California Supreme Court Rules Beneficiaries Can Sue Trustee For Breaching Fiduciary Duty To A Settlor

9:12 pm Trust Litigation

Gavel 150x130 California Supreme Court Rules Beneficiaries Can Sue Trustee For Breaching Fiduciary Duty To A SettlorThe California Supreme Court has ruled in Estate of Giraldin that the beneficiaries of a trust have standing to sue a trustee for breaching fiduciary duty to the settlor, even after the settlor has died.

William and Mary Giraldin wed in 1959; William had four children and Mary had three at the time of the marriage. Together, they then had twins, Patrick and Timothy.

William created a trust in 2002, and made his son Timothy the trustee. Under the terms of the trust, William was sole beneficiary during his lifetime, then Mary would become sole beneficiary upon William’s death; the nine children would then share equally in the remainder of the trust after both parents died.

Before his death in 2005, William invested millions in a company co-owned by Timothy and Patrick. The company performed poorly, and most of the investment was lost.

William’s four children sued Timothy as trustee, claiming he breached his fiduciary duty to William while he was still alive. A trial court ruled in 2008 that Timothy had violated his fiduciary duty. Timothy appealed, and the appellate court reversed, finding that the plaintiff’s lack standing because Timothy’s fiduciary duty as trustee was only to William, not the other beneficiaries.

William’s children appealed to the California Supreme Court, specifically on the question of whether remainder beneficiaries have standing to sue a trustee for breach of fiduciary duty to a settlor during the settlor’s lifetime.

Drawing implications from the California Probate Code as well as various rulings from California and other states, the California Supreme Court held that, “After the settlor’s death, the beneficiaries have standing to assert a breach of the fiduciary duty the trustee owed to the settlor to the extent that breach harmed the beneficiaries.”

In addition, the court found, “Considered as a whole, the various probate code sections impose a duty on the trustee to protect the interests of the persons who are entitled to the proceeds of the trust.”

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