When I was in private practice, I often commented that Estate Planning attorneys serve as true counselors and advisors for our clients. Clients call on their Estate Planning attorneys to fill many roles in addition to the ones for which they hire us. It’s a natural evolution of the attorney/client relationship. After all, clients trust us with their secrets, desires, and goals. We know the inner workings of their family, including who has creditor issues, who spends too much, who has health concerns, and who suffers from addiction. The most experienced Estate Planning attorneys create Estate Plans with escape valves to address changes in the law and beneficiary circumstances because they understand the importance of flexibility in an Estate Plan. Seasoned Trusts and Estates practitioners know that change is inevitable and that they can best serve their clients by allowing the plan to evolve over time. Some clients have developed such a close relationship with their attorney over the years that they request that the attorney take an active role in the Estate Plan, asking the attorney to serve as a Trust Protector, co-Trustee, or even Trustee. It’s not unusual. This first part of a two-part series will detail the extensive facts of Diller v. Richardson, No. A162139 (Cal. Ct. App. Mar. 17, 2022), a case that highlights the many issues that arise when an attorney serves in one of these roles and disregards their duties as an officer of the court and as a fiduciary. The second part will explore what went wrong along with some of the safeguards that could have prevented litigation.
The Diller case has a long procedural history and several related cases beyond the scope of this article, but is interesting to read nonetheless: The salient facts follow. Helen and Sanford Diller were married and had three children together: Ronald, Jackie, and Bradley. Ronald was close with his mother and Jackie was close with her father. The case makes clear that tension existed between the paired parent-child relationships and between Helen and Sanford themselves. The opinion makes no mention of whether Bradley was close to either parent, likely because he was not part of the litigation.
The Dillers created the “DNS Trust” in 1981 and amended it several times over the years. Ultimately the Dillers created the Sixteenth Amendment and Complete Restatement of the DNS Trust which was at issue in the litigation that ensued after the death of both Helen and Sanford. The Dillers’ Estate Planning attorney, Thomas Richardson, drafted a document that created four sub-trusts upon the death of the first spouse: a Marital Trust, a Survivor’s Trust, a Family Trust, and a reverse QTIP Marital Trust. The DNS Trust included a provision that allowed the surviving spouse to appoint a co-trustee of the Marital Trust of which that surviving spouse was serving as Trustee.
Helen died first in 2015. Ronald testified that his mother, Helen, intended to leave a legacy for her family, meaning that some portion of her estate would pass to her children and grandchildren. While his father was alive, Ronald did not seek copies of any of the estate planning documents, nor was he provided with any. It was his understanding that after his father, Sanford, died, he would receive his inheritance but that in the interim assets would be held in irrevocable trusts for Sanford’s lifetime benefit. Shortly after Helen’s death, Sanford decided that he was unhappy with the plan that Helen and he had established and sought to change it by disinheriting his sons, Ronald and Bradley. Every day surviving spouses decide that they do not like the plan to which they had agreed while the now deceased spouse was alive and seek to change it. Usually, the surviving spouse has the option to change only the portion of the plan relating to their own assets, or the Survivor’s Trust. Usually, the surviving spouse cannot change the terms of the Family Trust and almost never can they change the terms of a Marital Trust. The Diller case proves the exception to these rules.
The terms of the Marital Trust called for distributions of all net income to Sanford, along with distributions of principal for his health, education, maintenance, and support, in his accustomed manner of living. Finally, the Marital Trust contained a provision that allowed distribution of additional principal as the Trustee, excluding any Interested Trustee, may from time to time determine. The Trust Agreement carefully defined an Interested Trustee as anyone who was a current or future beneficiary of income or principal of the DNS Trust. Remember that Sanford had the power to appoint a co-Trustee for the Marital Trust. He appointed the Estate Planning attorney that he and Helen had used during Helen’s life, Thomas Richardson. Richardson qualified as a disinterested trustee under the terms of the trust agreement and having drafted the trust agreement arguably knew and understood the intentions of both parties better than any other individual.
In response to Sanford’s request to make changes to the DNS Trust, Richardson wrote a letter to Sandford indicating that the Marital Trust and Family Trust were irrevocable because of Helen’s death. He reminded Sanford that he had the power to amend only the Survivor’s Trust. Richardson went on to propose to Sanford that he, as the disinterested Trustee of the Marital Trust, could distribute all assets of the Marital Trust to Sanford as beneficiary thereby allowing Sanford to do indirectly what he could not do directly – make changes to the Marital Trust by depleting it and putting the assets in the Survivor’s Trust. It’s difficult to understand why the attorney who drafted the plan would put in writing the way by which he was going to help the surviving spouse defeat the plan. Yet, that’s exactly what Richardson did.
Richardson transferred the entire principal amount of the Marital Trust totaling over $1.2 billion to Sanford, notwithstanding that Sanford already had $1.2 billion of his own money. This obliterated Helen’s Estate Plan and Richardson absolutely knew and understood that. It seems clear that Richardson breached the duty of loyalty and impartiality that he owed to the remainder beneficiaries of the Marital Trust created under the DNS Trust, Ronald, and Bradley, among other things. Let’s not forget that Richardson created Helen’s Estate Plan and represented her during her life and arguably owed her some duties as well.
After receiving all assets from the Marital Trust, Sanford transferred those assets to his Survivor’s Trust and disinherited his sons, Ronald and Bradley. Sanford died thereafter in 2018. After Sanford’s death, Ronald sought information regarding the plan and his inheritance. Richardson, or members of his law firm, advised Ronald that he was the beneficiary of a trust containing $3 million of which Richardson was the sole Trustee and for which distributions would be made to Ronald for medical emergencies and financial exigencies only, as determined by Richardson in his capacity as Trustee. Ronald sought copies of all his parents’ Estate Planning documents, including the DNS Trust. Richardson’s law firm denied that request and actively discouraged Ronald from seeking copies of the documents by reminding him of the no-contest clause in the documents. Shortly thereafter, Ronald initiated a lawsuit against his sister, Jackie, who was serving as the Trustee of the Survivor’s Trust.
In the interest of brevity, this article ignores the procedural posture of the case, but read it because it’s fascinating. The next article in this series will detail how the Estate Planning attorney used a provision that he inserted to protect the plan to undermine Helen’s plan and deprive Bradley and Ronald of approximately $400,000,000 each and explore the numerous ways in which the attorney was the worst actor in all of this – stay tuned!
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