Marilyn Monroe famously informed the world that “diamonds are a girl’s best friend” in the 1953 movie, Gentlemen Prefer Blondes. Apparently fellow Hollywood legend, Richard Burton, heeded that advice: he gave his then wife, Liz Taylor, a heart-shaped diamond known as the “Taj Mahal” for her 40th birthday. In the aftermath of Liz Taylor’s death, the diamond is proving to be no “best friend” at all and is the center of a legal dispute involving her estate.
According to the LA Times, Taylor’s successor trustees hired Christie’s auction house to sell her personal property at auction. The diamond was sold for more than $8 million to an anonymous buyer. However, months later the buyer returned the diamond to Christie’s claiming that it was not from the Mughal Empire as he/she had thought. Christie’s agreed to cancel the sale despite the fact that Christie’s made no guarantee as to the diamond’s history other than the fact that it was of “Indian origin.”
After agreeing to cancel the sale in order to appease the buyer, Christie’s then insisted that the trustees return the proceeds from the sale of the diamond. The trustees countered that the auction house violated its agreement with the trust by canceling the sale and is opposed to returning the proceeds. Christie’s argues that it upheld its contract by successfully selling over $183.5 million worth of Taylor’s personal property and that the diamond represents a small portion of the overall sale, implying that the trustees shouldn’t have a problem returning the proceeds since the sale of the other personal property was so successful.
It is up to the courts to determine who will prevail in this dispute. However, an interesting question arises: did the law require the trustees to file a suit in this case?
The California Probate Code details several duties of trustees that are relevant in this example:
Duty of Loyalty: a trustee must administer the trust solely in the interest of the beneficiaries. Regardless of whether the trustees personally feel Christie’s is at fault, the trustees must consider the interests of the beneficiaries in every decision they make.
Duty of Impartiality: a trustee must deal impartially with all beneficiaries. If some beneficiaries feel that they should be happy with the proceeds from the sale of the other assets and should return the proceeds from the sale of the diamond but other beneficiaries feel differently, the trustee must take into account the differing interests of the beneficiaries.
Duty to Control and Preserve Trust Property: a trustee must “take reasonable steps” to keep control and preserve trust property. “Trust property” would include the proceeds from the sale of the diamond. The trustee must proceed with caution before simply handing over almost $8 million in proceeds from the sale of the diamond just because Christie’s makes such a demand.
Duty to Make Trust Property Productive: a trustee must make property productive. Would returning the proceeds from the sale of the diamond be counterproductive?
Duty to Enforce Claims: a trustee must “take reasonable steps to enforce claims that are part of the trust property.” Fighting the insistence from Christie’s to return the proceeds from the sale of the diamond and pursuing a breach of contract suit against the auction house are certainly “claims that are part of the trust property.” However, what are “reasonable steps” in this scenario? Do the trustees need to factor in the expense of litigation, the delay of court proceedings, and the possible bad press as a result of a potential court battle?
Duty to Defend Action: a trustee must “take reasonable steps to defend actions that may result in a loss to the trust.” Trying to stop Christie’s from taking the proceeds back is certainly defending an action that might result in a loss to the trust. Is participating in a court battle in this situation “reasonable”?
This dispute concerning Liz Taylor’s diamond illustrates all the factors that prudent trustees must weigh when determining what action to take with respect to the administration of a trust. Trustees cannot simply be driven by how they personally feel about the situation. Instead, trustees have legal obligations to the beneficiaries of the trust and the intent of the decedent’s estate plan as a whole that often limits their options and dictates how they proceed.
KRASA LAW is located at 704-D Forest Avenue, Pacific Grove, California, and Kyle may be reached at 831-920-0205831-920-0205.
Disclaimer: This article is for general information only. Reading this article does not create an attorney/client relationship. Before acting on any of the information presented in this article, you should consult a competent attorney who is licensed to practice law in your community.