Attorney: Heiress opposed big gifts: Deposition says Lilly upset when arts groups got $185M

Ruth Lilly garnered headlines around the globe in 2002 after an Indianapolis judge approved a new estate plan for the heiress that earmarked an estimated $185 million for two tiny arts organizations, the Chicago-based Poetry Foundation and Washington, D.C.-based Americans for the Arts.

Now, in a newly public deposition, Lilly’s personal attorney, Tom Ewbank, charges his client was opposed to the large bequests and instead had wanted to funnel more of her billion-dollar estate into her own foundation, for the benefit of Hoosier charities.

He said the guardian of her estate, National City Bank of Indiana, thwarted Lilly’s wishes when it proposed the plan, as did Marion County Probate Judge Charles Deiter when he approved it. Further, Ewbank said, Deiter allowed attorneys for parties involved in the process to bill her estate for attorneys’ fees, which totaled more than $1 million.

“Ruth Lilly believes that, when the intended victim is brought to a hanging, the victim should not be compelled to pay for the rope,” Ewbank wrote in an objection to the fees he drafted in 2002 but never filed.

Ewbank’s deposition, taken in May 2004, became public this month as part of a legal fight the two arts organizations launched in 2003 against National City Bank. In that case, the groups alleged the bank mismanaged Ruth Lilly’s assets, costing them tens of millions of dollars.

Ewbank, a partner with Krieg DeVault, declined to comment last week, saying: “I was subpoenaed to the deposition you are referring to, and my client does not wish for me to say anything outside that context.”

National City Bank spokeswoman Terri Wilson said the bank “disagrees with Mr. Ewbank’s opinion.” Deiter, a Democrat who’s served as Marion County probate judge for 14 years, said: “I’ve been consistent. I don’t comment on any ongoing matters in this court.”

In his 244-page deposition, Ewbank, who was a National City senior vice president before becoming Lilly’s personal attorney in 1995, acknowledges he did not vigorously oppose the estate plan.

But he said that was only because he thought Deiter would overrule his objection, and because Ruth Lilly, who at the time was hospitalized and near death, did not want to go through the rigors of an appeal.

Lilly, who later regained her health and now is 90, is the sole surviving grandchild of the pharmaceutical firm’s founder. Long an enigmatic figure, the Indianapolis resident has been under psychiatric care for decades, and her financial affairs have been under the control of a court-appointed guardian since 1981.

Her doctors have said she may have begun suffering from anxiety and fear of public places around the age of 10. At that time, her father received word that his children might be kidnapped, which led him to hire armed guards to shuttle them to school.

Divorced and without children, Lilly has been a philanthropic force in Indianapolis for decades, doling out more than $125 million through the years for a range of causes, many of them tied to education, medicine and the arts.

The 2001 plan unleashed a wave of giving that under previous plans would not have occurred until after her death. In addition to charities, big beneficiaries of her largesse include her six nieces and nephews, including Eli “Ted” Lilly II of Carmel. The others are scattered from Ireland to Connecticut.

In a 2001 court filing, National City said it decided to propose a new estate plan in part to cut the estate’s estimated tax bill from $250 million to less than $50 million. It also wanted to resolve conflicts between Ruth Lilly’s existing estate-planning documents.

Foundation takes hit

In his deposition, Ewbank suggests National City hired the Chicago law firm of McDermott Will & Emery to create a new estate plan at the behest of the six nieces and nephews. Ted Lilly and an attorney for the Lilly family didn’t return calls.

Ewbank said the new plan reduced the amount earmarked to go to the Indianapolis-based Ruth Lilly Foundation upon her death to $200 million, down from $600 million to $800 million in her prior three wills.

Big winners in the reshuffling were the Poetry Foundation and Indianapolisbased Lilly Endowment, each due an estimated $100 million, and Americans for the Arts, due $85 million. In estate plans in the late 1990s, the arts organizations each had been in line for $10 million to $20 million; it isn’t clear what the endowment was to have received.

“From the time that the plan was actually unveiled and filed with the court until the order was approved, in several conversations I had with her she was very upset,” Ewbank recalled in the deposition.

“What Ruth objected to [was] it took hundreds of millions of dollars away from the Ruth Lilly Foundation and gave it to other charities,” he added.

Ewbank noted that the Lilly family had enlisted someone around 1996 to scrutinize the two arts organizations. He said the investigator “came back with … kind of mediocre evaluations. And that’s when she said, ‘Well, I still want to benefit them, but I don’t want them getting the major part of my estate.'”

Shoestring operations

Before the huge bequests, both organizations were shoestring operations. The Poetry Foundation, publisher of Poetry magazine, had a staff of four and a $600,000 annual budget. Americans for the Arts, whose mission includes improving arts education, had a staff of 40 and an endowment of less than $1 million.

Asked last week about Ewbank’s remarks, Robert Coleman, a Chicago attorney representing the Poetry Foundation, said: “I don’t have any way of commenting on it. … We weren’t there. We didn’t participate in the drafting of the estate plan.”

However, he added: “Mrs. Lilly had given substantial sums of money not only to Poetry but to the other charity over her lifetime. She had demonstrated a desire to give to those charities.”

If Ewbank felt so strongly that the gifts didn’t reflect Lilly’s wishes, Coleman said, “he should have been arguing that at the time.”

Indeed, in a December 2001 court filing responding to the proposed estate plan, he almost seems to take contradictory positions.

In the one-page filing, Ewbank wrote that Lilly was “prepared to consent to [the plan] as it is generally acceptable to her. Her present objection is only to the percentage of her estate being allocated to various charities, resulting in the reduction in the percentage of the estate going to the Ruth Lilly Foundation.”

Ewbank said he didn’t put up more of a fight because Ruth Lilly had made her desire clear that she did not want to appeal. He said he didn’t have high hopes Deiter would side with him because over the prior four years the judge had repeatedly overruled his objections on a range of matters.

When Deiter approved the plan over Ruth Lilly’s concerns, “I don’t think he was operating with malice,” Ewbank said. “I just thought he was mistaken. I don’t think there would be two or three probate judges in Indiana that would have signed that order, but I could be wrong.”

Controversy erupts

In the deposition, Ewbank revealed that in the weeks after the judge signed the order, controversy erupted over who should pay attorneys’ fees associated with the plan. Around the same time, attorneys also began battling over whether Ewbank exceeded his authority when he drafted new estate documents early in 2002 that modified it.

It’s not clear from court documents how the new documents affected the court-approved estate plan. In the deposition, Ewbank says at least some of the changes were intended to fix flaws.

Court records show the parties reached settlements on the changes and on the fees later in 2002. Under the fee settlement, the nieces and nephews agreed to waive $300,000 in attorneys’ fees, reducing the legal costs to $1.13 million.

At one point during the year, the deposition shows, Ewbank considered filing a motion to remove National City as guardian and circulated a press-releaselike-document to bank attorneys headlined “potential media coverage.”

A bank attorney conducting the deposition suggested Ewbank’s intention was to file the motion and leak it to the media if he didn’t get his way in settlement negotiations. But in response to questions, Ewbank denied that.

“There is no threat. It just says ‘potential,'” he said. “I felt … if we ended up filing a petition, that the media would find out about it, and the media would make up whatever facts they wanted to. … I think I was trying to emphasize … there were substantial hazards in all of this.”

In the deposition, Ewbank charged National City violated its fiduciary duty to Lilly. He suggested National City wanted the new plan in part because it expanded her estate from one account to 14, boosting the fees it collects for managing her financial affairs. He said the new plan also included language that would make it difficult to replace the bank as trustee of those accounts.

Bank fires back

Attorneys for National City, however, suggested Ewbank didn’t like the new estate plan because it scaled back his involvement in her affairs while she’s alive and after her death, costing him money. From 1995 to 2001, he’d billed the estate more than $750,000.

They also questioned whether Lilly had developed her own views, or Ewbank had imposed his on her. In a 2003 meeting, a bank attorney noted, Lilly couldn’t identify Ewbank as her attorney and claimed her attorney had been dead for many years.

“I will agree that she did not identify me as her attorney at that meeting,” Ewbank responded. “I will not agree that she could not have done so. I think she sometimes chooses not to cooperate when she feels under pressure.”