Wednesday, May 6, 2009
Chang v. Lederman Limits Estate Planning Malpractice Liability
By MARSHALL A.. OLDMAN
In Chang v. Lederman, 172 Cal.App.4th 67, decided March 1, the Court of Appeal for the Second District determined that an attorney did not have liability to a potential beneficiary of a decedent’s estate plan for refusing to prepare a plan and asking that the testator obtain a psychiatric evaluation.
In 2004, the decedent, Raphael Schumert, established a trust that provided for a bequest of $30,000 and furniture and television sets to his then girlfriend, Myung Chang with the residue distributable to Schumert’s son. In April 2004, a first amendment to the trust was executed by Schumert which had the effect of reducing the distribution to Chang from $30,000 to $15,000. Later in 2004, Schumert and Chang were married. Thereafter, Schumert executed a will that revised the disposition of his property in Israel. Nothing was provided to Chang by the new instrument.
Trust Amendment Refused
Chang alleges in her complaint that in February, 2005, Schumert instructed Gregory Lederman, as his attorney, to revise the trust to provide for distribution of the entire estate to Chang, with the exception of $250,000 to be distributed to his son. According to the complaint, Lederman refused to do the amendment stating that an Etti Hadar would sue Schumert and also advised that a psychiatric evaluation be done before any changes be made to his estate plan. Schumert died on March 17, 2005.
A petition for probate was filed in Los Angeles and the trust was contested by Chang. The court determined that the trust was valid, that the will executed after marriage eliminated Chang’s claim that she was an omitted spouse, and that as a result of her contest that she had forfeited her bequest under the amended trust. Thereafter, Chang brought an action for malpractice against Lederman for failing to protect her interest in a trust revision that Schumert had instructed Lederman to prepare. Los Angeles Superior Court Judge Mary Ann Murphy determined that the complaint failed to state a cause of action and that it should be dismissed accordingly. The appeal followed.
In its opinion, authored by Presiding Justice Dennis Perluss of Div. Seven, the court reviewed the history of the rulings that allow a beneficiary of an estate planning instrument to sue the drafting attorney for malpractice because of damage created by the failure of the instrument to provide what was intended for the beneficiary. The court concluded that the cases that found liability were those where the testator’s intent to provide a benefit to a person was clear from the documents that were executed. In such an instance, the court concluded that the attorney would not be confronted by an intolerable conflict between acting for his client and being concerned about lawsuits by potential beneficiaries.
Existence of Liability
The most recent of the reported cases finding the existence of liability was Osornio v. Weingarten (2004) 124 Cal.App.4th 304. In that matter, an attorney prepared a will that provided for the testator’s caretaker. However, after the demise of the testator, family members challenged the inheritance on the basis that the caretaker was presumptively disqualified under Sec. 21350(a)(6) of the Probate Code. During the litigation, the caretaker settled and relinquished a portion of the inheritance that was allocated to him by the decedent. Thereafter, the caretaker sued the drafting attorney for failing to advise the testator of the need for a certificate of independent review in cases involving a disqualified beneficiary under Sec. 21350 et seq. The case was dismissed at the demurrer stage; however, the Court of Appeal held that the caretaker had alleged sufficient facts to state an action for malpractice. According to the court in that opinion, the testator had instructed the attorney to create an instrument that provided for his caretaker, the attorney should have advised the testator regarding the need for a certificate of independent review, and that the loss was directly and proximately caused by the failure to give that advice.
Osornio, supra, was the direct descendant of a number of cases creating liability in malpractice for estate planning attorneys. The rule of privity required to bring an action in malpractice was relaxed first in the matter of Biakanja v. Irving (1958) 49 Cal.2d 647 and later applied to attorney malpractice in Lucas v. Hamm (1961) 56 Cal.2d 583. In Heyer v. Flaig (1969) 70 Cal.2d 223, the statute of limitations for attorney malpractice in estate planning matters was extended until the time that the drafted documents became irrevocable. For revocable trusts, the statute was literally extended to one year after the date of death of the testator. In Bucquet v. Livingston (1976) 57 Cal.App.3d 914, an attorney was found liable for the estate tax incurred on what was supposed to be a tax exempt trust that was found to be taxable due to the inclusion of a general power of appointment in favor of the surviving spouse.
However, the court in the Chang opinion focused on another line of cases that determined that the imposition of liability would create intolerable conflicts and burdens on the legal community. Beginning with Radovich v. Locke-Paddon (1995) 35 Cal.App.4th 946, the court determined that an attorney cannot be held liable to a potential beneficiary for the testator’s failure to sign a will before death that had been delivered to him. In Moore v. Anderson Zeigler (2003) 109 Cal.App.4th 1287, a court determined that an attorney had no duty to determine, by testing or otherwise, the capacity of the testator so as to protect the beneficiaries named in an instrument from a challenge to the instrument. In Boranian v. Clark (2004) 123 Cal.App.4th 1012, an attorney was not responsible for divining the true intent of the testator by urging alternative dispositions of the estate rather than following the client’s stated intent and drafting the instrument accordingly.
In each of the foregoing cases, the creation of a duty to a beneficiary would place the attorney in the position of divided loyalty between the testator and the beneficiary who may bring an action for malpractice. The attorney’s duty to his client, the testator, cannot be compromised by the interests of a potential beneficiary where the beneficiary cannot claim that the clearly expressed intention of the testator failed because of the attorney’s error. Similarly, in Chang v. Lederman, the attorney did not draft a document that he was concerned was the product of the beneficiary’s desires and not the intent of the decedent. The beneficiary was not in a position to point to a drafting error since the attorney did not prepare a document that purported to carry out the testator’s intent.
No Legislative Relief
Ironically, the attorney’s duty to a beneficiary is derived from the execution of a document that provides for the beneficiary. Once the testator’s desires are documented by a testamentary instrument that makes a bequest, an attorney’s drafting error creates the liability that the beneficiary can pursue. In the absence of such an expression of intent, the attorney does not owe a duty to a beneficiary. The testator’s failure to sign a draft will, the failure to divine a testator’s intent by probing questioning, or the failure to document the testator’s capacity beyond the attorney’s own observations do not create liability. To extend liability in favor of a beneficiary who alleges that the testator meant to provide for him would place counsel in the awkward position of being sued for doing what a testator had actually asked him to do.
Malpractice in the estate planning context is one of the most difficult areas for counsel. Due to the open-ended statute of limitations and the potential liability that may be incurred in favor of beneficiaries unknown to counsel, claims may be brought against an attorney decades after the creation of a document by persons not in existence at the time of representation. Such claims may be viewed in light of current standards as opposed to the standards existing at the time of the service. The attorney’s memory concerning the events may no longer exist, and the level of documentation may be very low. For this reason, the Trust and Estates Section of the State Bar of California introduced legislation that would have limited claims to 10 years so that estate planning attorneys could retire with the comfort that an ancient claim could not arise and potentially deplete their estates. However, the Legislature determined that this matter should be studied by the Law Revision Commission. Ultimately, the commission determined not to create legislation to provide relief in this area.
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