If you live or work in the Trusts and Estates world, you have heard of Richard Blum, billionaire investment banker and late husband of Dianne Feinstein, the Senior United States Senator from California (“Dianne”). Anyone who consumes the news needn’t look far to catch a headline regarding Dianne. Recent articles indicate that her daughter, Katherine Feinstein (“Katherine”), acting as Attorney-in-Fact for Dianne, has initiated a third lawsuit in as many months against the Trustees of the Marital Trust established by Dianne’s late husband accusing them of elder abuse. The first part of this three-part series explored the issues raised by the first lawsuit Exploring Many Issues Surrounding the Estate and Trust of Richard Blum – Part I. This second part will delve into the issues raised by the second lawsuit and the third part will explore the issues raised by the third lawsuit.
Richard and Dianne were married in 1980 and lived together in the community property state of California until Richard’s death in February 2022. While Richard was alive, he created the Richard C. Blum Marital Trust of 1996, dated January 9, 1996 (“Marital Trust”) naming Dianne as the sole income beneficiary for life. In addition to the income generated by the trust, the Marital Trust provides that Dianne shall receive distributions of principal for her health, education, maintenance, and support. The lawsuit goes on to indicate that Dianne incurred significant medical expenses and sought reimbursement from the Marital Trust. The lawsuit alleges that the Trustees of the Marital Trust have failed to reimburse her medical expenses. The Marital Trust contained a provision allowing Dianne, as the sole income beneficiary, to appoint a successor Trustee and Dianne appointed her daughter, Katherine.
The Trustee appointment provisions are at issue in the second lawsuit. Richard appointed N. Colin Lind (“Lind”) to serve as original Trustee of the Marital Trust during Richard’s lifetime. Lind had the power to designate “the immediate and all subsequent successor Trustees or co-Trustees to serve” were he unable or unwilling to serve. For Lind to exercise that power, he needed to designate the successor Trustee in a notarized document and then deliver the same to the Trustee, the designated successor, or the adult income beneficiaries. Upon Richard’s death, the Marital Trust appointed Richard W. Canady (“Canady”), followed by Gary Wilson (“Wilson”), serving in that order, to serve in the place of Lind, neither of whom had the power to designate a successor. In addition, pursuant to the terms of the Marital Trust, upon Richard’s death, any Trustee appointed and serving because Lind exercised his power to appoint a successor ceased serving.
After Richard’s death, Dianne received a notice pursuant to the California Probate Code indicating that Mark Vorsatz (“Vorsatz”) executed a resignation on March 15, 2022, effective on April 15, 2022 and that because of the resignation, Mark R. Klein and Marc T. Scholvinck were the trustees of the Marital Trust. Of note, the notification failed to indicate how Vorsatz was appointed, although the lawsuit presumes that Lind appointed Vorsatz during Lind’s tenure as Trustee before Blum’s death. Remember that the Trustees nominated to serve after Blum’s death, Canady and Wilson, had no power to appoint a successor Trustee. Even assuming that Lind appointed Vorsatz appropriately, Vorsatz’s tenure ended upon Blum’s death pursuant to the terms of the Marital Trust. At that time, Canady, followed by Wilson, were to serve. According to the July lawsuit, Dianne never received notification of the resignation of either Canady or Wilson.
The second lawsuit filed on July 7, 2023, contains one count and various allegations and can be found here: In the matter of: The 1996 Dianna Feinstein Trust under the Richard C. Blum Marital Trust of 1996, dtd January 9, 1996. This lawsuit, much like the one filed earlier, has a narrow focus: the proper appointment of a successor Trustee and the unreimbursed medical expenses. Given this narrow focus, it’s easy to pull lessons from the lawsuit. First, it’s imperative to follow the terms of the trust when appointing a successor Trustee. It’s unclear whether Lind appointed Vorsatz; unclear whether Canady or Wilson resigned or declined to serve; and unclear how Klein and Scholvinck were appointed. Given these uncertainties, Dianne’s allegation regarding the improper appointment of Klein and Scholvinck seems correct. Klein and Scholvinck, if they are the Trustees, have a duty to keep proper records and their inability to demonstrate how they came to hold office arguably breaches that duty. Whether the judge overseeing the case agrees with this remains to be seen.
Another valuable lesson we can take from this case involves the distribution of principal from the Marital Trust. While the terms of the Marital Trust allow the Trustee to distribute principal for Dianne’s health, education, maintenance, and support, the determination of what fits within that standard remains within the Trustee’s discretion. Should Klein and Scholvinck exercise that discretion to distribute to Dianne? Now that Dianne has initiated a lawsuit, it seems unlikely that Klein and Scholvinck will exercise their discretion and reimburse Dianne’s medical expenses. Of course, if it’s determined that they do not hold the office of Trustee and the court accepts Dianne’s appointment of her daughter as Trustee, then it seems likely Katherine will reimburse those expenses upon taking office. The lesson here is that you must be clear what is intended. It’s up to the drafting attorney to reduce the client’s intent to writing. After all, the language in the document might be interpreted years later by someone other than the drafting attorney. Thus, it’s best to ensure that your documents spell out precisely what your client wants to happen. For example, if Richard intended for the Marital Trust to cover all Dianne’s medical expenses, then the trust should have been drafted that way.
It seems clear that Richard thought about his Estate Plan, consulted attorneys in creating it, but neither he nor they anticipated the difficulty in administering it. In the prior lawsuit, the appropriately appointed Trustees failed to act expeditiously, and in this one, it’s unclear who should be serving as Trustee. More than a year after Richard’s death, three separate lawsuits have been filed but it seems little else has occurred. It’s unfortunate and undoubtedly not what Richard intended when he created the plan. When litigation ensues, only the lawyers benefit as will no doubt be the case here. Litigation takes time and costs money during periods of significant grief. Stay tuned for next week’s final installment which will focus on the third lawsuit.
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