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    Managing Risk
    Estate Planning Work – Red Flags & Pitfalls

    Evolving family structures and increased life spans are contributing to estate planning's position as a risky practice area.

    Thomas J. Watson

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    Lawyers who have traditionally been involved in probating estates formerly did not see themselves as being involved in a litigation practice. That is no longer true. In the last five years, there has been an increase in disputes among beneficiaries. This trend is expected to continue.

    Just as U.S. society has changed over the past decades, so too has estate planning. There are risks that estate planning lawyers must be aware of when taking on these cases.

    Disenfranchised Beneficiaries

    Family members or other beneficiaries might not be happy with the directives in a will or trust. Even though these disenfranchised beneficiaries were not the lawyer’s clients, they can still sue the lawyer for malpractice. In Wisconsin, lack of privity does not bar a claim by a disenfranchised beneficiary under Auric v. Continental Casualty Co., 111 Wis. 2d 507 (1983).

    Thomas J. Watsoncom Tom.Watson wilmic Thomas J. Watson, Marquette 2002, is senior vice president and director of communications at Wisconsin Lawyers Mutual Insurance Co., Madison.

    Brian Anderson, senior claims attorney for Wisconsin Lawyers Mutual Insurance Co. (WILMIC), says, “Third-party claims are not uncommon in estate planning.” In fact, almost none of the estate planning claims Anderson has handled in the past couple years have been asserted by the lawyer’s actual client. “This makes estate planning far more prone to malpractice claims than ever before. During the past several years, estate, trust, and probate work is number two on our list of practice areas for claims frequency, beating out plaintiff personal injury work, which traditionally had been at the top of the list.”

    “The so-called traditional family has changed. Divorced parents are often remarried, with new spouses, new sets of step-children, as well as other newly connected family members. At WILMIC, we have seen a five percent increase in the number of malpractice claims related to estate planning since 2007 and the amount of money the company has paid out in claims in this area has nearly doubled during that same time.”

     Many older retirees have retirement benefits and properties that were accumulated over the course of many years, so there are plenty of assets worth fighting about.

    Anderson adds, “There seem to be more second-marriage situations both short and long term with children from both marriages. Over the past several years, we have seen not just the normal estate planning issues, but also lawyers going into more depth regarding family dynamics. This involves considerably more time being expended with the clients and much more individualized estate plans to make sure that the client’s intended distribution is understood and accomplished.”

    Almost none of the estate planning claims Anderson has handled in the past couple years have been asserted by the lawyer’s actual client.

    Instead of seeing legal and tax aspects of estate plans as the problem areas for lawyers, Anderson says more often the family dynamics 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 potentially numerous conflict issues.

    Anderson says with the new family dynamics involved, from step-children to 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, the chances of someone being unhappy with Dad’s or Mom’s wishes increase. The lawyer is often the target of their discontent after distributions have been made. Sometimes its adult children or step-children 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. In these circumstances, it is paramount that you document your client’s estate planning decisions in writing and encourage your client to advise his or her beneficiaries accordingly.”

    Estate Planning Risk Checklist

    When doing this work, remember the following:

    • Claimants who bring a malpractice claim do not necessarily have to have been your client. Third-party claims are becoming more frequent in this area of practice.

    • Families are changing. Be prepared to deal with fractured families, step-children, second and third spouses, and unhappy, disenfranchised beneficiaries.

    • Make sure you clearly identify who your client is.

    • Make sure everything is in writing and ask yourself if there are any potential competency issues involving the client.

    • Spell out the scope of retainer. What is the client’s intent?

    • Proofread, especially if a staff member has done some of the drafting.

    • Don’t 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.

    Four Common Pitfalls

    There are some general categories in which estate planning claims usually fall:

    Undue Influence. Anytime someone is disinherited, the chance of unhappy family members exists. The adult kids 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. The lawyer is blamed for favoring one beneficiary over another, and that’s when a claim of undue influence may arise.”

    When in doubt, ask yourself these questions: Who is the client? If someone is being disinherited, is everything documented in writing? Are there any competency issues that could arise if someone is not happy with the client’s decisions? Did the client truly act under their own free will with regard to all estate planning decisions and understand the impact on their beneficiaries?

    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.

    Scope of Retainer. It is important to know the terms of the representation. What was the client’s intent? What were you retained to do and not do? A lawyer may draft a trust but fail to make sure the trust is funded properly.

    Sometimes, a lawyer might substitute his or her knowledge of the deceased’s intent for what is written in the documents. The lawyer thinks doing so 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 belief as to what the client wanted and what is actually in the document might 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.”

    In addition, make sure to clearly identify the client. Document everything in writing and ask yourself if there are any potential competency issues involved with your client.

    Lawyers hired to “fix” mistakes made by their client’s former attorney in the drafting of an estate planning document risk being held responsible for errors that later complicate the intended distribution.

    Proofreading. Sometimes, the will contradicts the terms of a trust or the estate plan documentsor the will or trust is amended piecemeal without the lawyer reviewing the entire plan. This can 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. Some lawyers use staff to draft estate planning documents. This may result in a mistake or a scrivener’s error not known to the lawyer. If a child is accidently disinherited, you know where the person will turn to get his or her fair share. Anderson explains, “You may discover later that an 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.”

    Pressure from Beneficiaries. Often there is a tug-of-war that a lawyer must delicately mediate. On the one hand, there may be pressure coming from beneficiaries to pay them from the estate, to wind up quickly so they can get their money. On the other hand, there is the duty to make sure the matter is resolved 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. 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 asserted against the lawyer.”

    Other Red Flags

    There are several other potential problems of which estate planning lawyers should be aware. They include:

    Late Filing of Estate Tax Returns. A lawyer who misses the deadline may end up having to pay interest and penalties on behalf of the estate.

    Tax Consequences. Estate planning lawyers often don’t know all the tax consequences and fail to plan properly. Sometimes a lawyer may not even know the estate is taxable. Rules change. Be careful. If you don’t have the expertise, refer the work to someone who does rather than trying to do it yourself.

    Contributory Negligence. Lawyers hired to “fix” mistakes made by their client’s former attorney in the drafting of an estate planning document risk being held responsible for errors that later complicate the intended distribution. Anderson cautions, “Be careful jumping in late trying to ‘save’ an estate plan as you could potentially be held responsible for the errors that were created by the original lawyer’s work.”

    Conclusion

    Estate planning work can be satisfying and fulfilling. Helping clients sort out their financial affairs and disburse their estate according to their intent has its rewards. But keep in mind, this is an area of practice that has changed and continues to evolve.

    You will be a much happier (and better) lawyer if you take the precautions discussed here. And your client should be happier, too. A happy client means you won’t have to call your malpractice insurance carrier.