Monday, April 13, 2015
C.A. Revives Suit Against Lawyer Over Trust Drafting Error
Attorney Owed Beneficiaries a Duty to Effectuate Client’s Intent, Panel Says
By KENNETH OFGANG, Staff Writer
Beneficiaries of a trust may sue the attorney whose error in drafting a trust amendment allegedly caused them to lose a share of the trust assets upon the settlor’s death, the Sixth District Court of Appeal has ruled.
The justices Thursday reversed a judgment in favor of Santa Cruz attorney Richard Patton. The panel said a Santa Cruz Superior Court judge ruled incorrectly that Patton did not owe the children of Gilbert Paul a duty to draft an amended to Paul’s revocable living trust so as to effectuate his intent that the children inherit his brokerage accounts and real and personal property.
Paul’s four children filed an action in probate court to reform the trust so that the disputed property would pass to them and not to their stepmother. Patton did not contest the claim that Paul’s intent was that the property pass to the children, and Paul’s wife settled with the children, who then sued Patton.
They alleged in their complaint that Paul had retained Patton in 2011, after his health and his relationship with his second wife had deteriorated.
As originally drafted 16 years earlier, the trust provided that if Helen Paul survived her husband, she could live in or lease the marital home—which was community property—for life, and would receive all income from a commercial property that he owned, and that all of the trust property would otherwise go to his children.
As drafted and executed, the amendment provided that the four children and Helen Paul would each receive one-fifth of Gilbert Paul’s half of the residence, that Helen Paul would receive the net income from the commercial property up to $4,000 per month, and that Helen Paul would receive one-fifth of that property and Gilbert Paul’s other assets.
In his deposition, taken in the probate action, Patton said he had had made a “clerical error,” confusing “children” with “beneficiaries,” and thus giving Helen Paul part of her husband’s half of the community residence and part of his other assets, contrary to his intent. Patton said his client “did not want [his wife] to share in the personal property, the Morgan Stanley account and the Quick Stop property.”
As a result of Patton’s negligence, the children alleged in their malpractice action, they were forced to settle with their stepmother, giving her at least $115,000 more of their father’s assets than he had intended.
Judge Rebecca Connolly sustained Patton’s demurrer to the malpractice complaint, implicitly accepting the defense argument that the defendant owed no duty to the plaintiffs because they weren’t his clients.
Justice Eugene Premo, writing for the Court of Appeal, agreed that the complaint was deficient, because it did not allege that the plaintiffs were owed a duty in their capacity as beneficiaries, but said the children should be allowed leave to make such an allegation by amendment.
The justice reasoned:
“Read liberally, as it is appropriate in evaluating a demurrer, the amended complaint alleges the decedent intended to grant the Pauls a particular bequest, directed Patton to draft an amendment to his trust effectuating that bequest, and signed the resulting Trust Amendment believing it made the intended bequest. But, as a result of Patton’s drafting error, the Trust Amendment does not contain the terms that were intended by the decedent.”
Premo distinguished in Radovich v. Locke-Paddon (1995) 35 Cal.App.4th 946, which held that an attorney owed no duty to a non-client who was a mere potential beneficiary of a will that was drafted and never signed.
The correct analysis, Premo said, is laid out in Biakanja v. Irving (1958) 49 Cal.2d 647 and Lucas v. Hamm (1961) 56 Cal.2d 583, which identified six factors for determining whether an attorney owed a duty to a non-client beneficiary—“the extent to which the transaction was intended to affect the” beneficiary, the foreseeability of harm, the degree of certainty that the plaintiff suffered injury, the closeness of the connection between the defendant’s conduct and the injury, the policy of preventing future harm, and the extent of any undue burden on the legal profession from the extension of liability.
Here, Premo said, all six factors weigh in favor of the plaintiffs.
He distinguished Chang v. Lederman (2009) 172 Cal.App.4th 67, which relied on the sixth factor to hold that an attorney who allegedly told the settlor to have a psychiatric evaluation before changing his estate plan to give all of his property to plaintiff—one of two beneficiaries, the other being the client’s son—owed no duty to plaintiff.
“While in Chang the plaintiff merely alleged the decedent ‘instructed [the attorney] to revise his trust’ …, something ‘any disappointed potential beneficiary’ could allege…, here the Pauls allege Patton admitted to a drafting error in another action,” Premo wrote. “That is not an allegation most disappointed beneficiaries can make.”
The case is Paul v. Patton, 15 S.O.S. 1812.
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