Estate, probate and trust: an ounce of prevention…

Amid the largest generational transfer of wealth compared to any other time in recent history, we're seeing an increase in the number of claims related to estate planning. Historically, only a client could maintain a cause of action against a lawyer for issues relating to his or her estate work. However, in certain states, this rule is now eroding, allowing heirs to maintain a case of action if the attorney's representation harmed them. 

Two common scenarios that draw claims from beneficiaries

Diminished estate size: While the Baby Boomer generation is wealthier than previous generations, certain Boomers lived with a "can't take it with you" mentality. Therefore, it may disappoint some beneficiaries when they discover a smaller inheritance than expected or a smaller estate due to the performance of certain investments, especially if there are taxes due.

Inequitable familial distribution or a surprise inheritance: "I can't believe mom left you more than me!" is a predictable response when an estate plan holds an inequitable distribution among family members. In addition to the loss of money or property, an added emotional component can leave an heir looking for someone to blame. An estate plan that unexpectedly provides for friends, neighbors or relatives outside the nuclear family also commonly leads to claims. 

Examples of theories levied against attorneys generally arising out of dissatisfaction with estate plans

Conflict of interest: In numerous industry surveys, conflict of interest is the most cited driver of errors alleged in claims against attorneys. In the context of estate planning, the beneficiary will often contend that the attorney's loyalty was divided between the client and another party who then also takes under the estate plan. Consequently, the drafting attorney should always keep the actual client in mind and demand that everyone else stay "out of the room." If there is anyone involved in decision-making or review other than the actual client, and if that individual then benefits from the estate plan, conflict of interest allegations may follow. Again, keep children or other interested parties out of the room and off correspondence to the client. Attorneys should never include themselves in a client's estate plan.

Best practice: Keep in mind the ethical duties involving not only conflict of interest, but also client confidentiality.

Substantive errors and dabbling: Estate, probate and trust is an extremely complicated area of practice. Errors, especially in trust documents, are common. Many attorneys, however, dabble in this area for numerous reasons. Generalists will sometimes learn just enough to draft "simple" documents to round out their practice, and other attorneys will provide "favors" for friends and family members. Statutory changes or case law, however, may lead to unintended consequences incapable of correction once the client is unavailable due to death or disability. Attorneys should avoid dabbling in this complicated area.

Best practice: Reject the representation if you do not have the requisite experience or enlist the assistance of an attorney who does. Require engagement and disengagement letters for all clients.

Tax issues: An error involving taxes can result in significant monetary harm. Attorneys should discuss, and then document, who is (and who is not) responsible for the filing of tax documents and for advising on tax consequences. Attorneys should document in writing who is responsible for the filing of gift tax forms – a common source of confusion. The client should understand, and the attorney should advise that tax consequences and tax filings are unrelated and outside the scope of the engagement. 

Best practice: Ensure that your engagement letter clearly sets forth who is responsible for all tax issues.

Serving as Trustee or Executor: Attorneys should carefully consider all risks before agreeing to serve as a Trustee or Executor. During the financial crisis, claims filed against an attorney for "wasting" trust assets with an overly critical analysis of all financial decisions frequently occurred. Consequently, a Trustee should have the Court approve every action taken, even if the heirs or beneficiaries are aligned and getting along. Further, if there are any legal disputes or services for which the trust needs counsel, the Trustee should avoid hiring his or her own law firm, as the legal fees will be questioned.

Best practice: Obtain court approval for all disbursements.

Lack of testamentary intent / undue influence: When a testator makes sudden estate plan changes shortly before his or her death, significantly decreasing or eliminating a child's share of the estate, the child often alleges lack of testamentary intent. If such a claim does not succeed during Probate, an heir may then assert an undue influence theory to sue the attorney.

While typically only a client could maintain a cause of action against a lawyer for issues relating to his or her estate work, in some states, this rule has eroded. In some jurisdictions, heirs or beneficiaries may maintain a case of action against the lawyer. For this reason, attorneys should maintain a well-documented written file evidencing the client's clear intentions, as well as their understanding of the estate plan's implications. 

Some experts suggest stair-stepping any changes to the size of various distributions over time and in sequential documents. In a will contest, numerous documents must be invalidated to completely eradicate the clients wishes. In a legal malpractice matter, it is also easier to establish the intent of the client when it is consistently evident over numerous years. 

Moreover, eliminating surprise by encouraging the client to discuss the estate plan in a transparent manner with all beneficiaries may also minimize the chance of a claim. While clients may often refuse this suggestion, some attorneys may then refuse to make sudden changes to estate documents unless such a conversation takes place.

Best practice: Document your file and communicate in writing to your client with respect to evidencing your client's clear intentions.

To minimize the risk of a malpractice lawsuit, estate planning lawyers should carefully document what the client wants, the intended beneficiaries of the estate and the scope of the engagement. Clear record-keeping and documenting play an essential role, because in many cases, the beneficiary files estate planning malpractice claims years after the fact, and only after the client is deceased. The client file might be the only evidence to establish that the lawyer complied with the client’s directives and met the standard of care. Estate planning lawyers should maintain their files for as long as the client is alive, even if the original will is filed, since many claims do not occur until decades after representation. When it comes to avoiding malpractice claims, clear engagement letters and thorough record-keeping (and video recordings of a client's intents) are as important as knowing the substance of the law.