Archive for October, 2011

The Long-Standing Connection Between Real Estate Law and Probate

Monday, October 31st, 2011

I am reading a series of lectures delivered in 1972 by S.F.C. Milsom and collected in The Legal Framework of English Feudalism (Cambridge University Press 1976).  The text is difficult, as it frequently refers to rights, remedies, and procedures that long ago ceased to be relevant in the law of English-speaking nations.

Still, as I read along, I can see contours develop that explain how the law evolved from the year 1200 forward.  The lecturer concentrates on legal writings from the early 1200s, when England was still operating under a feudal system.

Scholars tell us that the law of real property and the law of descent (i.e., succession to real property) were closely connected, at least through 1850.  So intimately connected that both topics were covered in one treatise, which focused on grants in real property.

Disney Cruise Line's DreamConsidering the feudal roots of English law, this connection makes sense.  The feudal system was dependent on duties and obligations owed by the holder of a tenement to his lord.  (Note that I did not say “tenant” – this word implies a more modern relationship.)

Feudal duties were greater than those relating to (i) payment of rent and (ii) the maintenance and use of the real property, which are the predominant issues in contemporary landlord-tenant relationships.

Obviously, the lord wanted to have control over the person in possession of his property, so that he could obtain proper satisfaction of the obligations owed in connection with the land.

Listen to Prof. Milsom’s explanation.  “Conveyance, inheritance, litigation:  for us these are distinct processes transferring or determining abstract rights.  The ancient reality, preserved into later times only in the formalities of copyhold, saw all three as preliminaries to what mattered: the lord’s acceptance of this tenant …

“The lord must consent lest he be forced to receive homage for his fee from an enemy or some otherwise unsuitable person … Only the lord’s acceptance can make a tenant.”

When you consider the feudal obligations, and the impact that the death of the tenement holder would have on the discharge of these obligations, you can understand why real property law and the law of inheritances were closely connected.  

Another matter of interest is the shift from trial by combat to trial by jury.  Again, with consideration to the substantial impact of the law real estate law as it pertains to a feudal society, the procedural shift (who is the trier of fact?) makes sense.  In a dispute between a tenant and his lord, the lord always could be expected to produce a better, stronger champion for his cause.  Thus, the deck was stacked against the tenant, and preservation of fairness required that the dispute be resolved by recourse to peaceful means, such as a jury.

Estate of Giraldin – Trustee Does Not Owe Duties Future Beneficiaries of Estate Planning Trust

Tuesday, October 4th, 2011

This author has often complained that the trust laws have not kept pace with modern practice as it relates to estate planning.  Estate planning trusts (a.k.a. “living trust”) are used as will substitutes.  The rules pertaining to wills are well known, and are established by case and by code.

In contrast, the statutory rules relating to estate planning trusts come from general trust law, which law was developed in response to traditional property management trusts.  Yet, the property management trust is functionally different from an estate planning trust.  Typically, a property management trust manages property for benefit of current third-party beneficiaries.  In contrast, an estate planning trust does nothing until the death of the trustor, when the trust assets are distributed according to the “trust” agreement.

The recent decision in Estate of Giraldin (Sept. 28, 2011) 2011 DJDAR 14642 fully reinforces the proposition that an estate planning trust is a will substitute, and that no duties are owed to the heirs or beneficiaries prior to the death of the trustor.  The same result applies in connection with a will – an heir cannot sue on the ground that the testator sold or gifted property owned by the testator before death, such that the property was not included in the estate after death.

Bill Giraldin was a savvy investor, with a fortune worth $6,000,000 or more before his death.  He placed his assets into his estate planning trust.  The trust was fully revocable and/or amendable by him during his lifetime.  He appointed one of his sons to act as trustee.  (Nine children qualified as future beneficiaries under the trust.  Later, four filed suit.)

Following the instruction of the father, the son invested $4,000,000 in a company called SafeTzone.  Thus, one son (Tim) was the trustee of the trust; at the instruction of his father, Tim invested a substantial amount of his father’s wealth in Tim’s company.

Needless to say, the SafeTzone investment went badly, “and by the time Bill died in May of 2005, the family trust’s stake in the company was worth relatively little.”  In response, four children sued Tim for breach of his fiduciary duties, alleging that the investments he made as trustee during his father’s lifetime were in violation of the fiduciary duties owed to them as successor beneficiaries under the trust.

Comment – The court found that Bill invested in SafeTzone of his own free will, and was not unduly influenced by Tim, the trustee.


Tim lost badly at trial, but the appeal court fully vindicated him.  Specifically, the court of appeal focused “on the question of whether respondents have standing to maintain claims for breach of fiduciary duty and to seek an accounting against [Tim] based upon his actions as trustee during the period prior to Bill’s death.”

The court’s analysis was as follows.  “In this case, the family trust was revocable by Bill during his lifetime, and thus Tim’s duties as trustee were owed solely to Bill, as settlor, and not to respondents …As explained by our Supreme Court, ‘property transferred to, or held in, a revocable inter vivos trust is deemed the property of the settlor.’”

The court continued.  “A settlor with the power to revoke a living trust effectively retains full ownership and control over any property transferred to that trust.  Any interest that beneficiaries of a revocable trust have in trust property is merely potential and can evaporate in a moment at the whim of the settlor.”

As explained by the court, “statutes recognize that when property is held in a revocable trust, the settlor and lifetime beneficiary has the equivalent of full ownership of the property.  Thus, during Bill’s lifetime, Tim’s duties as trustee were owed solely to Bill – the settlor with the power to revoke – and not to respondents. Instead, respondents occupied a position analogous to heirs named in a will.

Revocable living trusts are merely a substitute for a will.  And just as a will ‘speaks’ only as of the date of the testator’s death, a revocable trust confers enforceable property interests to the beneficiaries only at the time it becomes irrevocable. Prior to that time, those beneficiaries have no rights to the trust property, and thus no say in how it is managed.”

The court made plain its position.  “In our view, the statute supports the conclusion beneficiaries lack standing – ever – to assert claims based upon conduct occurring during the settlor’s lifetime.”

Also, Tim owed no “duty” to stop his father from making an “unwise” investment.  “That was not a claim Bill himself could have brought. ‘Stop me before I do something I’ll regret’ is not a recognized cause of action, even against the trustee of one’s revocable trust …

“Bill remained legally entitled to do what he wanted with the trust assets – which were effectively his own property – including doing financially risky or downright stupid things. No one – including Tim – had the authority to stop him. Thus, in the absence of an adjudication of Bill’s incompetency, we cannot discern any legal basis on which Bill might have justified holding Tim liable for carrying out Bill’s own wishes with regard to the assets in the family trust – even if those wishes appeared to be objectively unreasonable.”

Such a sound and well-reasoned opinion is welcome in an area that suffers from needless confusion.

Estate of Giraldin (Sept. 28, 2011) 2011 DJDAR 14642