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Trusts and Estates Lawyers Face Increasing Risks of Malpractice Claims

This article appeared in the January 19, 2016 New York Law Journal Special Section on Trusts and Estates.

Trusts and estates practitioners have long felt insulated from the reach of legal malpractice claims, in part due to New York's long-standing strict privity requirement.

However, the continued erosion of New York's strict privity requirement along with statistical evidence demonstrating the incremental increase in the number of malpractice claims against trusts and estates practitioners across the country may give the New York trusts and estates practitioner reason to review her professional liability insurance policy and exercise heightened caution in her daily practice.

Nationally, trusts and estates is the area of practice that results in the fourth highest number of legal malpractice claims. According to the American Bar Association Standing Committee on Lawyers' Professional Liability's 2011 study of national legal malpractice claims (the most recent study from which data is available), estates, trusts and probate accounted for 10.67 percent of all legal malpractice claims. Real estate was first with 20.33 percent of all claims; personal injury (plaintiff) was second with 15.59 percent of all malpractice claims; and family law was third with 12.14 percent of all claims.

While the trusts and estates practice area accounted for only 10.67 percent of all legal malpractice claims (nationally), what is important to note is the overall incremental increase in claims against trusts and estates practitioners occurring over the course of the 26 years between the American Bar Association Standing Committee on Lawyers' Professional Liability's first study of national legal malpractice claims and its most recent study. The American Bar Association Standing Committee on Lawyers' Professional Liability conducted its first study in 1985. In 1985, estates, trusts and probate claims accounted for only 6.97 percent of all legal malpractice claims. That number rose to 7.59 percent of all legal malpractice claims in 1995; to 8.67 percent in 1999; plateaued at 8.63 percent in 2003; and finally rose to 10.67 percent in 2011 (the most recent study). Based upon these figures, claims against trusts and estates attorneys have risen by more than 50 percent over the course of the past 26 years.

Not only have claims against trusts and estates attorneys risen nationally, but New York, a state that once prided itself on its very strict privity requirement, has also incrementally eroded its strict privity requirement in recent years, which has increased the potential for legal malpractice claims against the New York trusts and estates practitioner.

In 1986, New York's strict privity requirement was clear and held:

[A]bsent privity of contract, the simple omission by an attorney to prepare a new will or codicil naming a new beneficiary of some part of the decedent's estate does not, by itself, render the attorney liable to the alleged beneficiary [citations omitted]. As we recently noted, "privity remains a viable factor in legal malpractice cases in this State (sic)."1

In 1988, the Second Department reiterated New York's strict privity requirement and upheld it for lawyers, even though the Court of Appeals had diminished the strict privity requirement for accountants. In Spivey v. Pulley, the Second Department held:

The well established rule in New York with respect to attorney malpractice is that absent fraud, collusion, malicious acts or other special circumstances, an attorney is not liable to third parties, not in privity, for harm caused by professional negligence [citations omitted]. Moreover, while the Court of Appeals … carved out a limited exception to the privity rule with respect to accountants, this court has repeatedly and recently declined to enlarge the application of this exception to professionals other than accountants [citations omitted].2

However, in 1992, the Court of Appeals expanded the diminished privity requirement for accountants to attorneys, holding:

Although the defendants in many of the prior cases addressing the issue have been accountants, there is no reason to arbitrarily limit the potentially liable defendants to that class of professionals … . We now conclude that in circumstances such as these, a theoretical basis for liability against legal professionals can be presented.3

The court further stated: "Having concluded that legal professionals are not immune from liability in these cases…there must be a showing that there was either actual privity of contract between the parties or a relationship so close as to approach that of privity."4

In 2010, the Court of Appeals in the case, Estate of Schneider v. Finmann, further diminished the privity requirement stating, "we now hold that privity, or a relationship sufficiently approaching privity, exists between the personal representative of an estate and the estate planning attorney."5

Most recently, in September 2015, in a case where the trustees of a trust created by a decedent brought a legal malpractice action against that decedent's attorney, the Second Department, citing Estate of Schneider, held, "the trustee plaintiffs stand in a position analogous to that of the personal representative of an estate, and therefore, possess the requisite privity, or a relationship sufficiently approaching privity, to maintain an action alleging legal malpractice against the defendant."6

While New York has now given standing to the personal representative of an estate to bring a legal malpractice action against the decedent's attorney, New York has not gone so far as to allow beneficiaries of an estate to maintain a legal malpractice action against a decedent's attorney, as some other states have permitted,7 but given the erosion of New York's strict privity requirement, the potential for the expansion of the class of potential plaintiffs against a trusts and estates practitioner cannot be ignored.

Limiting Exposure

As claims against trusts and estates attorneys increase and the class of potential plaintiffs against trusts and estates attorneys expands, it is imperative that trusts and estates practitioners recognize potential liability and take steps to minimize their exposure. In order to minimize potential exposure, it may be helpful to understand the areas of the trusts and estates practice in which malpractice claims most commonly arise. According to Canadian legal malpractice insurance carrier, Lawyers' Professional Indemnity Company, 33 percent of all malpractice claims against trusts and estates attorneys are due to attorney-client communication errors; 25 percent of all claims arise from the attorney's inadequate investigation; 16 percent of all claims arise from errors of law made by the attorney; 8 percent of claims are time related errors; 8 percent arise from clerical errors; 6 percent arise from conflicts of interest; and other miscellaneous errors account for the balance of the legal malpractice claims brought against trusts and estates practitioners.

With one-third of claims against trusts and estates attorneys arising from errors in attorney-client communication, it is clear that the most effective way for the trusts and estates practitioner to limit her exposure to potential claims is through effective client communication. Generally, the most prudent way to effectively communicate with a client is to do so in writing. Communicating all significant developments and decisions throughout the course of a matter in writing can significantly diminish the possibility of a misunderstanding or miscommunication between the client and her attorney. With a writing, there is no ambiguity, no question, and no uncertainty; the matter at issue is clearly stated.

Effective client communication starts at the outset of a representation with the retainer agreement or engagement letter and continues throughout the course of the representation until the termination of the representation.

In the case, Hallman v. Kantor,8 a legal malpractice action arising from an attorney's representation of a co-executor of a decedent's estate was dismissed where a clearly written retainer agreement demonstrated the limited scope of the attorney's representation. To the contrary, in Leffler v. Mills,9 dismissal was denied to an attorney hired to probate a decedent's estate, where the attorney could not conclusively demonstrate when his representation terminated. In Leffler, the Third Department specifically stated that "there does not appear to have been a formal substitution or withdrawal of counsel."10 Had there been such clearly written documentation from the attorney to the client, memorializing the termination of the representation, the case might have been dismissed or possibly avoided altogether. Clearly, written documentation between attorney and client can be the most effective tool in assisting the trusts and estates practitioner to avoid unwanted and otherwise avoidable malpractice claims.

In addition to improvements in attorney-client communications, the statistics demonstrate that trusts and estates practitioners can further diminish their exposure to potential liability by ensuring that they conduct thorough investigation and discovery; that they do not dabble in areas of the law in which they are not well versed, which can often lead to errors of law; that they make routine use of diaries and calendars for all meaningful dates and deadlines, helping to avoid time related errors; and that they maintain and use a thorough conflict check system in their practice in order to avoid unnecessary claims arising from avoidable conflicts of interest.

While it is impossible for any attorney to fully insulate herself from potential legal malpractice claims and liability, given the national rise of claims against trusts and estates attorneys and the ever increasing pool of potential plaintiffs against trusts and estates practitioners in New York, it is wise for today's trust and estate attorneys to be vigilant in their own risk management practices as they continue their diligent representation of their trusts and estates clients.

Endnotes:

1. Rossi v. Boehner, 116 A.D.2d 636, 637, 498 N.Y.S.2d 318 (2d Dep't 1986).

2. Spivey v. Pulley, 138 A.D.2d 563, 564, 526 N.Y.S.2d 145 (2d Dep't 1988).

3. Prudential Ins. Co. of America v. Dewey, Ballantine, Bushby, Palmer & Wood, 80 N.Y.2d 377, 381-82, 590 N.Y.S.2d 831, 605 N.E.2d 318 (1992).

4. Id. at 382.

5. Estate of Schneider v. Finmann, 15 N.Y.3d 306, 309, 907 N.Y.S.2d 119, 120, 933 N.E.2d 718, 720 (2010).

6. Ianiro v. Bachman, 131 A.D.3d 925, 926, 16 N.Y.S.3d 85, 86 (2d Dep't 2015).

7. Walker v. Lawson, 514 N.E.2d 629 (Ind. Ct. App. 1987).

8. 72 A.D.3d 895, 901 N.Y.S.2d 284 (2d Dep't 2010).

9. 285 A.D.2d 774, 729 N.Y.S.2d 196 (3d Dep't 2001).

10. 285 A.D.2d at 776-777, 729 N.Y.S.2d at 199.

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