Probate Law and Legal Ethics

INTRODUCTION

One of the most trusted advisors in our society is the attorney. Although attorney jokes are rampant, the fact remains that most people are not well versed in general provisions of the law, not to mention the various specialties that require a great deal of expertise. These specialties are the finer points of the law, the areas where there is the most complexity. One area in particular comes to mind when considering how much trust people put into an attorney’s hands – estate planning.

When we die we want to be sure that our possessions and property go to the people we desire to have them. Some people take this matter into their own hands and dispose of their property by gift or similar scheme. Still others die intestate and their possessions are distributed by operation of law. But, the majority of people (at least those with some money) have an attorney draft a will, trust or other form of estate plan.

When an attorney aids in planning an estate there is usually more to it than just the drafting of the will or trust (“estate plan”). The attorney (“estate planner”) usually takes more of a role. Most times the attorney becomes a trusted advisor and in some situations, a confident. It is because of this blind and unwavering trust, that an attorney may run afoul of the ethical norms either intentionally or negligently. Given great deference by their client an attorney can offer advice that may frustrate the client’s intent, or he may make a simple mistake that can cost the client’s heirs. But whatever degree of culpability or the outcome, the attorney’s bad advice is the root of the problem.

Problems arising from an attorney’s involvement in the estate planning process have been an issue in recent years. In 1983, the American Bar Association amended the Model Rules of Professional Conduct to reflect the concern over attorneys exerting undue influence on their estate planning clientele. Rule 1.8 states that a lawyer shall not prepare a will or estate plan for a client if the instrument will make a gift to the lawyer, his spouse, his children or his parent, unless the lawyer is related to the client. This rule only addresses the limited situation of when an attorney drafts a client’s will and benefits from it. But what about other situations?

In 1991 a California court faced a problem stemming from an estate planner’s bad advice to a client’s wife after his death. In Estate of Liccardo, the decedent was an attorney himself, although not versed in estate planning so he hired an attorney to plan his estate. He intended for his home to pass to his wife, but things did not work out as planned.

His attorney advised him to deed his separate property home to his wife and himself as community property. Following the decedent’s death, his wife consulted the same attorney for help probating her husband’s estate. The attorney told her that she did not need to include the home in the inventory of estate property, that it was hers. As a result of this advice she did not include the house in the inventory of the estate.

Following a malpractice action against the decedent’s estate , a $2.5 million award was made and the plaintiff recorded an abstract of judgment against the estate. The decedent’s wife, now the attorney’s client, attempted to claim a probate homestead for the home, but the court held that since it was not in the original inventory of the estate, it was too late now. The home was not subject to a probate homestead and it was unprotected from the judgment against the estate. As a result, Mrs. Liccardo and her children lost their home.

There never was a malpractice action against Mrs. Liccardo’s attorney. But what if she had filed an action? Would she have been able to recover damages based on her attorney’s negligently offered advice? How about her children? Would they be able to sue the attorney as third-party beneficiaries? What liability does an attorney really have in advising a client in a highly specialized filed, like estate planning? These are the questions I intend to explore in this paper.

ADVICE IN GENERAL

Generally, in the context of estate planning, the client will ask his attorney for advice on disposing of a piece of property or most of the time, about the tax consequences of a particular devise or transaction. The attorney will respond, and affirmatively, propose a course of action. Many claims for attorney liability based bad advice in estate planning will probably succeed in showing that there was in fact advice. Most attorneys will not contest the claim on that basis, but will find another angle from which to attack. Nonetheless, it is important to understand the foundation of the client’s case.

It may seem like an attorney’s job and perhaps their duty to advise a client on legal matters. The American Bar Association (“ABA”) Rules state that “[i]n representing a client, an attorney shall exercise independent professional judgment and render candid advice.” The comments to the Rules clarify that by using “shall” in this rule was intended to give the attorney an affirmative duty to advise his client, but only when asked unless it is clear that the client intends a course of action that the attorney knows will be detrimental to the client. In this instance, an attorney must advise his client of the possible outcomes.
Although the Rules are silent on precisely level of care an attorney must exercise when advising his client, they do lay out the general duty of care an attorney owes to his client as, “competent representation,” consisting of, “the legal knowledge, skill, thoroughness and preparation reasonably necessary for the representation.” But mere competence in offering advice may not be enough in the estate-planning context.

The level of competence required of estate planners, at least in California, can be summarized as the, “skill, prudence and diligence as attorneys of ordinary skill and capacity commonly possess and exercise in the task which they undertake.” Further explanation in case law provides that an attorney does not need to be perfect, and he does not ordinarily guarantee that his advice will be 100% fail proof. This boils down to a standard of care that, from an objective point of view, is just as tough (or lenient depending on your particular stand) as there is in any other legal specialty: that of the reasonably prudent person engaged in that specialty. But, subjectively, from the estate planner’s point of view, the standard is much higher than that of other legal specialties. For an estate planner to meet the reasonably prudent person standard he must meet the same criteria as a reasonably prudent estate planner, not any reasonably prudent attorney.

The California Court of Appeals for the Second Circuit took this notion one step further in Wright v. Williams. Although it is not an estate planning case it is still important in many contexts, especially for estate planners because from this case came the rule that an attorney who undertakes a case in a highly specialized field, is held to a standard of care (and knowledge) of a specialist in that field.

It is quite arguable, if not certain, that estate planning is a highly specialized field. There are numerous areas of law that convene in estate planning law. A qualified and competent estate planner should know a bit (if not a lot) about the various areas of law that convene in estate planning such as: community property (in community property states and non-community property states), real property, family law and tax. This list is not exclusive, as in particular transactions and/or areas of the country, an attorney may need to know more. However, it is extremely important that an attorney practicing estate planning must be at least fairly comfortable with these few areas.

Once this higher standard of care is established, an attorney has an obligation to perform the duties in conformity with this standard. If it is in dispute whether the attorney has performed his duties in alignment with the standard of care, an expert (generally a specialist in the same field) will evaluate the situation. In some cases, it is so clear that the attorney did not perform his duties properly, and he will be found to be in breach of his duty.

LIABILITY TO THE CLIENT

Obviously, when a client employs an attorney, and the attorney commits malpractice, he will be liable to his client. What isn’t so clear, however, is what liability an estate planner has for bad advice given to his client. Fortunately for estate planners, clients very rarely pursue a claim for malpractice in this area, since a cause of action does not accrue until discovery of actual injury. The reasoning here is so simple, it’s actually quite alarming: most estate planners aid their clients in wills and other documents related to property disposition upon death. They advise clients and clients make decisions relying on that advice. The final documentation contains elements of the attorney’s advice.

The bad advice generally won’t have any legal effect until the estate plan goes to probate or is denied probate (in whole or part because of the attorney’s advice). At that point it’s too late for a client to sue an attorney for the malpractice, most obviously because he is dead. Although the estate’s administrator may pursue an action on behalf of the estate, this is not very common, mainly because of problems with the statute of limitations. Perhaps the absence of estate filed claims can be explained by the absence of the testator, the only person, besides the attorney, who can really know what advice was given to the client.

While a client is alive and wants to pursue a claim for malpractice based on an attorney’s bad advice, there is a great deal of ambiguity surrounding the attorney’s liability. Most of the controversy arises from the definition of “bad advice.” What exactly constitutes bad advice? It appears that bad advice varies from one context to the next, and may be interpreted differently in different areas of law, as well as different jurisdictions.

A clear case of attorney liability for bad advice actually involves the decedent, an attorney, in Liccardo. Following the death of Liccardo, his estate was under financial attack for a malpractice claim. This claim was a result of bad advice he gave to a cousin, and client, Edmond Mirabito. Mirabito told him he was getting ready to retire and asked for advice in planning his estate. Liccardo persuaded him into making several large investments, rather than providing him with a simple estate plan. In total, $1.5 million of Mirabito’s money was invested in various projects based on Liccardo’s advice and personal assurances of success. Needless to say, a substantial amount of Mirabito’s money was lost.

While Liccardo was still alive, Mirabito instituted a malpractice action claiming that Liccardo had breached his fiduciary duty (negligence) when he gave the bad investment advice. Ultimately, Mirabito prevailed and secured a judgment against Liccardo’s estate. Although this case is not a typical estate planning case, it is important to note the consequences of giving advice to a client, even if the attorney does not believe he is acting in his capacity as an attorney. When approached by a client for estate planning services, whatever the attorney says next (in the way of advising the client) may have a substantial impact on his liability in subsequent malpractice actions. If a client asks for advice on a matter, it is best to advise the client (whether relative or not) with the client’s best interests in mind. Liccardo made the mistake of advising his client his own interests in mind, thus exposing himself to liability for bad advice.

LIABILITY TO A THIRD-PARTY BENEFICIARY

By previous standards in the United States, a defendant could not be held liable to a third party because privity of contract was lacking. This was particularly felt in the context of third party beneficiaries under a will. The defendant in legal malpractice cases had no duty to the third party since that party was not his client. Although the law has changed dramatically in the past two hundred years, there still questions about the question of what liability an attorney incurs to a third party for bad advice he gave to his client.

The California Supreme Court has consistently held that an attorney who fails to fulfill a client’s testamentary wishes can be held liable to the third-party beneficiaries under the will. This does not, however bar the possibility that the third-party beneficiary may recover under a malpractice theory of liability for the duty of the attorney owed directly to him. How did California come to accept this as law? How do we justify a finding of liability absent privity of contract?

In the pivotal California Supreme Court case of Biakanja the defendant drafted a will incorrectly and, subsequently, the will was found to be invalid and could not be probated. It was because of the defendant’s negligence that the will was improperly attested to, and the beneficiaries would not take property under the will. The Court found the defendant liable to the plaintiffs and said that the third party beneficiary of a transaction is owed a duty if the “end and aim” of the transaction was to benefit the plaintiff and the injuries to him caused by the defendant’s negligence were foreseeable.

The Court announced a list of various factors for deciding similar cases. To determine if the defendant will be held liable to a third person not in privity is a matter of policy and involves the balancing of various factors, among which are, “1) the extent to which the transaction was intended to affect the plaintiff, 2) the foreseeability of harm to him, 3) the degree of certainty that the plaintiff suffered injury, 4) the closeness of the connection between the defendant’s conduct and the injury suffered, 5) the moral blame attached to the defendant’s conduct, and 6) the policy of preventing future harm.”

This test was approved and applied in a number of California cases. In Lucas v. Hamm (and Heyer ) the Court held a negligent drafter of a will liable to third-party beneficiaries. The attorney who drafts or prepares a will owes a duty to the beneficiary as well as the testator. “When an attorney undertakes to fulfill the testamentary instructions of his client, he realistically and in fact assumes a relationship not only with the client but also with the client’s intended beneficiaries.” If the attorney drafted or prepared the will negligently and the intended beneficiary lost a benefit because of the negligence, the beneficiary should recover for the negligence. If the third party is unable to recover, then “no one would be able to do so and the policy of preventing future harm would be impaired.”

After these cases, other California cases came up which expanded an attorney’s liability to third-party beneficiaries of wills. Of course, none of the estate planning cases state specifically what liability an attorney has to third party for the advice he gave his client when the client is dead and there is no tangible evidence that the attorney gave the testator bad advice. But there is a vast wealth of law from other types of cases that may provide some guidance.

For instance, it is a well-established rule of law that a third party beneficiary under a contract may recover for breach of the contract. The third party beneficiary will recover on the contract. The imperative question here is whether there was “intent to benefit” the third party. Clearly, in a will, the third-party will be an intended beneficiary,

Also, from contract law, we see that an attorney who advises his client about one part of a contract, will typically be required to read the entire contract and give his advise as to the whole, not part. Thus, an estate planner will probably have to let his client know of possible ramifications of certain provisions of his estate plan, even if they only affect third parties.

This liability does not extend, however, to beneficiaries of a contract that are not known to the attorney or are not foreseeable beneficiary/plaintiffs. For example, an attorney does not necessarily need to keep the interests of a corporation’s shareholders at the forefront of his mind when advising the corporate client, even if the advice is to the detriment of the shareholders. This is because the attorney merely deals with the shareholders “at arm’s length” and to impose a duty to evaluate every piece of advice with these people in mind would make the attorney liable to a much greater group of people. But, this is not like an estate plan because the attorney will know the beneficiaries; they will not be a nameless, faceless group.

In a personal injury case, an attorney may have to advise his client’s spouse that he or she has a cause of action for loss of consortium, even if it expressly stated that the spouse is not the client. Despite lack of privity, the attorney still has to keep the spouse’s interests in mind when advising his client, as an estate planner does when drafting an estate plan with specific beneficiaries.

The factors in Biakanja are extremely important and play a role in determining an attorney’s liability to third parties in many types of cases. The “intent to benefit” standard in contract law and the Biakanja factors make extending liability here much easier than it was previously, and in evaluating a liability case, the factors usually provide guidance.

SHOULD LIABILITY BE IMPOSED?

Returning to Mrs. Liccardo, what should happen in a situation like that? It is quite arguable that Mrs. Liccardo could have pursued an action against her attorney for his bad advice. As an estate and probate attorney he was held to a higher standard of care, that of an attorney in a specialized field, sort of like an expert. Had he done his due diligence work, clearly he should have been able to uncover the laws that were applicable to the homestead estate and he could have given her better advice. The whole mess could have been averted.

What about Mrs. Liccardo’s children? Should they have a right to sue the attorney for his bad advice? If Mrs. Liccardo were to die today, the children probably would be able to pursue a cause of action against the attorney for negligence. Of the Biakanja factors three are key here: they would be beneficiaries, Mrs. Liccardo’s would intend to benefit her children under the will and as a result of the attorney’s bad advice (given negligently) they would lose out on something that should have been in the will. The Biakanja factors will continue to provide a valuable tool in evaluating third-party beneficiary claims for many years to come.
POLICY CONSIDERATIONS

There are always policy considerations that play a role, in the courtroom and in the backs of every estate planner’s mind when looking at imposing liability on an attorney for malpractice. Of course, it is a given that an attorney may face liability for advice he gives to a client, but the more pressing and controversial issue is liability to a third party. Today, there are only four states that require privity between the plaintiff and the attorney. That means that the other forty-six states believe that recovery should not be limited to the attorney’s client, but should also be extended to cover a beneficiary on a will. But should that also include liability for bad advice, advice that the attorney gave to the testator, who ultimately made the decision?

On one hand, this type of liability would benefit those who lost money and/or property as a result of the mistake caused by the attorney’s bad advice. Instead of having to rely on the estate to bring the action (which would be necessary if there was a privity barrier) the third party can sue and recuperate his losses.

Attorneys practicing in this area would have more of an incentive to make sure that the advice they give to their clients is the best advice they can possibly give. This would profit not only the beneficiary of the will, but the client and the profession as a whole. There would be no horror stories like those in Liccardo.

Finally, allowing the beneficiary to sue would help to effectuate the testator/client’s intent. If the problem with the will was a result of an attorney’s negligence, which was preventable, then why should the testator’s wishes be frustrated?

On the other hand, allowing these third party suits can pose several problems. First, and foremost, is the concern (and a rightful one) that disposing the privity barrier can cause a sort of “chilling effect” for attorneys engaged in this practice. If he can be exposed to numerous claims for “bad advice” he may be reluctant to even give advice at all (which can still lead to liability). But is this really a valid fear since the attorney is only liable to named beneficiaries in a will, not nameless, faceless people in the world?

If third-party claims in this area increase on the same scale now as they did in the 1980s , then we can expect a jump in the malpractice insurance attorneys practicing in this area have to carry. This in turn will increase costs to the client and his attorney. In some instances, the costs may be so extreme that an attorney may not be able to practice at all.

CONCLUSIONS

An attorney practicing estate-planning law must always be on the lookout for possible malpractice claims. That is not to say that an attorney must be hypersensitive, but he must certainly be on a heightened state of alert that most practitioners do not. The level of care an estate planner must use in his practice is one of the highest standards out there. He must keep the ethical rules and standards in mind when advising clients. Additionally he must be aware of many areas of law; family law, community property, taxation and real property, to name a few.

An attorney’s liability for bad advice in estate planning is somewhat ambiguous. If the client is the plaintiff, it is more likely that the attorney will be liable. But, he must still have breached a duty to his client for liability to attach. Without that breach, he is not liable for his “bad advice.” This will inevitably include what constitutes “bad advice” because if the attorney did not breach his duty of care, then he did not give bad advice, and vice-versa.

As for third parties, it becomes a bit harder to determine the scope of liability. Without the privity bar it is much easier for the beneficiary to recover, but he still must show that the attorney gave the testator bad advice, and as a result, he, the beneficiary suffered damages. The law here is very sparse and all that can be said with conviction is that the worse the “bad advice,” the more likely the recovery, the more affirmative the act, the more likely the recovery. When a case finally comes down the pipelines in which this hot-button issue is decided, there will be uproar.

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