San Diego Estate Planning Lawyer Blog
Charitable giving is a common feature of many estate plans. In many cases this takes the form of a simple gift in a person’s last will and testament, but charitable giving can also involve complex trust arrangements designed to benefit both the charity and the donor or their family.
Trustee, Charities Spar Over Terms of 1967 Trust
Of course, the more complicated the gift, the more chances there are for a dispute to arise. For example, upon the death of a California man in 1967, his will established a trust for the benefit of his grandson. A corporate trustee was named to oversee the trust with instructions to pay the grandson $100 per month for the rest of his life. The trustee was also permitted to make additional payments to the grandson if he was “without sufficient funds to defray expenses incurred by illness, accident, or other dire need.” After the grandson’s death, the trustee is supposed to divide the remaining trust assets between a number of specified charities.
50 years after the trust was established, the grandson is still alive. In 2009, he asked the trustee for additional funds to help pay for expenses related to his then-pending divorce. When a person files for divorce in California, the court typically issues a “standard family law restraining order” that restricts the ability of both spouses to use marital property. After the grandson presented such an order to the trustee, it agreed to make additional distributions to him, which amounted to over $160,000.
The charitable beneficiaries–who, remember, get what is left of the trust after the grandson dies–objected to the trustee spending funds on the divorce. California law allows a trust beneficiary to sue the trustee for any alleged breach of the trust terms. That is exactly what the charities did here; they sued the trustee in California state court.
The trustee then removed (transferred) the case to federal court, arguing the charities’ lawsuit involved questions of federal tax law. The federal court disagreed and returned the case to state court. Probate issues, such as those related to the administration of a trust, are generally considered state matters. The tax issue raised by the trustee was “insubstantial,” according to the federal court and did not justify transferring the case.
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The lawsuit therefore remains pending before the state court. The trust will likely expend a significant amount of its own resources defending the case. This is probably not what the original creator of the trust intended when he made his estate plan back in 1967.
These are, however, the risks of creating a long-term estate plan for a beneficiary that may live decades after you die. This is one reason why complex estate planning is not something you should ever attempt on your own. If you are looking to establish any sort of trust you should consult with an experienced San Diego estate planning attorney who can advise you of the risks and benefits. Contact the Law Office of Scott C. Soady if you would like to schedule a consultation with an attorney today.