A Nevada case decided in 2021, In re Giannotti 1990 v. Premier Trust, held that a court can order trust beneficiaries to submit to drug testing before receiving distributions. I found this case interesting and thought my readers would as well.
William and Mary Giannotti (the Settlors of the trust), had one daughter, Paula. Paula had two adult sons, William and Brad (the brothers). Paula’s son William had two adult daughters and Brad had one adult daughter. After the deaths of the elder William, subtrusts continued on for Mary’s benefit. Mary died, and her daughter Paula died less than thirty days later. The trusts for the Giannotti’s and Paula then became trusts for Paula’s sons, William and Brad, and their daughters.
There was controversy whether the subtrusts were correctly funded, and whether upon Paula’s death separate shares should have been established for William and Brad. The bank trustee had discretion to make distributions to William and Brad for their health, education, maintenance and support. The bank as trustee provided the brothers regular monthly stipends and living expenses from the trust.
The brothers continuously challenged the amount of the discretionary distributions and raised concerns that the trustee was mismanaging the trust investments. After two years of escalating disputes between the trustee and the brothers, the trustee filed a petition with the district court to approve its prior actions and accountings. The brothers objected. Their counsel withdrew.
The brothers then retained new counsel to challenge the actions. The brothers terminated their new counsel and sought to proceed pro se (representing themselves without an attorney).
The trustee moved for a protective order, alleging that the brothers had provided them with the incorrect addresses for their own daughters, who were rightful parties to any accountings since they were also entitled to distributions. The bank further alleged that the brothers threatened their employees.
Both the daughters and the trustee submitted affidavits stating that they feared retribution from the brothers for their participation in this case. Additionally, the daughters’ affidavits stated that the brothers deliberately concealed the nature of these proceedings from them and represented that the brothers frequently used methamphetamine.
The district court granted the protective order, and urinalysis revealed that both brothers tested positive for methamphetamine. The brothers hired new counsel. The bank trustee filed a second petition for instructions, which contained three alternative distribution plans to address its concerns regarding the brothers’ purported addiction to methamphetamine.
The parties signed a stipulation and order providing that the trustee would deliver the brothers’ regular monthly stipends to their counsel’s trust account and that counsel would deliver the stipend to them upon completion of a random urinalysis drug test, if the test was negative for all illegal drugs. If either of the brothers refused to participate in the drug test, the stipend would be withheld for that month.
The district court found that the brothers have “an intemperate and aggressive style that alienates others” and further found that drug testing was necessary as the trustee’s ability to make discretionary distributions under the Trust was based on the beneficiaries’ health and character – attributes directly influenced by the brothers’ troubles with substance abuse. The court further determined that the terms of the trust do not allow the trustee “to fund a destructive drug-influenced lifestyle” and stated that the court will work with the trustee and the [brothers’] attorneys to craft a distribution plan that prioritizes addiction recovery.
An appellate court unwound various trust transactions that occurred after the death of the elder William and during his wife Mary’s lifetime. It also upheld the district court’s finding that the brothers’ daughters were current beneficiaries of the Trust. The court further held that while the trustees are instructed to utilize trust income and principal primarily for the benefit of the brothers, that is not mandatory, and nothing in the trust prohibits the trustee from making discretionary distributions to the brothers’ daughters, even during the brothers’ lifetimes.
Importantly, the court found that the trial court did not abuse its discretion in requiring the brothers to submit to drug testing and approving the trustee’s decision to withhold trust funds based on positive drug test results. The brothers presented no cogent argument that the court did not have the authority to order drug testing outside of child custody and criminal matters. Contrary to the brothers’ assertions, the terms of the trust expressly authorize the trustee to provide discretionary distributions to the brothers in amounts “either more or less than any other Descendant as [the trustee] deems advisable because of variations in health, character, education, or other requirements”.
In ordering the brothers to undergo drug testing, the district court found the tests were necessary to aid the trustee in exercising its discretion when providing distributions to William and Brad.
Moral of the story – if you suspect beneficiaries have drug problems, make sure your attorney writes provisions into the document that clearly provide the trustee to suspend distributions or make distributions to other beneficiaries if beneficiaries with addiction problems fall off the wagon.
©2022 Craig R. Hersch of The Sheppard Law Firm. Learn more at floridaestateplanning.com