Vol. 84, No. 12, December 2011
Thomas J. Watson, Marquette 2002, is senior vice president and director of communications at Wisconsin Lawyers Mutual Insurance Co., Madison. Contact him at com Tom.Watson wilmic wilmic Tom.Watson com.
Lawyers end up focusing on or concentrating in certain areas of law for different reasons. Maybe they enjoy the type of work, or maybe they think the kind of work in the practice area fits their skill set. Or, maybe they like litigation or realize they prefer transactional work instead of the drama of the courtroom.
Years ago, many lawyers chose to do estate planning because, among other reasons, there was not much litigation involved. Estate planners were not considered litigators, and they liked it that way. Those days are changing.
Tom Schumacher, of Bakke Norman in Baldwin, says, “I think many lawyers who have traditionally been involved in probating estates have not seen themselves as being involved in a litigation practice. That is no longer true. We are currently seeing many more disputes among beneficiaries than we have ever seen in the past. For solo practitioners and smaller firms, this has required referring matters out of the office or associating with trial counsel on particular matters.”
It’s a Different World
Just as our society has changed over the past decades, so too has estate planning.
For one thing, the faltering economy has affected family estates. Because real estate values have dropped over the past several years, there may be less to divide when it comes time to bequeath property, but as many estate planning and divorce lawyers will tell you, people sometimes fight harder when there is less to fight about.
Schumacher sees another dynamic to the economic forces at work in probating estates. “Many 60 and 70 year olds have retirement benefits and properties that were accumulated during good economic times, so there is plenty of property worth fighting about. With many family farms, you have some beneficiaries who have stayed on the farm and some who have not. Now that milk, crop, and land prices are high, nonfarm beneficiaries want a piece of the pie that for years they wanted no part of because there was a lot of work without much return.”
Second, the so-called traditional family has changed. Divorced people often remarry, and with new spouses often come stepchildren and other new family members. Brian Anderson, claims counsel at Wisconsin Lawyers Mutual Insurance Co. (WILMIC), says the malpractice insurance carrier has seen a four percent increase in the number of malpractice claims related to estate planning over the past five years, and the amount of money the company has paid out in claims in this area has nearly doubled during that same time. He says with the new family dynamics involved, such as stepchildren and second and third spouses, lawyers have to be especially cautious. “More people may be anticipating a ‘piece of the pie,’ and even when the lawyer is careful,” Anderson says, “the chances of someone being unhappy with Dad’s or Mom’s wishes increase. And often the lawyer is the target of their discontent. Sometimes its adult children or stepchildren thinking they helped Mom or Dad over the years, and now it’s time for their reward. Whenever an unrelated beneficiary is named in a will, the lawyer who drafted the document should expect increased scrutiny.”
Schumacher adds, “There seem to be more second-marriage situations – both short and long term – with children from both marriages. Mom and Dad were comfortable with the plan but the children are not. Based on our experience, we are exploring not only the normal estate planning issues, but we are also going into more depth regarding family dynamics. This involves considerably more time being expended with the clients and much more individualized estate plans. Typically, the legal and tax aspects of the estate plans are not where the problems arise. Rather, it is the family dynamics that are causing the disputes. In many circumstances the lawyer has been involved with multiple family members on different legal matters over the years. That provides another complicating factor and numerous conflict issues.”
Because of family squabbling, third-party claims are becoming more frequent in estate planning, according to Anderson. In fact, they were more common in the estate planning claims he has handled in the past year than direct client claims. “This makes estate planning far more prone to malpractice claims than ever before. During the past five years, estate, trust, and probate work is number one on our list of practice areas for claims frequency, beating out plaintiff personal injury work, which traditionally has been at the top of the list.”
Estate planning claims usually fall in one of the following general categories:
1) Undue influence. Whenever beneficiaries are treated unequally, the possibility exists that some family members will end up dissatisfied. The adult children may disagree on the terms of a trust, and the lawyer becomes the target. Anderson says, “This often happens when one child is favored with money or assets, or when a parent builds in a spendthrift provision to prevent that child from frittering away the estate. Lawyers are sometimes seen as assisting Mom or Dad in making these choices. That’s when a claim of undue influence may arise.”
When in doubt, ask yourself these questions: Who is my client? If someone is being disinherited, is everything documented in writing? Are there any competency issues that could be raised to attack the estate plan if someone is not happy with my client’s decisions? Am I satisfied that my clients truly acted under their own free will with regard to all of their estate planning decisions?
2) Scope of retainer. What was your client’s intent? What are you retained to do? And not do? A lawyer might draft a trust but fail to make sure the trust is funded properly. Sometimes, a lawyer may substitute his or her knowledge of the deceased’s intent for what is written in the documents. The lawyer thinks it is okay because he or she was “on the same page” with the client. But the document will speak for itself and controls the estate plan. A lawyer’s knowledge of what he or she believes the client wanted, and what is actually in the document, may not be the same. Anderson says, “We have seen a number of claims arise when the lawyer’s opinion about what Mom or Dad wanted is not entirely consistent with the documents. This can really be problematic for the lawyer. Disenfranchised beneficiaries will almost certainly target the lawyer in these circumstances. Absent any ambiguity in the estate planning document, the probate court will not reform the document to try and ascertain the testator’s intent.”
3) Proofreading. What happens if the will contradicts terms of a trust? Sometimes a client amends estate plan documents or the will or trust piecemeal and the lawyer does not review the entire plan. This might result in contradictory terms or at least some inconsistencies. Anderson cautions, “Be sure you proofread. Make sure the documents all properly reflect the testator’s intent. If there is some question as to whether they do, or if inconsistencies turn up, you as the lawyer could be targeted.”
Supervision is also important. In some law offices, nonlawyer employees draft estate planning documents. This may result in a mistake or a scrivener error not known to the lawyer. If a son is accidently disinherited, he will turn to the lawyer to get his fair share. Anderson explains, “You may discover later that oversight or a mistake by a staff member who prepared a codicil changed not only the name of the personal representative, but also beneficiaries of the estate. Then you have a problem. You are the lawyer. Make sure everything is done precisely and properly.”
4) Pressure from beneficiaries. Often there is a tug-of-war that a lawyer has to delicately balance. On one hand, there may be pressure from beneficiaries to wind up the estate quickly so they can get their money. On the other hand, the lawyer has the duty to make sure the estate is settled properly.
“A lawyer is sometimes pressured by a beneficiary to pay them from the estate quickly,” Anderson notes. “They want what they believe belongs to them. In today’s economy, they sometimes need that money immediately to make ends meet. However, a lawyer must first make sure all the liabilities are accounted for. We’ve seen beneficiaries get paid more than they were entitled to, resulting in others getting less. This generally results when the lawyer has misread the will and is being pushed to distribute the money. Unfortunately, seldom do any of the ‘overpaid’ beneficiaries have any money left to pay back the estate when the error is found. That’s when a malpractice claim is sure to arise.”
Other Red Flags
There are several other potential problem areas of which estate planning lawyers should be aware. They include the following:
• Special needs trusts. These are unique in the trust world. Do not create one unless you have the necessary expertise.
• Late filing of estate tax returns. A lawyer who misses a deadline may end up having to pay interest and penalties on behalf of the estate.
• Land contracts. WILMIC had a claim in which a lawyer used the wrong payoff for a land contract paid off to the estate and consequently prepared releases of two parcels of real estate when only one land contract was paid off.
• Charitable gifts. What if the personal representative mishandles the estate and subsequently a charity, during the probate process, claims that assets in the estate were not wisely invested and its share should have been larger? If the personal representative and the lawyer are friends, the charity might bring a malpractice claim against the lawyer.
• Tax consequences. Estate planning lawyers often do not know all the tax consequences and fail to plan properly. Sometimes a lawyer might not even know the estate is taxable. Rules change. Be careful. If you lack tax expertise, try to refer the work to a tax expert.
Schumacher suggests the trend in estate planning may actually present lawyers with new opportunities to serve the public. “One area that lawyers might consider as a possible niche for expanding their practice is probate/estate mediation. The characteristics of an estate dispute are similar to those involved in family law and other litigation matters. Many times a mediation setting would present a better forum for resolving such disputes.”
Estate planning work can be satisfying and fulfilling. Helping clients sort out their financial affairs and disperse their estates in accordance with their wishes can be rewarding. But keep in mind, this is an area of practice that has changed and continues to evolve. How averse are you to litigation? As an estate planner, you may not consider yourself a litigator. But litigation is becoming more frequent in this area of the law.
When doing this work, keep the following in mind:
• Families are changing. Be prepared to deal with fractured families, stepchildren, second and third spouses, and unhappy, disenfranchised beneficiaries.
• A malpractice claim can be brought by someone who was not your client. Third-party claims are becoming more frequent in this area of practice.
• Clearly identify who your client is. Make sure everything is in writing and ask yourself if there are any potential competency issues.
• Spell out the scope of your retainer, and understand your client’s intent.
• Proofread, especially if a staff member helps with document drafting.
• Do not succumb to pressure from beneficiaries who want their money quickly.
• Make sure you have expertise when dealing with special needs trusts, tax consequences, land contracts, and charitable gifts.
You will be a much happier (and better) lawyer if you take these precautions. Your client should be happier too. And a happy client means you will not have to call your malpractice insurance carrier.