San Diego Estate Planning Lawyer Blog
A revocable living trust is a common estate planning device where a person, called a settlor, transfers his or her assets to a trustee, usually themselves. The settlor can amend or revoke the trust at any point during his or her lifetime. At the settlor’s death, a designated successor trustee distributes the trust’s assets as directed.
Unlike a last will and testament, which only deals with the disposition of assets after death, a living trust may operate for years, even decades, while the settlor is still alive. If another person serves as trustee during the settlor’s lifetime, there is a fiduciary relationship similar to that of an attorney and client. But what about the relationship between a trustee and the future beneficiaries of the trust? The California Supreme Court recently had to address that issue in a long-running dispute among the family of the late William Giraldin.
Can Beneficiaries Sue a Trustee for Misconduct?
Giraldin, a wealthy banker, established a living trust in 2002 with his son Timothy as trustee. William Giraldin was the only beneficiary of the trust during his lifetime. Upon his death, which occurred in 2005, he directed the trust assets be divided among his nine children.
During the three-year period between the trust’s formation and William Giraldin’s death, Timothy Giraldin, acting as trustee, funneled approximately $4 million into a business operated by Patrick Giraldin, Timothy’s twin brother. The business turned out to be worthless, and following William Giraldin’s death, four of his children sued Timothy Giraldin for, in effect, squandering their father’s money and reducing the value of the trust they all stood to benefit from.
Under California law, Timothy Giraldin owed a fiduciary duty to his father while he was still alive, not his siblings. William Giraldin had the sole power to revoke his trust during his lifetime. So even if Timothy Giraldin’s actions reduced his father’s assets, the siblings generally could not sue based on their claim to the remainder of the trust after his death.
In this case, however, the Supreme Court said that the trust beneficiaries could challenge a trustee’s breach of fiduciary towards the settlor after the settlor has died. In other words, if a trustee deliberately ignored the settlor’s instructions to the detriment of the beneficiaries, then the beneficiaries should be allowed to hold the trustee accountable in court. The court said a trustee should not be allowed to simply loot a trust for his own benefit without affording the beneficiaries some legal remedy.
Take Care In Selecting, Monitoring Trustees
The Supreme Court’s decision was only an intermediary step in the ongoing Giraldin litigation. California Court of Appeals issued an opinion in April of this year disposing of some additional legal questions and the case is now back before a trial court. The Supreme Court’s clarification of beneficiaries’ standing, however, will affect many more California living trusts in the future.
The Giraldin trust was notable in that the settlor did not also serve as trustee during his lifetime. Since the point of a living trust is to maximize control over one’s assets, both before and after death, the settlor typically maintains control as trustee. Selecting a third party to act as trustee raises the possibility of fiduciary misconduct, as was alleged against Timothy Giraldin. As a cautionary tale, therefore, it’s important to work with a qualified California estate planning attorney in setting up any revocable living trust, including the selection of trustees and putting sufficient protections in place to ensure your wishes are carried out both before and after your death. If you have any questions, please feel free to contact the Law Office of Scott C. Soady at 1-858-618-5510.