Betwixt, Between and Bequeathing
Proper Planning Now Will Help Avoid an Unwanted “Gift” Later
By Scott R. Schaffer, Esq. and Rick R. Meyer, Esq., Wilson Elser LLP
Trusts & estates law inherently involves sensitive and personal matters, which makes attorneys who practice in that area uniquely susceptible to the assertion of legal malpractice claims by unhappy clients and others. Recently, the frequency and severity of trusts & estates claims have risen significantly and are now among the leading legal malpractice claims. As the transfer of wealth from the immensely populated generation of baby boomers to subsequent generations has commenced, the escalation in claims will likely continue as succession planning occurs more frequently, along with the opportunity for alleged errors.
While liability of trusts & estates attorneys was historically predicated on privity with the client, this requirement has largely eroded in jurisdictions across the country, inviting claims from non-clients such as heirs or beneficiaries. Additionally, though most jurisdictions have specific statute of limitations periods for bringing a legal malpractice claim, many contain an exception applicable to trusts & estates lawyers. Generally, the exception will extend the statute of limitations when the injury caused by the alleged error or omission does not occur until the death of the person for whom the professional service was rendered.
However, trusts & estates attorneys potentially can reduce their exposure to malpractice claims with a better understanding of their role and who may be entitled to bring a claim, as well as being able to identify potential conflicts of interest and knowing how to address them.
The following scenarios, derived from actual claims, highlight some of the most common pitfalls experienced by trusts & estates attorneys.
Assisting a Family Member Will Always Be Risky
An attorney was sued individually and as trustee for a Trust by his aunt in connection with the distribution of his elderly uncle’s estate. The attorney’s aunt filed a lawsuit alleging the attorney manipulated his uncle into changing his estate plan on his deathbed to provide the attorney and his children with a larger distribution of the estate than that which was provided to the aunt. The original Trust provided that the attorney would receive approximately 10% of the estate and the aunt would receive the balance. While in the hospital, the uncle was informed he was dying of congenital heart failure. That evening, the uncle’s caretaker called the attorney, who was not his uncle’s regular lawyer, to tell him that the uncle wanted to change his will. The following day, the attorney worked with his uncle to prepare a handwritten will, which left 10% of the estate to the aunt, a small gift to the caretaker and the remainder to the attorney as sole beneficiary. The attorney then instructed the uncle’s regular lawyer of the changes to be made to the Trust. After the uncle passed away, the aunt filed the lawsuit seeking to rescind the Trust and void the gift to the attorney based on the uncle’s lack of capacity.
This scenario occurs all too frequently. Despite the temptation to assist, attorneys should distance themselves from drafting a will for a family member, particularly when the attorney is also a beneficiary under the subject will or trust. Aside from potential legal culpability, an attorney has an ethical obligation to direct a family member or client to another lawyer if the attorney or his family member will receive a substantial bequest. Recognizing the potential for client dissatisfaction is the most effective way of preventing claims. If a conflict arises or if an heir or beneficiary needs legal advice, it is important for the attorney to recommend that independent counsel should be engaged. By doing so, the attorney can ensure that he or she is not accused of a conflict of interest or violation of any duties.
Pay Close Attention to All Parties … Even When They Are Not the Client
In another matter, litigation arose out of the attorney’s representation of a caretaker and decedent’s son in connection with the drafting of an amendment to the decedent’s Trust. Prior to the amendment, 40% of the residue of the decedent’s estate was to be distributed to the caretaker, 30% to a religious community center (RCC), 20% to the decedent’s son and 10% to a longtime friend. The decedent’s son was designated as Trustee, and an affiliate of the RCC was designated Successor Trustee.
The RCC alleged that for a two-year period the decedent’s physical and mental health had severely deteriorated, which restricted his ability to carry out normal activities or to protect his interests. Near the end of the two-year period, the caretaker met with the attorney to discuss the Trust. Pursuant to the caretaker’s request, the attorney amended the Trust leaving the entire residue to the caretaker and designating her as Successor Trustee. Upon the decedent’s passing, the RCC sought to invalidate the amendment on the basis that the attorney had failed to communicate with the decedent or attempt to confirm his capacity, and never received consent to accept instructions of a beneficiary of the Trust. The RCC brought a lawsuit asserting causes of action against the lawyer for elder abuse and wrongful taking.
In a similar case, an attorney prepared a new last will and testament for a client. The client’s daughter subsequently challenged the probate of the will, which had disinherited her, and sought to admit a prior will. The daughter asserted that the formation of the will was hindered when the attorney allowed beneficiaries to be present as the client advised him of her testamentary intentions, but did not inquire as to why the daughter was being disinherited nor assess whether there was any undue influence. In the prior will, distribution of the client’s estate was to be managed by an executor, who subsequently filed a third-party action against the attorney demanding unspecified actual damages and attorney’s fees.
There are several valuable lessons to be learned from these two scenarios. The attorneys in each instance appeared to be acting on behalf of the best interests of their clients and likely did not consider the interests of others. Moreover, the attorneys likely did not foresee being sued by individuals or entities they did not represent. While the general rule is that an attorney owes legal duties only to clients, courts have gradually eroded the privity requirement, holding that in limited circumstances a non-client may state a claim for malpractice if it can demonstrate the primary purpose of the legal relationship was for their benefit. In this regard, many states permit the beneficiary of an estate to sue an attorney whose negligence caused the testator’s intended disposition of the bequest to the beneficiary to fail. To protect against a claim by a dissatisfied beneficiary, the testator’s wishes should be clearly documented.
Additionally, it is always important for attorneys to be clear in their engagement letters about whom they represent and the scope of that representation. In those few states that still require privity, the identity of the client is determinative of who can file a lawsuit for malpractice. Even in those states with relaxed privity requirements, demonstrating that the engagement was limited to certain individuals can be persuasive. Thus, the engagement letter should clearly reflect that the attorney (1) is representing only those individuals for whom they are providing estate planning advice and (2) is not representing any other individuals or entities. Additionally, while an attorney must never forget to serve the best interests of the client, it is advisable for non-clients to be alerted that their interests are not represented by the attorney.
When it comes to trusts & estates attorneys avoiding legal malpractice claims, clear engagement letters, termination letters and thorough record-keeping are as important as knowing the substance of the law. To highlight the foregoing, if a client wants to leave the attorney or a family member of the attorney a substantial bequest, it is both ethically prudent and a best practice for the attorney to urge the testator to seek the advice of an independent counsel. Additionally, generating and keeping clear documents that truly depict the testator’s wishes and double-checking those testamentary documents to ensure compliance with the testator’s wishes will enable an attorney to decrease the likelihood of a malpractice claim.
Scott Schaffer is a partner in the New York office of Wilson Elser Moskowitz Edelman & Dicker, LLP. He is a founding member of the firm’s Insurance-Reinsurance Coverage practice, having represented domestic and foreign insurers in LPL, E&O, D&O and EPL matters over the past thirty-plus years. As one of the leaders of Wilson Elser’s Program Management team, Scott focuses on the cost-effective management and proactive resolution of claims. Scott can be reached at email@example.com
Rick Meyer is an associate in the New York office of Wilson Elser Moskowitz Edelman & Dicker, LLP. He is part of Wilson Elser’s Program Management team, a dedicated group of attorneys who specifically offer claims management, insurance coverage and analysis, and risk management services for domestic and foreign insurers. Rick can be reached at firstname.lastname@example.org