Common Estate, Trust & Probate Errors + Tips for Managing Your Risk
Estate, trust and probate law is an area of practice concerned with the management and transfer of wealth. This is usually handled by using a variety of legal instruments such as but not limited to wills and trusts. Claims originating from this area have been rising and are expected to continue to rise as baby boomers transfer their wealth. The frequency of claims in this area of law is high; however, 70% of these claims usually close out with zero loss payment. Although this is a significant statistic, it is important to note that the average defense cost of these cases that close out with zero indemnity is $30,000. For small businesses, this is a significant amount of money to spend on a legal malpractice lawsuit. Furthermore, this amount can double or triple depending on the number of lawsuits. It is no wonder most firms therefore choose to purchase lawyers professional liability insurance.
Unlike other areas of law, an attorney client relationship is not necessary to establish a lawsuit. This means that an attorney can be sued by third parties. The sensitive nature of these cases coupled with the complexity of family dynamics usually results in dissatisfied heirs. Outlined below are the most common errors and risk management tools that lawyers can implement in order to avoid becoming an estate, trust and probate statistic.
1. FAILURE TO FOLLOW THE CLIENT’S INSTRUCTIONS
Even though failure to follow the client’s instructions is the most common error, it is one of the easiest errors to avoid. This is an error in which the lawyer drafts documents or executes the instructions of a client contrary to the client’s directive. Examples of failure to follow a client’s instructions include improper drafting of a will or incorrect disbursement of funds.
To mitigate this error, attorneys must ensure that they understand the needs of their client. This can be done by taking meticulous notes when corresponding with clients and then comparing those notes with documents drafted. It sounds like obvious advice, but many claims develop as a result of overlooked instructions or failure to proofread testamentary documents. Furthermore, when meeting with clients, ask probing questions to clarify the desires of the client. For example, when drafting a will, ask about previous wills, assets, marriages (Common law spouse),etc. These questions can uncover details that are vital to executing the desires of the client. If necessary, draft a reporting letter or confirming email to corroborate the instructions of the client.
2. INADEQUATE DISCOVERY OF FACTS / INVESTIGATION
Attorneys in this area of practice need to be aware of the multiple ways that an error can emerge. Examples of inadequate discovery and investigation errors include, but are not limited to, the following scenarios:
- The lawyer fails to ask the testator about existing assets or prior wills.
- The lawyer fails to account for the status of past relationships, children and other stepchildren.
- The lawyer does not inquire into the mental capacity of the testator.
- The lawyer does not account for or ensure that the estate has adequate money to pay claims and taxes.
As can be seen from the stated scenarios, it the lawyer’s responsibility to conduct due diligence and ensure that the testator is mentality capable and/or is acting according to their own will and not under coercion or another party’s influence.
Lawyers need to be cautious of these issues and devise ways to mitigate them. For example, when dealing with client, it is always better to meet the client separately from those benefiting from the estate especially during a will change. In addition, lawyers can develop a list of specific questions that establish that there is no undue influence. Most clients in this area of law tend to be older, so videos or audio recordings can prove effective when establishing the state of mind of the client at the time of representation. While it can be difficult to be completely certain of undue influence or mental capacity of the client, questionnaires and recordings can provide proof of the client’s mental wellbeing.
Furthermore, in most cases where a friend or family member is a client, it is common for most lawyers not to inquire or take proper documentation because of their existing relationship with a client. This is always a mistake! It is advisable, especially in this area of law, to avoid cutting corners with family members and friends. If you represent them, treat them as strangers, following the highlighted procedure and proceeding with care and caution, otherwise you may fall into the trap of inadequate discovery which may lead to a malpractice lawsuit. Finally, when administering an estate, always ensure that there is adequate money to pay taxes or claims from creditors.
3. CONFLICT OF INTERESTS
Conflict of interests can develop in a variety of ways. One way in which these conflicts develop is when an attorney represents a family business and then does estate planning for individual members of the family. Potential conflicts can arise from the information the lawyer has learned while representing the family business. In order to mitigate against this risk, be aware of past and potential conflicts of interest. Use engagement letters to show scope of services to be performed and conflict of interest waivers to manage these conflicts. When dealing with multiple client’s over several years, it is impossible to remember and realize a possible conflict. The use of a conflict of interest system not only helps mitigate the risk of a malpractice suit but also helps mitigate costs as attorneys realize a conflict before expending billable hours.
Identifying conflicts of interest is essential not just in this area of practice but in all areas of practice. An attorney client relationship is based on trust—the client trusts that the attorney is acting in his/her best interests. This means that the attorney has a fiduciary duty to act in the client’s best interests and a breach of this duty can result in a legal malpractice lawsuit or disciplinary action. Lawyers must devise systems and procedures that double check clients especially in instances where firms have merged, or a lawyer has moved firms.
In conclusion, as more and more people plan for wealth transfer and the demand for these services increases, it is important for attorneys in this area of practice to treat cases on an individual basis. This is because even though the desires of the clients are the same, every case is unique and is dependent on other factors such as family dynamics, history of relationships, prior wills, taxes, creditors etc. Law firms can develop techniques and practices to mitigate the risk of malpractice claims. In the estate, trust and probate area of law, this includes knowing your client’s needs and executing their instructions correctly, devising systems that help in the discovery of facts and developing conflict of interest systems and procedures to identify potential conflicts.