied on an international network of independent distributors to pitch the company's line of herbal and weight-loss products.

The charismatic Hughes, with his Prince Valiant hairstyle and expensive suits, seemed to be a walking success story in public. But behind the scenes, aides covered up his drinking problem.

Attorney Edward A. Woods, who represents the trust in the current litigation, noted that the trustees would like to sit down with Alex and determine what he wants, but his mother, who is Alex's legal guardian, has blocked such attempts.

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