The rules for estate planning malpractice vary widely across the country, as different jurisdictions have struggled with how much “privity” is enough for an “intended” beneficiary of an estate plan to sue the estate planning attorney.
A case from the South Carolina Supreme Court, Fabian_v_Lindsay (S.C. 2014), adopts the expansive view on privity and liability for estate planning malpractice. The case analyzes the various possible theories of liability and privity, and gives a good history of the law.
California’s Lucas Case
Modern estate planning malpractice jurisprudence starts with the California case of Lucas v. Hamm, 364 P.2d 685 (Cal. 1961). Lucas allows recovery against the estate planning lawyer in both tort and as a third party intended beneficiary to a contract. The oft-cited quote from Lucas sets forth the basis for liability:
one of the main purposes which the transaction between defendant and the testator intended to accomplish was to provide for the transfer of property to plaintiffs; the damage to plaintiffs in the event of invalidity of the bequest was clearly foreseeable; it became certain, upon the death of the testator without change of the will, that plaintiffs would have received the intended benefits but for the asserted negligence of defendant; and if persons such as plaintiffs are not permitted to recover for the loss resulting from negligence of the draftsman, no one would be able to do so, and the policy of prevent[ing] future harm would be impaired.
The Lucas Court then weighs whether the need to impose liability is outweighed by the undue burden on the profession in imposing liability, and finds that it is not, thereby allowing liability of the estate planning attorney to the intended beneficiaries of the estate. This test is sometimes known as the “Balancing of Factors” test.
Florida – Iowa Rule
In an attempt to limit the liability of estate planning attorneys for malpractice, some courts, starting with Florida and Iowa, adopted a much narrower view of liability and privity. Liability can only be established when the testator’s intent is expressed in the will, and that intent, as expressed in the will, is frustrated as a result of the drafting attorney’s malpractice.
An attorney preparing a will has a duty not only to the testator-client, but also to the testator’s intended beneficiaries, who may maintain a legal malpractice action against the attorney on theories of either tort (negligence) or contract (third-party beneficiaries). However, liability to the testamentary beneficiary can arise only if, due to the attorney’s professional negligence, the testamentary intent, as expressed in the will, is frustrated, and the beneficiary’s legacy is lost or diminished as a direct result of that negligence. DeMaris v. Asti, 426 So.2d 1153 (Fla. Dist. Ct. App. 1983).
This rule eliminates a common drafting error – that of the missing children. A testator tells the drafting attorney to leave the estate to his three children, but the drafting attorney, carelessly, only names two of the children in the will. The testator client does not read the will and signs it. The omitted child has no cause of action against the drafting attorney under the Florida-Iowa will, because the omitted child is not an intended beneficiary of the will that was actually signed, even though he was an intended beneficiary in the mind of the testator.
South Carolina Adopts Lucas Rule
The South Carolina Supreme Court adopts the broader, Lucas rule, for imposing liability, without necessarily being limited to what is set forth in the executed documents, as follows:
Recognizing a cause of action is not a radical departure from the existing law of legal malpractice that requires a lawyer-client relationship, which is equated with privity and standing. Where a client hires an attorney to carry out his intent for estate planning and to provide for his beneficiaries, there is an attorney-client relationship that forms the basis for the attorney’s duty to carry out the client’s intent.
This intent in estate planning is directly and inescapably for the benefit of the third-party beneficiaries. Thus, imposing an avenue for recourse in the beneficiary, where the client is deceased, is effectively enforcing the client’s intent, and the third party is in privity with the attorney. It is the breach of the attorney’s duty to the client that is the actionable conduct in these cases.
In these circumstances, retaining strict privity in a legal malpractice action for negligence committed in preparing will or estate documents would serve to improperly immunize this particular subset of attorneys from liability for their professional negligence. Joining the majority of states that have recognized causes of action is the just result. This does not impose an undue burden on estate planning attorneys as it merely puts them in the same position as most other legal professionals by making them responsible for their professional negligence to the same extent as attorneys practicing in other areas.
As applied to the specific facts of the dispute before it, the lower court dismissed the malpractice action brought by a beneficiary of a trust, because South Carolina law recognized no duty in the absence of an attorney-client relationship. The trial court held that the attorney was immune from liability under any theory for the alleged drafting error in the trust. The alleged malpractice served to effectively disinherit the plaintiff in the case because of the way in which a formula clause in the trust was drafted. The case is now remanded, with the plaintiff having an opportunity to attempt to establish the malpractice against the drafting attorney.