Estate Planning Isn’t Just For The Elderly

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The New York Court of Appeals Rules Personal Representative of and Estate May Sue Estate Planners for Malpractice: The Practice Management Issues

By: Anthony J. Enea, Esq.*

This is the first part of a two part article. Several years ago I had the occasion of taking the deposition in a Will Contest of an attorney who regularly engaged in Will drafting as part of his practice. The attorney during said deposition testified that he did not as a matter of practice make any inquiry as to the extent of the client’s assets as said information in his opinion was personal and private to the client, and that he did not believe he was engaging in estate planning. Clearly, said attorney had no concern as to the estate tax implications of the legal advice he provided and the documents he prepared. As a result of the Court of Appeals decision discussed herein I am willing to venture that said attorney will be making some important modification to his practices.

In the Estate of Saul Schneider, 15 N.Y.3d 306, 2010 N.Y. Slip Op.05281,the New York Court of Appeals on June 17, 2010, in reversing the decision of the Appellate Division, Third Department, made a significant dent in the strict privity rule which for decades had prevented a third party without privity (contractual relationship with the attorney) from maintaining a malpractice claim against the attorney, absent fraud, collusion, malicious acts, or a special relationship with the attorney.

In the Estate of Schneider, the attorney had represented the decedent prior to his death. During the period of representation the attorney allegedly failed to advise the decedent appropriately about a life insurance policy which the decedent had made transfers of the ownership thereof which was ultimately taxable in his estate upon his demise. The client had purportedly transferred ownership of the policy from a limited liability company to himself upon the advice of counsel.

The Court of Appeals held that “privity” or a relationship sufficiently close to “privity” exists between the personal representative of an estate, and the estate planning attorney. The Court opined that the personal representative of an estate should not be prevented from raising a negligent estate planning claim against the attorney who caused harm to the estate. The Court stated, “The attorney estate planner surely knows that minimizing the tax burden of the estate is one of the central tasks entrusted to the professional.”

The Court in support of its decision cited the decision of the Texas Supreme Court in Belt v. Oppenheimer, Blend, Harrison & Tate, 190 S.W 3d 780, 787, [Tex 2006]. In Belt v. Oppenheimer et al the Texas Supreme Court held that the estate essentially “stands in the shoes of the decedent” and thus, “has the capacity to maintain the malpractice claim on the estate’s behalf”. The Court also held that its decision complied with EPTL 11-3.2(b) which permits the representative of an estate to maintain an action for “injury to person or property” after that person’s death.

In deciding to relax the requirement of strict privity between the representatives of an estate and the estate planner, the Court of Appeals also made it clear that strict privity still remains a ban against beneficiaries and other third parties who wish to pursue a malpractice claim against the estate planner absent evidence of fraud, collusion, malicious acts, etc. While the Court may have not completely opened the door to suits for malpractice against the estate planner, they have sufficiently opened the door to increased malpractice claims.

In making the blanket statement that one of the central tasks entrusted to the estate planner is “minimizing the tax burden of the estate”, the Court failed to give any recognition to the possibility that there may be other objectives that to the client are more important than estate tax minimization which play a significant role in the planning undertaken.

Many estate planners can attest to the fact that the client may be wholly unwilling to undertake the recommended steps to minimize estate taxes espoused by the attorney, and that the client may have legitimate reasons for doing so. By its decision the Court has placed the attorney in the position of having to answer to individuals (estate representative) who may have played no role in the estate plan, and whom have no knowledge of the conversations between the attorney and client. On numerous occasions I have strongly recommended to a client that he or she gift their assets, utilize the annual personal exclusion and their lifetime gift tax credit (one million dollars per person), and the client although he had the means to do so, refused to do so. The gifting would have reduced the size of the clients estate, and minimized the potential for any estate taxes. However, the client preferred maintaining control over his or her assets. Said control in many instances is a significantly more important objective to the client than minimizing estate taxes. The Court’s decision now leaves the attorney engaging in Will drafting whether it be a simple or complex needing to document all of the recommendations made, the estate tax minimization options proposed, specify the clients stated objectives and delineate which steps he or she decided to engage in.

In the second part of this article, I will address some of the relevant issues the Court did not address in its decision, such as the statute of limitations and the continuation and or end of the attorney-client relationship. I will also address what steps attorneys can take to adequately address any potential estate tax issues the client may have, and to appropriately define the clients objectives and the steps taken by the attorney to address same.

We are now going down a very slippery slope in the attorney-client relationship with respect to Will drafting and estate planning. A slope that may very well change the dynamics of the attorney-client relationship.

Enea, Scanlan & Sirignano, LLP