March 5, 2013

Estate of Giraldin


When something goes awry and an appreciable amount of money is lost, there is the natural disappointment and despair, besides the typical legal consequence, litigation. The following California Supreme Court case illustrates that point.

Estate of Giraldin (2012) 55 C4th 1058

William Giraldin married Mary Giraldin in 1959. At the time of their marriage, William had 4 children and Mary had 3 kids. Thereafter, the couple had twin sons, Tim and Patrick. In other words, William and Mary were forerunners to Full House, The Brady Bunch and Just the Ten of Us. Sorry just too easy to highlight.

Prior to forming a revocable trust, in January 2002, William executed a document which expressed an intent to invest about $4 million, roughly two-thirds of his fortune, in a company Patrick had previously incorporated, SafeTzone Technologies Corporation (SafeTzone). In February 2002, William created a revocable trust and named Tim trustee. William was the sole beneficiary for his life, then Mary would be the remainder beneficiary following William's passing and the 9 children would be subsequent remainder beneficiaries. 

According to the court opinion, the investment was hardly prudent in retrospect: "Between February 2002 and May 2003, William made six payments of various amounts to invest in SafeTzone, ultimately totaling more than $4 million. The company issued stock to William. After the investment was fully funded, the stock was transferred into the name of the trust. William died in May 2005. By this time, the investment in SafeTzone had gone badly, and the trust's interest in the company was worth very little."

Consequently, 4 of William's children sued Tim, as trustee of the William's trust, for breach of fiduciary duty. The complaint alleged that Tim had depleted William's life savings for Tim and Patrick's benefit, to the detriment of the other 7 children, the contingent remainder beneficiaries of the trust.

The issue in the case was whether the 7 children had standing to sue Tim as trustee for breach of fiduciary duty committed while William was alive and the trust was still revocable. Since the California Probate Code was not clear as to whether such a beneficiary had standing, the case weaved its way through the California court system, first the trial court, second the appeallate and third and finally the California Supreme Court. Ultimately, the California Supreme Court held that "since a trustee's breach of the fiduciary duty owed to the settlor can substantially harm the beneficiaries by reducing the trust's value against the settlor's wishes, we conclude the beneficiaries do have standing to sue for a breach of that duty after the settlor has died."