More Thoughts on Estate of Giraldin

As I have previously discussed, the Supreme Court of California ruled in Estate of Giraldin that the beneficiaries of a trust can hold the trustee liable if the trustee breaches his or her duty to the settlor while the settlor was still alive. As a result of the court’s ruling, some believe that trustees now face a dilemma. For argument’s sake, let’s say that a trustee is managing a trust for the benefit of an incapacitated settlor. Normally, if the remainder beneficiaries of the trustee were upset with the trustee on how he or she was managing the trust they would have to petition a court through conservator proceedings to remove the trustee. However, that is no longer necessary. The court’s ruling essentially allows the beneficiaries to step into the incapacitated settlor’s shoes. Those beneficiaries can now bring a suit against the trustee after the death of an incapacitated settlor for how he or she mismanaged the trust.

This could become a problem if the beneficiaries have a reason to be particularly hostile to the trustee, as in situations where there is a great amount of hostility among family members. This could lead to a number of unnecessary lawsuits being filed against the trustee. The increased risk of litigation, many potential trustee candidates will likely refuse to serve as a trustee. If a person does accept the trustee position, it is likely that the person will take additional steps to ensure that they are protected from potential litigation. For example, “trustees are now more likely to petition for court instructions to approve the use and investment of trust assets. These court petitions cost both money and time.” This could also affect how estate planning attorneys and their clients draft estate planning documents. Now, it will become necessary to take the possibility of potential litigation into account. 

See Dennis A. Fordham, Estate Planning: Landmark Decision Makes Incapacity Trustee Accountable to Death Beneficiaries, Lake County News, Feb. 16, 2013.