Dianne Feinstein has many problems. She is a frail 90-year-old member of the United States Senate. In addition to her health problems, Feinstein is engaged in a lawsuit over trusts created with her late husband. We can’t avoid old age, but proper estate planning can help avoid family fights.
Two separate lawsuits were filed in San Francisco Superior Court, involving two trusts set up by U.S. Sen. Dianne Feinstein (D-Calif.) and her late husband Richard Blum. Blum was reported to be a billionaire financier and investor. The couple had a blended family, each having been previously married. Both lawsuits were filed by Feinstein’s daughter, Katherine Feinstein, a child of the first marriage, on her mother’s behalf.
The two trusts were set up so that in the event Richard predeceased Feinstein, which he did, income would flow to Feinstein. The trusts primarily own real estate and bank accounts. Feinstein receives all income from the remaining community property assets during her lifetime. Given her poor health, Feinstein argues that she needs as much income as the trusts will produce. The trustees of the trusts are Feinstein’s daughter, Katherine, and an attorney loyal to Blum, Mark Klein. The two are now at odds with each other. Katherine wants to be appointed sole trustee.
Blum’s daughters from a prior marriage have conflicting interests. They don’t want the trust invested to maximize income. Rather, they are interested in the properties owned by the trust and making sure that their inheritance grows until Feinstein’s death. For example, one of the trusts owns a house on Stinson Beach. Katherine Feinstein wants to sell the beach house. Her goal is to reduce the carrying costs of owning a beach house and, by selling the house, to create an income-producing asset. California law also requires trustees to make trust property productive. Feinstein’s petition claims that the Stinson Beach property is currently unproductive and that significant expenditure would be required to make it productive.
On the other hand, Blum’s daughters want to keep enjoying the beach house.
Among the curiosities of this case are why a sitting senator needs someone to wield a power of attorney on her behalf. Moreover, Feinstein is rather wealthy in her own right. To date, there is no proof that the trust has failed to help her meet her medical expenses.
In the case of second marriages, estate planning can be fraught with challenges. Even the best planning can fail if the parties choose to litigate their differences.
How can families avoid these kinds of conflicts?
- Conversations. When possible, parents planning their estate should make their desires known to their children or heirs. The combination of oral and written instructions often reinforces the message. Many of us are conflict avoidant and hesitate to share financial information with our families. The failure to discuss our estates often leads to misguided notions and misperceptions.
- Be specific in your documents. Estate documents should specify which assets are to be sold and which are to be preserved. For example, had Blum had a conversation with his daughters about the beach house, the trust might have included language to retain and not sell the property.
- Pick the right trustees. In my experience, most clients want to select family members to be the fiduciaries of their estate, either serving as personal representatives or trustees. In the case of a second marriage and a blended family, appointing one of the spouse’s children to a fiduciary role can create tension. While I am typically not a fan of corporate trustees, in the case of a large estate with a blended family, a third-party professional trustee is warranted. Yes, professional trustee fees are high. But so is litigation. Yes, professional trustees are often bureaucratic and too measured in their responses. However, it might be better to have your descendants direct their ire at a third-party professional rather than at a step-sibling.
- The magic of percentages. Trusts can be established to provide a percentage of the assets as an income stream to the beneficiary. This is sometimes referred to as a “unitrust.” For example, Blum and Feinstein could have planned that 7% of the trust value be paid as income to Feinstein annually. In years when the trust earned income of 7% or more, there might be a surplus to add to the principle. In years when the trust earned income of less than 7%, the beneficiary still received the full amount, taken from both income and principal.
Evan J. Krame