Exploring the Many Issues Surrounding the Estate and Trust of Richard Blum – Part I

The late Richard Blum, a billionaire investment banker and late husband of Dianne Feinstein, the Senior United States Senator from California. Anyone watching the news with any regularity knows that Dianne has had her fair share of press lately. Recent articles indicate that her daughter, Katherine Feinstein, 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 Feinstein’s late husband accusing them of elder abuse. Obviously, starting here would be like starting a story in the middle, so let’s start at the beginning. This first part of a three-part series will explore the issues raised by the first lawsuit. The second part will delve into the issues raised by the second lawsuit and the third 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. During their marriage, Richard and Dianne established the Richard C. Blum & Dianne Feinstein Joint Property Revocable Trust, dated January 10, 1996 (“JPT”), and amended and restated it several times. They amended and restated the JPT in 2015 and that iteration forms the basis for the various lawsuits filed by Katherine on Dianne’s behalf. Richard and Dianne served as co-Trustees of the JPT until Richard’s death at which time, Michael Klein became co-Trustee with Dianne. On August 1, 2022, Dianne resigned as co-Trustee and Katherine became co-Trustee serving with Michael. The JPT holds title to three separate parcels of real property, one located in San Francisco, California, another in Stinson Beach, California, and one in Kauai, Hawaii.

The terms of the JPT require the Trustees to divide the trust estate into a survivor’s share and marital share upon Richard’s death. Dianne’s separate property along with her share of the community property will fund the survivor’s share which will pass through the Survivor’s Trust to the survivor’s separate property trust, the Dianne Feinstein Trust u/a/d June 23, 1978, as amended (“DF Trust”). The remaining assets constitute Richard’s share of the community property and comprise the marital share which will be distributed through a Marital Trust to Richard’s separate property trust, the Richard C. Blum Revocable Trust dated January 9, 1996, as amended (hereinafter “RCB Trust”). Michael Klein, along with Verett Mims, and Marc Scholvinck became co-Trustees of the RCB Trust upon Richard’s death.

The RCB Trust directs the Trustees to hold the property from the JPT in a marital trust (“RCB Marital Trust”) for the benefit of Dianne during her lifetime. Upon Dianne’s death, the assets in the RBC Marital Trust will pass to Richard’s daughters, Annette Blum, Heidi Blum, and Eileen Blum Bourgade. In addition to the property from the JPT, RCB Trust directs the Trustees to fund RCB Marital Trust with $5 million in cash and marketable securities. The terms of the RCB Marital Trust require the Trustees to provide Dianne with $1.5 million per year if the trust has sufficient liquidity.

The first lawsuit filed on June 27, 2023, contains four counts and various allegations found here: In the matter of The Richard C. Blum & Dianne Feinstein Joint Property Revocable Trust, u/t/a Dated 01/10/1996.

First, Katherine alleges that in the fifteen months since Richard’s death, the JPT co-Trustees failed to distribute any assets from the JPT to either the DF Trust or the RCB Trust. Further, Katherine alleges that Dianne desires to sell the Stinson Beach property as she no longer wants to use it or continue to pay for the carrying costs and has made several requests to the co-Trustee of the JPT regarding the same to no avail. The lawsuit alleges that no action has occurred on the property at least in part because Blum’s daughters want to limit the liquidity in RCB Marital Trust. Limiting its liquidity means smaller distributions to Dianne during her life with a greater portion of the trust going to Blum’s daughters as the remainder beneficiaries. Katherine’s lawsuit asks the court to direct Michael to sign documents to transfer the marital share to RCB Trust, surcharge Michael the costs of bringing the lawsuit, and prohibit Michael from using the JPT funds to defend himself. The lawsuit alleges that Michael has breached his duties as co-Trustee by failing to administer the trust.

Thankfully, this lawsuit has a narrow focus: Michael’s failure as co-Trustee of the JPT to fund the sub-trusts thereunder. The lawsuit focuses on the Stinson Beach property and Dianne’s desire to make improvements and sell it. Given this narrow focus, it’s easy to pull lessons from the lawsuit. Most importantly, Richard and Dianne should have planned exactly what would happen to the Stinson Beach property upon the death of either. By sending half to the DF Trust and the other half to the RCB Trust, they increased the tension between the surviving spouse and the children of the decedent spouse. Anytime an Estate Planning attorney deals with a blended family, they need to be sensitive to this issue. Many blended families sit before the attorney and promise that everyone gets along and that everyone agrees to a particular plan. Imagine the attorney’s surprise upon discovering that’s not the case after one spouse dies. I shy away from any arrangement that requires the surviving spouse and children from a previous relationship to agree by appointing an independent Trustee. While that’s what happened here, those independent Trustees have not done what’s required under the terms of the JPT or the RCB Trust. The Estate Planning attorney needs to encourage the parties to consider what should happen, be it sale, transfer in total to one trust, or decision solely by an independent Trustee, should the unthinkable occur and the parties have a falling out after death. Too often, as is the case here, that’s exactly what happens.

The other valuable lesson here is to encourage the Trustee to administer the trust expeditiously. Based upon what’s available publicly, it’s hard to determine whether the Trustees really breached their duties in administering the trusts or whether Katherine initiated the lawsuit early. Either way, the Trustees have a duty to administer the trust and should commence taking steps in that direction as soon as possible after the death of the Trustor. Sometimes delays result because of the assets of the trust, other delays result because the Trustee procrastinates. The former requires transparency by the Trustee whereas the latter may require a lawsuit.

While it’s unclear exactly where the parties stand in the proceedings, it appears that few or none of the usual actions required by a successor Trustee after taking office have occurred as of the filing of the lawsuit. While fascinating, it’s unfortunate that this matter will play out on a public stage. Typically, 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 installment which will focus on the second lawsuit.