What Is An Estate Planner To Do Without The Protections Of Strict Privity?
By: Anthony J. Enea, Esq. *
Since the New York Court of Appeal’s decision in Schneider v. Finman (15 N.Y.3d 306, 2010 Slip Op 5281 on June 17, 2010), estate planners have been wringing their hands with concern as to what steps they can take to protect themselves from potential malpractice claims by the personal representative of an estate.
As was discussed in the first part of this two part article, the Court of Appeals held in Schneider that “privity” (a contractual relationship) or a relationship sufficiently close to “privity” exists between the personal representative of an estate and the estate planning attorney. The Court held that the personal representative of an estate should not be prevented from raising a malpractice claim against an attorney who caused harm to the estate. With very little fanfare the Court made a significant dent in the decades old requirement that there be “strict privity” between the third party alleging malpractice and the attorney, absent fraud, collusion, malicious acts or a special relationship with the attorney. As if the aforestated was not sufficiently worrisome for the practitioner, the Court went on to make the troubling statement that “The attorney estate planner surely knows that minimizing the tax burden of the estate is one of the central tasks entrusted to the professional” (Schneider, at page 4). While the Court may have been correct in making this observation with respect to the facts presented in the case before it, the ramifications of such a general and conclusory statement may be beyond what the Court ever envisioned. Additionally, it may have been incorrect for the Court to assume that minimization of estate taxes is the “central task” in every estate plan. How many of us have had a client say something to the effect, “Let the kids worry about the taxes, I am leaving them enough”.
The decision in Schneider impacts all attorneys that prepare Last Wills and Trusts, not just those that prepare sophisticated estate plans for the wealthy. In states that have not had a “strict privity” requirement, the numbers of malpractice claims against estate planners and Will drafters have been high. Any attorney who drafts Last Wills and Trusts will not only need to insure that there is no malpractice in the preparation and execution of the documents, but also insure that all potential estate tax issues have been thoroughly reviewed with the client. While the majority of estate planners take the necessary precautions, it doesn’t hurt to periodically review one’s practices, procedures and communications with the client to ensure that the best possible practices and procedures are followed.
The following are some of the steps attorneys should consider utilizing in order to avoid a potential malpractice claim by the Personal Representative of an estate:
(a) Obtain specific and detailed information about the client, his or her family and the client’s assets. The attorney should consider sending to the client a questionnaire that is to be completed by the client. It is important to not only obtain information about the value of the client’s assets, but, specific information as to the title in which all of the client’s assets are held. One should ascertain whether said assets have named beneficiaries or will pass by operation of law upon the death of the client. When dealing with IRA’s, 401K’s, annuities and life insurance policies one should obtain information as to the owner, annuitant, insured and beneficiary. It is important to obtain information as to all of the beneficiary designations. A review of all of the clients account statements should be considered. It is not unusual for clients to be mistaken as to title of and the beneficiaries of accounts;
(b) Obtain copies of all Wills, Trusts and other advance directives executed by the client. It is important to ascertain whether the proposed plan is a significant departure from the client’s prior estate plan, and whether the client has decided to exclude from his or her plan, individuals that may potentially contest the Last Will or Trust;
(c) In those cases where there exists the potential for Federal and or New York estate taxes, it is most important that the attorney strongly consider memorializing in writing that which he or she has advised as to the potential for estate taxes, and the anticipated impact upon the clients’ estate;
(d) Memorialize the various estate tax minimizations options you have reviewed and recommended to the client. For example, if you reviewed with the client a plan of gifting (charitable/non- charitable) Life Insurance Trusts, GRATS, Family Limited Partnerships, QPRTS or other estate planning options, delineate said options in writing to the client, and whether or not the client has opted to utilize said techniques.
It is important to consider having the client(s) sign a document (memorandum/letter) wherein you have delineated all of your planning recommendations, to confirm that the client has been advised of said options and has decided not to utilize them. Such a writing could act as a potential deterrent to a claim by the estate’s personal representative as it could act as a “waiver” by the client;
(e) Memorialize the fact that the planning you have recommended and the client has agreed to utilize will result in the clients assets being included in the client’s gross taxable estate for estate tax purposes. For example, when preparing a deed with the reservation of a life estate, Irrevocable Income Only Trust or a Revocable Living Trust, the client may incorrectly assume that because the asset is no longer titled in his or her name, that it is not taxable in his or her estate for estate tax purposes. Again, consider having the client sign a letter or memorandum acknowledging that he was appraised of same;
(f) Memorialize that you have relied upon the information provided by the client to conclude that there is or is not the potential for estate taxes. The client should be instructed to advise the attorney of any significant changes in the value of their assets;
(g) Memorialize that you have personally reviewed all of the documents with the client(s), and that the documents were the only documents that the client agreed to have you prepare;
(h) Create a checklist of the steps to be followed by you, associates and staff for the execution and assembly of the Last Will and Trust documents. This should help reduce any potential errors at the time of execution and assembly of the documents.
It is also advisable to create and follow consistent procedures for the review and modification of any drafts of the Will and Trust documents;
(i) Memorialize that your representation has been terminated once you have completed providing legal services to the client. This is usually confirmed in the correspondence wherein either the executed original or copies thereof are sent to the client. The relevance of officially terminating the relationship is to potentially commence the tolling of any statute of limitation for any claims of malpractice.
The issue of commencing the tolling of the statute of limitations is of particular interest to attorneys who regularly communicate with the client after the conclusion of their representation to keep the client apprised of any changes in the laws or of any other issues of interest. For said attorneys it may be advisable to include language similar to the following in their termination letter:
“I wish to confirm that we have terminated our representation. In the future you may periodically receive correspondence from us, said correspondence is for informational purposes only, and is not the continuation of our representation.”
In conclusion, utilizing all or some of the aforestated is not a guarantee that you will never be subjected to a claim of legal malpractice. However, the aforestated steps should help minimize the potential for a claim and the number of claims filed. Clearly, the Court of Appeals has made a determination as to what our “central tasks” are, and has placed the onus upon the attorney to take all of the steps humanly possible to minimize negligence and address those tasks. The decision in Schneider will naturally result in attorneys taking numerous steps and precautions to avoid malpractice, doing so may inevitably result in additional legal fees to the client. I hope I am mistaken, but, this seems to be eerily familiar to what happened to the medical profession. We can only speculate as to what the Courts will next determine to be a “central task” entrusted to the attorney.