ALPS In Brief – Episode 55: Estate Planning Gone Wrong

Hello and welcome. I'm Mark Bassingthwaighte, the risk manager here at ALPS, and you're about to listen to the latest episode of ALPS In Brief, the podcast that comes to you from the historic Florence building in beautiful downtown Missoula, Montana.

I've been thinking of late about estate planning issues, for as long as I can remember. In terms of looking at the national data, estate planning has always been in the top five practice areas of concern. It's never hit one or two, but it has certainly been in that four and five range for quite a long time. So it's a practice area that if you are practicing, you should be concerned about and I've had some lawyers visit with me and say, "You know, what are we seeing? What should we be concerned about?" Claims attorneys are certainly saying, "Hey, you know, we've got some problems," and so I thought it'd be worthwhile to spending a little time trying to issue spot perhaps for you, to give you some things to keep in the back of your mind about what should I be focused on in terms of just trying to avoid some of the common missteps that occur in the estate planning arena?

Let me start with a bit of perhaps a hypo or a short question. If a law firm represents two adults, they are a brother and sister, and they have handled various legal issues for one or the other over the years and then these two bring in their elderly parents for the purposes of having an estate plan drawn up. Kids are going to pay for it. Mom and dad have never been previously represented. Who is the client? One is tempted to say immediately it's the parents and I think that's probably the way it should play, but the issue becomes, what do the individuals involved believe? We are seeing a number of claims in the estate area where the insured believes the client is one person or a couple or something here, you know the estate planning setting, but the beneficiaries see it differently, and our insurers are really are not documenting and clarifying this issue with everybody to make sure that the role of the attorney is clear.

So I encourage you whenever you are involved in the estate planning process to upfront determine who your client is and document accordingly. But every bit as important is as you go forth in the representation, if there are interactions with others, potential benefi- ... or I should say actual beneficiaries here, the kids in this example, they are still likely to be involved and may have some discussions and whatnot, just checking in. They're paying the bills. We need to make sure that there's not some confusion evolving and if you ever see or have an experience, here is something that says that there might be some confusion about just what your role is, I strongly encourage you to stop and take a moment to clarify, and document, "Had a brief discussion with the two kids," or whatever it might be. Role clarity and really document who your client is, can be so, so beneficial.

The next area that I'd like to talk about is just perhaps dabbling, perhaps getting a little bit in over your head. We have seen in recent times a fair number of claims where the insured attorney, obviously, has erred in setting up a Medicaid trust. They just have trouble structuring these and then there's not the communication piece, for instance, with client that you must give up control and understand all the issues that are in play when you go in this direction. That's not thoroughly documented.

So I guess it brings up two things: Don't dabble if there is a portion of estate planning work, Medicaid trusts as being the example here, that you really aren't an expert on. Go out and get some help with that, politely decline, but don't wing it. Shooting from the hip is, in any practice area, is never going to turn out well. But I also liked this piece of saying, "You know, you really need to make sure the client understands the legal ramifications, understands exactly what's happening here," and that's very, very important.

How about just the misstep that occurs now and again? It's a drafting error. It's a typo. At times we see situations where the interest in the will did not add up to 100%. That there are consistencies in various sections of a document. There is a failure to include a residuary clause. There's ambiguities about which person or asset is being referenced. It gets back to just saying, "Look, folks, slow down, take some time, proofread." I know it's easy to cut and paste and work with other documents from a prior estate plan or something and just change. That's fine. I can appreciate the time-saving steps that go into play here, but if you make mistakes, taking these ... and I don't mean shortcuts in the sense of we're circumventing. It's fine to try to be as efficient as possible, but it's not an excuse to say, "Well, I don't have to read thoroughly and make sure the numbers are correct. That this makes sense." Maybe even having another person in the office read through to make sure, "Hey, are you catching anything?" because sometimes two sets of eyes are certainly better than one. So just a thought.

The next topic I'd like to share is we are seeing challenges by beneficiaries to wills or trusts. Challenge can the intent of the testator, and sometimes even when there is an error made and it has nothing to do with intent, the error that's been in there is sort of this opportunity to challenge some things in terms of intent. What I want to say here is, let's say it's somebody being disinherited and they want to challenge that. If we have not documented the file in terms of ... I say this in all kinds of contexts ... the advice being given. the decision-making process, we can have some problems if something is challenged down the road. So it would be very important to really document the why's behind the client is wanting to do what they're doing, whatever it might be. So another key piece of documentation.

But this disinherited kind of situation raises another warning sign, or perhaps another practice tip. I see that as a potential red flag, and there are times where ... obviously, we all know this ... testamentary capacity can be an issue, and one red flag is somebody being disinherited. You need to start to think, "Is there undue influence here?" or just what's going on.

So let's talk a little bit about testamentary capacity as well. The issue is important because sometimes the allegations are that an attorney breaches standard of care or fiduciary duty by failing to adequately assess a client's capacity. So what does this mean in terms of the capacity? You might think about asking open-ended questions and understand that the individual ... We're not physicians and there's no requirement that this person have an IQ of 168. There has to be a baseline, but we have to make sure that the person is at this baseline.

So what is that baseline? I start to think about things, fully understand, you're asking yourself this: Does the client fully understand the nature of making a will and the effects that his or her decisions will have in terms of the will-making process or the trust-making process? This individual needs to understand the nature and the extent of the property of which he or she is distributing to heirs or to trust, or charitable entities. The individual should have no mental disorder that would affect or damage the decision-making process. Obviously, they shouldn't be under the influence of drugs or alcohol, those kinds of things, and they really shouldn't be subject to any undue influence. We need to make sure. Sometimes, so taking a person into a private room for a conversation can help with that a little bit. But it's asking open-ended questions, even who's the vice-president. Just some general kinds of things just to make sure and then ask some questions about what they're doing financially here, what their wishes are. But again, open-ended questions help you determine whether they have the mental acuity to really proceed here.

But then on top of that, there can be some red flags. If this is a deathbed change and the disinherited situation, somebody being disinherited, could be another potential red flag. If there's a lot of fighting going on in the family; if someone is bringing the person in, a family member or somebody or even a non-family member, which I've seen more than a few times, they're trying to influence a push, "I've cared for my neighbor all these years and she wants me to have her home and what ..." These are red flags, and we may want to go even a little further than just asking some questions and, of course, documenting all of this. But if the red flags are there, I am really going to take some extra notes. I start to think about video recording the signing. You might even have a physician document that they've gone through with this individual and examined the person, does seem to have the mental capacity to proceed here.

Then depending on how significant these red flags are, I also say, "You know, do you really want to be the one that's putting a target on your chest?" I started to think maybe this is where I want to step out or bow out and terminate the representation because, again, just because you can move forward doesn't mean it's a good idea, especially if there's a real high risk that you're going to be pulled into some subsequent litigation and somebody might start to take a shot or try to take a shot at your malpractice policy as part of this process.

The final thing that I would toss out there is sort of the limited scope piece, which can come up sometimes, as lawyers were choosing to limit our scope, but at other times it can be client-driven limitations. But let me give you an example of where I'm going with this. It is, suppose I'll make myself the client and I've got some money, but I mean I'm not a Bill Gates, but I've got more than a couple of million put away and I keep this money pretty tight. It's sort of how much is enough and it's not quite, I'm almost there. But when I spend, I like to spend on the best and so I like to drink a fine wine now and again, and I have a very nice car out at the front of the house, and I want the best attorney in the estate planning arena to take care of me as I set up trust.

So I go out and hire you. You're the big name in the whole region and I'm excited about that. But, again, I want to hold some money close to my chest. So I will hire you to draft all these documents, but I am certainly more than capable of funding all this and I don't have to spend the money in terms of it's going to take you time and effort to do all this, I'll take care of it. Well, what happens down the road if you agree to do that? So you draft all this stuff off and away I go, I have my documents, but I never get the trust funded or it's incompletely funded, or some of the documents that I'm signing here aren't correct in terms of so it's not properly funded, and then I sue you.

The whole allegation is I have not been fully advised of the ramifications here. You see where I'm going? So I want you to think about the importance of documenting scope thoroughly and putting the parameters around, "I am going to do this. I am not going to do that." But one of the things that is confusing at times, I think, for some lawyers is there's this assumption: Well, because I am able to limit my scope, surely I must be able to limit my advice. I don't see anything in any ethics opinions or in the rules that say that's how this plays. In the malpractice world, I assure you, you can't limit your advice in this setting.

So if you are going to limit your scope, please, first off, thoroughly document that and then make sure that the client is fully advised about their piece. This is what they need to do. This advice actually is even limited to just limited scope representation. It can play out in the full-service model as well, but when clients still have things to do that are related to the work that you were doing, the matter that you have just finished your piece on or just concluded, they need to be advised and you should be clear or thorough in documenting that you've had this conversation, or you've sent a letter out, or you can do this via email. I mean, it doesn't really matter to me how you get there, but we need some documentation they have been advised so they can't turn around and say, "Well, this is your fault that I was wrong. I didn't realize that this thing had to be funded." I mean it could be that crazy. Please understand it doesn't matter whether the claim turns out to be this very viable claim with a large loss or not. The allegations are there, defense is in play, at a minimum, and there may be some losses. We're just going to have to look and see what does the documentation look like in a file.

So what are some of the takeaways with all this? I just want to review briefly, again, please make sure that you are clear in your head and with any individuals you are dealing with who the client is and, at times, we need to document to who the client is not and then stay the course. It is very important to document scope of representation and make sure that clients are fully advised if you are limiting your scope to some fashion, and if there are any additional things that they need to do beyond your representation or advice about the legal ramifications of what they need to do and if they fail to do something. There is real value In proofreading, checking your documents for these typos and the drafting errors. There really shouldn't be any internal inconsistencies. It really needs to be clear. I struggle with this in my own writing. I will go through and it makes perfect sense to me, but, unfortunately, down the road, I'm not the one going to be interpreting this. So try to read it from that perspective: is this clear to somebody else who would be reading this? Then if you have any of these red flags, any concerns about testamentary capacity, I encourage you to address that in responsible ways, and we've discussed some of those.

So that's a little quick rundown on estate planning concerns and what's happening in the malpractice space. I hope something here will prove useful to you, and I appreciate your taking a little time to listen in. As always, if any of you have any additional thoughts or ideas about who you'd like to hear or a topic you'd like discussed on the podcast, direction you'd like to see it go, please don't hesitate to reach out. Even if you just have a question you want to talk, I'd love to visit with you. So my email address is mbass, M-B-A-S-S, @alpsinsurance, A-L-P-S Insurance, one word, .com. That's it folks. Hey, stay safe out there. Have a great one. Again, thanks for listening. Bye-bye.