The Gambler Breaks Even: Legal Malpractice in Complicated Estate Planning Cases

• Publication year: 2010

The Gambler Breaks Even: Legal Malpractice in Complicated Estate Planning Cases

Martin D. Begleiter

Introduction: On a Warm Summer's Evening on a Train Bound for Nowhere

One of the major developments in the law over the last 40 years has clearly been the increase in the number of lawsuits against attorneys for malpractice in estate planning. Legal scholars have explored the subject,[1] and the American Law Institute has also considered the issue.[2]

I have made several modest contributions to the literature on this topic.[3] In my first article, written more than 13 years ago, I discussed the development of attorney malpractice in estate planning, focusing on the decline of privity and the developments in the statute of limitations that favor plaintiffs.[4] I also discussed estate planning malpractice cases, which at the time primarily involved execution and simple drafting errors; courts generally allowed these actions to progress to trial and permitted recovery against attorneys.[5] Relatively few cases involving complicated legal errors had been decided when I wrote that article, and most of those cases involved tax planning.[6] Despite a few cases to the contrary, it was relatively easy to fit these cases into a developing framework that increasingly allowed malpractice actions based on the policy factors associated with the decline of privity.[7] My later article discussing damages in malpractice cases mentioned that attorneys prevailed more frequently in cases involving complicated legal errors.[8] In that article, I also stated that the most-often-litigated issue in the area of estate administration has been whether beneficiaries can sue the executor's attorney for malpractice; I speculated then that this question might be related to the effect of a violation of the ethical rules on malpractice.[9]

The time has come to examine the cases discussing "complicated legal errors"[10] and to determine if a unifying rationale underlies the opinions in these cases. Part I of this Article discusses the duty of the attorney and the standard of competence in estate planning cases to determine whether the complicated cases can be explained as an aspect of the scope of the attorney's duty or of the standard of care owed by the attorney to the client.[11] This Part finds that the concept of duty in attorney malpractice reduces itself to a public policy question and therefore neither explains nor predicts the results of the cases. This Part also finds that the standard of care, which (1) is based on expert testimony and (2) involves a broad range of competence, has little predictive power.[12]

After a brief review of the current status of the privity doctrine, Part II attempts to categorize the complicated legal errors by type and describe the cases within each type.[13] This categorization provides the basis for examining the courts' explanations. This Part discusses most of the significant cases but makes no claim to be exhaustive.

Part III discusses the main theory offered to explain the cases—the "ethical rules" theory,[14] which is based on cases involving will or trust beneficiaries suing the attorney for the estate. This theory provides that certain ethical rules[15] demand that the attorney not be held liable in malpractice to a beneficiary in all but the most obvious cases involving lack of competence.[16] This is because the potential for conflicts of interest will dilute the attorney's duty to the fiduciary, her client.[17] This Part analyzes this argument, both in terms of (1) whether the rationale of the cases involving a malpractice action against an attorney for the executor should be extended to cases against the attorney for the testator, and, more importantly, (2) whether the potential for conflict is of sufficient force to justify such a significant limit on malpractice liability. This Part also discusses cases evaluating and rejecting this argument.

Part IV considers Professor Bradley E. S. Fogel's excellent and thought-provoking analysis in a recent article based on the ethical cases, which argues that the cases allowing malpractice actions misperceive the attorney's role.[18]

After rejecting the ethical theory, Part V offers a different test that has recently begun to emerge in the cases, a test that I term the "evidence" test.[19] While bearing some similarities to Professor Fogel's analysis,[20] the evidence test does not similarly restrict malpractice liability. Moreover, as all courts and commentators agree on the "botched execution" case, the evidence test builds on that case to develop a workable yet flexible rule to decide most of the complicated error cases.[21] Part V also examines the Florida-Iowa rule, which limits recovery in malpractice actions to those cases in which the beneficiary can show violations of the testator's intent as expressed on the face of the will. In an earlier article, I heavily criticized this rule. In Part V, this rule is reevaluated as a possible early indicator of the evidence test, although inarticulately expressed.[22] Although this new test has potential problems in at least one type of case,[23] it appears to be flexible enough to appropriately decide most of the complicated cases. This Article will conclude with some thoughts as to the future use of the evidence test.

Before proceeding to the Article's main subject, I will briefly discuss the significance of malpractice litigation. According to the latest American Bar Association ("ABA") study,[24] although the number of claims filed in most areas of the law has remained stable since the ABA's prior study,[25] the frequency of probate and trust claims rose 1.08% in the same period.[26] Most parties do not take claims in this area to judgment.[27] In all, plaintiffs abandon 54% of claims without payment,[28] which contributes to a total of 68% of all cases resulting in no payment to the plaintiff.[29] Despite this, the number of estate, trust, and probate claims increased over the previous study, even though the previous study covered a longer time period.[30] The conclusion is inescapable that malpractice remains a significant consideration in estate planning.

I. Duty and Competence

A. The Concept of Duty

An attorney is liable, whether in contract or in negligence, only if he has a duty to the party making the claim.[31] Prior to 1962, attorneys were rarely held liable to beneficiaries or purported beneficiaries under wills because the rule was that an attorney owed a duty only to her client.[32] The legal community referred to this limit of liability as "strict privity."[33] At the time of this publication, only nine states retained the strict privity rule in estate planning cases.[34]

One would expect that examining the scope of an attorney's duty to third parties would provide an objective standard to enable a determination as to whether each type of estate planning error constitutes malpractice. Sadly, that is not the case. The concept of duty itself is a matter of policy.[35] Therefore, any discussion of duty in the cases tends to be very general and devoid of utility in determining whether specific conduct constitutes malpractice. In addition to applying the factors set forth in the seminal case of Lucas v. Hamm,[36] courts have stated, for example, (1) that "liability for negligence [should] not extend to an unlimited and unknown number of potential plaintiffs,"[37] (2) that "[t]he concept of duty is premised on what reasonable persons might recognize as fair" and the imposition of a duty "is ultimately a question of fairness,"[38] or (3) that the court must balance "the attorney's duty to represent clients vigorously . . . with the duty to refrain from knowingly making a false statement of material fact or law to a third person."[39] A recent estate planning case stated: "Duty of care is a question of law described as the total of policy considerations which lead to the conclusion that the plaintiff is entitled to protection."[40]

Because of these general descriptions of the concept of duty, any attempt to develop a test based on the scope of an attorney's duty to a third-party beneficiary of a will or trust appears destined to fail.

B. Standard of Care

If duty will not provide a predictor as to whether an estate planning error constitutes malpractice, a second natural inquiry is whether the standard of care an attorney owes to a client would furnish the test. While much literature exists on questions such as whether the ethical standards in the Model Code of Professional Responsibility ("Model Code") or the Model Rules of Professional Conduct ("Model Rules") determine the standards for malpractice,[41] specialization,[42] and locality,[43] unfortunately the standard of competence is useless as a predictor because it, like the concept of duty, is defined in extremely general terms.[44] The standard is that the lawyer "should exercise the skill and knowledge ordinarily possessed by attorneys under similar circumstances."[45] Expert witnesses often testify for both parties as to whether the attorney's conduct comports with the standard.[46] In addition to the standard lacking predictive power altogether, estate planning experts often disagree about many things. Moreover, "considerations of locality" are sometimes included in the definition's "similar circumstances," even though the standard of care should not vary depending on locality, and complications may arise from local rules, customs, and practices.[47]

Even when a court defines the standard of competence in more detail, the definition supplied rarely serves as an accurate predictor.[48] For example, a recent case involved the question of whether the attorney had a duty to independently determine the heirs of a testator for whom he drafted a will.[49] The court described the standard of care as requiring an attorney, when hired to prepare a will, to:

1) inquire into the client's heirs at law; 2) offer a proper explanation; 3) advise the...