Elderly Man's Malpractice Suit Over Estate Advice Dismissed
This recently published story, Elderly Man's Malpractice Suit Over Estate Advice Dismissed, underscores the "damned if you do, damned if you don't" risk inherent to the estate planning field and why even the slightest whiff of a client's diminished mental capacity has to be treated very, very seriously.
On the one hand, you can get sued for allegedly luring your very wealthy, but also very elderly, client into too much estate planning, i.e., transactions that may save millions in estate taxes, but are too complex for the client to understand and thus not something the client would have agreed to if his or her lawyer had adequately explained all the various permutations of the proposed planning strategy. That's essentially what happened in the case discussed in the linked-to article, as excerpted below:
A Manhattan appellate court has dismissed a legal malpractice suit on behalf of an elderly man who claimed his lawyers misled him into signing away control of his estate, but a dissenting judge said the majority's decision "risks undermining the confidence of the public in the profession."
Jack E. Maurer, who died last year at age 86, sued the firm formerly known as Goodkind Labaton Rudoff & Sucharow in 2003 for allegedly failing to explain to him the import of estate planning documents he signed. He also claimed the firm was conflicted because it represented his wife Rona, who he named as a co-defendant in the suit.
According to Mr. Maurer's lawyer, Lawrence H. Silverman, the documents at issue gave Ms. Maurer control over a trust containing her husband's major assets, a $12 million Central Park West apartment and a $3 million house in Quogue, N.Y., and placed restrictions on Mr. Maurer's access to other retirement funds.
But a four-judge majority of the Appellate Division, 1st Department, ruled Tuesday that, despite Mr. Maurer's "apparent failure to make any effort at all to read the documents," he was bound by the "clear and unambiguous" documents he signed.
On the other hand, you can also get sued by upset heirs if they think you didn't do enough to save taxes -- even if mom and dad explicitly told lawyer "to keep it simple." That's essentially what I think happened in a case involving one of Florida's most well respected law firms, which I previously wrote about in Gannett Newspaper Fortune: Probate Administration Malpractice Update #2.
Lesson learned:
Estate planning can be very complex, involving esoteric tax concepts, lengthy trust instruments, complex financial and insurance arrangements, etc. Estate planning can also involve very elderly clients. Combine these two elements and you end up with the type of "perfect storm" ethics conundrum that is loads of fun in law school, but extremely challenging to navigate in real life. Florida Bar Ethics Rule 4-1.14 (Client Under a Disability) offers little real concrete guidance, and as far as I can tell their isn't much on-point case law out there either. See The Florida Bar v. Betts, 530 So.2d 928, 13 Fla. L. Weekly 579 (Fla. Sep 22, 1988); Vignes v. Weiskopf, 42 So.2d 84 (Fla. Jul 19, 1949).
I think the best anyone can do is to be on the look out for warning signs of incapacity and incorporate appropriate safety measures into your office procedures -- and your engagement agreement -- to manage this risk as much as possible. For example, the following is the "diminished capacity" portion of my firm's standard engagement agreement:
The ethics rules that govern attorneys state that if you become unable to make adequately considered decisions, whether because of mental disability or other reasons, we may attempt to continue a normal attorney-client relationship with you as much as is possible. Those rules also state that we may seek the appointment of a guardian or to take other actions to protect your interests if we reasonably believe that to be necessary.
You can designate other persons to act on your behalf under a durable power of attorney and to make decisions for you concerning your estate planning, such as making gifts of your assets and signing trust agreements on your behalf. If you authorize someone to act on your behalf, and if we believe their authority is broad enough to allow them to instruct us on your estate planning, you agree that we can continue to do estate planning work for you by dealing with them, and that we can rely on instructions from them. You agree that we can communicate with them and disclose information they need to make informed decisions on your behalf, including information that is protected by the attorney-client privilege. However, if we believe that they do not have the authority to act on your behalf, or if we believe they are not acting in your best interests, we reserve the right to refuse to act on their instructions and instead to take whatever action that we reasonably believe is necessary to protect your interests.
