{"id":743,"date":"2011-10-04T17:58:12","date_gmt":"2011-10-05T00:58:12","guid":{"rendered":"http:\/\/fiduciarydutiesblog.com\/?p=742"},"modified":"2011-10-04T17:58:12","modified_gmt":"2011-10-05T00:58:12","slug":"estate-of-giraldin-court-holds-trustee-owes-no-duties-future-beneficiaries-of-estate-planning-trust","status":"publish","type":"post","link":"https:\/\/fresnolawyerblog.com\/?p=743","title":{"rendered":"Estate of Giraldin – Trustee Does Not Owe Duties Future Beneficiaries of Estate Planning Trust"},"content":{"rendered":"

This author has often complained that the trust laws have not kept pace with modern practice as it relates to estate planning.\u00a0 Estate planning trusts (a.k.a. \u201cliving trust\u201d) are used as will substitutes.\u00a0 The rules pertaining to wills are well known, and are established by case and by code.<\/p>\n

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.\u00a0 Yet, the property management trust is functionally different from an estate planning trust.\u00a0 Typically, a property management trust manages property for benefit of current third-party beneficiaries.\u00a0 In contrast, an estate planning trust does nothing until the death of the trustor, when the trust assets are distributed according to the \u201ctrust\u201d agreement.<\/p>\n

The recent decision in Estate of Giraldin<\/strong> (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.\u00a0 The same result applies in connection with a will \u2013 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.<\/p>\n

Bill Giraldin was a savvy investor, with a fortune worth $6,000,000 or more before his death.\u00a0 He placed his assets into his estate planning trust.\u00a0 The trust was fully revocable and\/or amendable by him during his lifetime.\u00a0 He appointed one of his sons to act as trustee.\u00a0 (Nine children qualified as future beneficiaries under the trust.\u00a0 Later, four filed suit.)<\/p>\n

Following the instruction of the father, the son invested $4,000,000 in a company called SafeTzone.\u00a0 Thus, one son (Tim) was the trustee of the trust; at the instruction of his father, Tim invested a substantial amount of his father\u2019s wealth in Tim\u2019s company.<\/p>\n

Needless to say, the SafeTzone investment went badly, \u201cand by the time Bill died in May of 2005, the family trust\u2019s stake in the company was worth relatively little.\u201d\u00a0 In response, four children sued Tim for breach of his fiduciary duties, alleging that the investments he made as trustee during his father\u2019s lifetime were in violation of the fiduciary duties owed to them as successor beneficiaries under the trust.<\/p>\n

Comment<\/strong> \u2013 The court found that Bill invested in SafeTzone of his own free will, and was not unduly influenced by Tim, the trustee.<\/p>\n

\"Shiprock\"<\/a><\/p>\n

Tim lost badly at trial, but the appeal court fully vindicated him.\u00a0 Specifically, the court of appeal focused \u201con 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\u2019s death.\u201d<\/p>\n

The court\u2019s analysis was as follows.\u00a0 \u201cIn 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 \u2026As explained by our Supreme Court, \u2018property transferred to, or held in, a revocable inter vivos trust is deemed the property of the settlor.\u2019\u201d<\/p>\n

The court continued.\u00a0 \u201cA settlor with the power to revoke a living trust effectively retains full ownership and control over any property transferred to that trust.\u00a0 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.\u201d<\/p>\n

As explained by the court, \u201cstatutes recognize that when property is held in a revocable trust, the settlor and lifetime beneficiary has the equivalent of full ownership of the property.\u00a0 Thus, during Bill’s lifetime, Tim’s duties as trustee were owed solely to Bill \u2013 the settlor with the power to revoke \u2013 and not to respondents. Instead, respondents occupied a position analogous to heirs named in a will.<\/p>\n

“Revocable living trusts are merely a substitute for a will<\/strong>.\u00a0 And just as a will \u2018speaks\u2019 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<\/strong>.\u201d<\/p>\n

The court made plain its position.\u00a0 \u201cIn our view, the statute supports the conclusion beneficiaries lack standing \u2013 ever \u2013 to assert claims based upon conduct occurring during the settlor’s lifetime.\u201d<\/p>\n

Also, Tim owed no \u201cduty\u201d to stop his father from making an \u201cunwise\u201d investment.\u00a0 \u201cThat was not a claim Bill himself could have brought. \u2018Stop me before I do something I’ll regret\u2019 is not a recognized cause of action, even against the trustee of one’s revocable trust \u2026<\/p>\n

\u201cBill remained legally entitled to do what he wanted with the trust assets \u2013 which were effectively his own property \u2013 including doing financially risky or downright stupid things. No one \u2013 including Tim \u2013 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 \u2013 even if those wishes appeared to be objectively unreasonable.\u201d<\/p>\n

Such a sound and well-reasoned opinion is welcome in an area that suffers from needless confusion.<\/p>\n

Estate of Giraldin<\/strong><\/a> (Sept. 28, 2011) 2011 DJDAR 14642<\/p>\n","protected":false},"excerpt":{"rendered":"

This author has often complained that the trust laws have not kept pace with modern practice as it relates to estate planning.\u00a0 Estate planning trusts (a.k.a. \u201cliving trust\u201d) are used as will substitutes.\u00a0 The rules pertaining to wills are well known, and are established by case and by code. In contrast, the statutory rules relating […]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[3,9],"tags":[],"class_list":["post-743","post","type-post","status-publish","format-standard","hentry","category-case-law","category-trusts-and-estates"],"_links":{"self":[{"href":"https:\/\/fresnolawyerblog.com\/index.php?rest_route=\/wp\/v2\/posts\/743"}],"collection":[{"href":"https:\/\/fresnolawyerblog.com\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/fresnolawyerblog.com\/index.php?rest_route=\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/fresnolawyerblog.com\/index.php?rest_route=\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/fresnolawyerblog.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=743"}],"version-history":[{"count":0,"href":"https:\/\/fresnolawyerblog.com\/index.php?rest_route=\/wp\/v2\/posts\/743\/revisions"}],"wp:attachment":[{"href":"https:\/\/fresnolawyerblog.com\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=743"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/fresnolawyerblog.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=743"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/fresnolawyerblog.com\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=743"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}