The Drafting Attorney's Duties to Estate Beneficiaries: A New Twist (and Victory)
Analyzing privity of an attorney's duties between the client and intended beneficiaries
One of the more ominous developments for attorneys in trusts and estates, especially those who draft documents, is the scope of duties owed by the attorney. It is clearly settled that an attorney has a duty to zealously represent their client, and in the area of trusts and estates, this means capturing the client’s expressed intent and goals in the draft documents. But, an attorney’s failure to do so is often not discovered until the client is deceased. At this point, any cause of action for malpractice has to be carried out by estate beneficiaries. But, how closely should the intent, and harm (if any) to intended beneficiaries, be intertwined?
California has a long history of case precedent analyzing this privity of a drafting attorney’s duties between the client, and intended beneficiaries. However, a recent opinion from the California Court of Appeals can (in my opinion) be counted as a victory for drafting attorneys. This opinion provides a bit more comfort to drafting attorneys not just in California, but nationwide, without necessarily adding new “best practices” to avoid future lawsuits.
Gordon v. Cohen, not yet published (Cal. App. 2023)
Facts and Background
On February 23, 2023 the California Court of Appeals published its opinion in Gordon v. Cohen. As noted above, this case helped to clarify the boundaries between an attorney’s duties to the client versus the attorney’s duties to intended beneficiaries, especially where intervening acts (such as inter vivos gifts) may conflict with a client’s expressed testamentary intent.
The client in this case (a widow) had three sons, and the client instructed the attorney to prepare an amendment to the survivor’s trust under the joint revocable trust previously established by her and her husband (then deceased). In preparing this amendment, the client’s instructions were to disinherit the children of one of her sons, but not the son himself. A trust amendment was executed to this effect.
Notably, upon the client’s husband’s prior death, the husband’s portion of the revocable trust (separate property and one-half of community property) had become irrevocable and had been split into a credit shelter trust and QTIP trust. As part of her estate planning, the client also had the drafting attorney create three LLCs to hold real property that was titled in the name of the QTIP trust. Initially, the QTIP trust was the sole member of each LLC. However, the LLCs were then sold by the QTIP trust to the (revocable) survivor’s trust in exchange for a promissory note. Once in the survivor’s trust, a 90% interest in each LLC was then gifted by the client to each of her sons, with the client retaining the other 10% (presumably through the survivor’s trust).
Ten years later, the client died, and it was discovered that the LLCs did not match the terms of the amendment to the survivor’s trust. In the trust amendment, as noted above, the children of one son were disinherited. However, the transfer restrictions of the LLC operating agreements did not prevent that son from transferring his LLC interests to his children, either during life or at death.
For these ten years, the client had the opportunity to object to the terms of the LLC operating agreements, but never did. Beyond these LLC interest gifts, the client had also gifted the son (whose children were disinherited from the estate) $2,000,000 without the same restrictions, and had obtained life insurance with the death benefit being split 90% between her 3 sons and 10% between her grandchildren (with no disinheritance of the one son’s children in the beneficiary designation).
After the client’s death, one of the other sons (and his children) sued the drafting attorney for malpractice, claiming that in the event of their brother’s (uncle’s) death, they would be harmed because their mother’s intent would have been for them to become contingent beneficiaries of the brother’s (uncle’s) LLC interests at that time. Summary judgment was granted in favor of the drafting attorney, and the plaintiffs appealed.
Analysis and Holding
The California Court of Appeals affirmed the grant of summary judgment, in the process providing some valuable analysis on an attorney’s duties to beneficiaries of an estate.
At a broad level, the Court recognized that privity of duties can have a chilling effect on an attorney’s ability to represent a client in the preparation of an estate plan. Taken too far, the interests of beneficiaries could conflict with the interests of a testator, even when this conflict was the fruit of the testator’s intent. Such an extreme outcome could discourage attorneys from practicing in the areas of trusts and estates.
The Court provided a helpful snapshot of prior cases in California, noting the following:
For intended beneficiaries to have a claim, there has to be harm that was foreseeable due to a client’s clear, certain, and undisputed intent to benefit them; and
While inartful, this standard can be boiled down to a client’s clear, certain, and undisputed communication to an attorney to “do X.”
Ultimately, the attorney in this case prevailed on appeal because it was unclear what, exactly, “X” was in this case, so the clear, certain, and undisputed intent standard was not met.
Keep in mind that the purpose behind this rule is to protect attorneys from spurious claims after a client has died, so that the four corners of a document are respected. Typically we see this type of analysis come into play where there is an attempt to introduce evidence of a decedent’s intent that differs from the intent expressed in a will or trust, with most states requiring either an ambiguity, a scrivener’s error, or a mistake in law or fact on the part of either the decedent or drafting attorney. While the test for an attorney’s duties to intended beneficiaries does not fall within this exact framework, it still has some crossover - especially in the requirement of clear and convincing evidence (which is similar to the clear, certain, and undisputed intent standard).
But, in this case, it was not a question of intent within the four corners of the document which led to the dispute. Instead, the issue was the significance of inter vivos transfers. Because, ultimately, these transfers were the fruits of the client’s instructions to “Do Y.” So, the question before the court can be boiled down to the following - if the client tells you to do X with the estate, and to do Y with other property during life that removes it from the estate, does the attorney have a duty to second-guess the client’s intent and motives in order to align X and Y?
Luckily, the answer was no. The Court went to great lengths to note that an attorney does not have a duty to be a “babysitter, a risk mitigation strategist, a sounding board, or a mental health specialist for the client.” To require otherwise would violate public policy, as it would place a burden on the attorney to, in essence, micromanage the client relationship. Taken to an extreme, this would violate the attorney’s duty of loyalty to the client.
In comparing the LLCs, all other subsequent inter vivos gifts, and the intent to disinherit the children of one son under the estate plan, the Court noted that the client’s first set of instructions regarding the basic estate plan did not rise to the level of creating a “super-intent” that the attorney would be bound to follow for all purposes unless or until instructed otherwise. Clients are free to change their mind, and to hold otherwise would elevate the interests of intended beneficiaries over the intent of the client, thus leading to a conflict of interest and a breach of the attorney’s duties to the client.
Ultimately, the Court’s holding boiled down to a refusal to view both the testamentary estate disposition, and inter vivos gifts, as an “integrated estate plan” for the sole purpose of analyzing an attorney’s duties to estate beneficiaries. A client can clearly have different intents, at different points in time, expressed in different instruments of testamentary significance. An attorney has no duty to reconcile these different intents, especially where the separate intents clearly apply to different assets (or a change in title of different assets).
Conclusion
In reading this opinion, I believe the Court got it right. Essentially, the plaintiff’s argument (if followed) would make a will and/or revocable trust irrevocable in substance, for purposes of analyzing inter vivos gifts and the attorney’s duties to the beneficiaries of that will/revocable trust. In other words, the plaintiffs essentially were projecting onto the attorney their desire that their mother only make subsequent gifts in accordance with her existing revocable trust. To hold that an attorney must follow this plan clearly substitutes the interests of beneficiaries for the interests and free will of a testator or grantor, which violates the attorney’s duties to the testator or grantor.
However, it is important to note that the Court did not reconcile what an attorney’s duties might be when it is clear that a client’s intent under different documents might create a conflict. Here, each “conflicting” instrument applied to different property, so this was not an issue. But, arguably an attorney would have a duty to foresee potential conflicts that might apply to the same property. To be clear, though, this duty would not extend to a situation where a client clearly and intentionally removes property from the governance of one instrument, and subjects it to governance under a different instrument.
It was also refreshing to see the conclusion that an attorney does not have a duty to second-guess the client. Defensive practice standards can sometimes convey this feel of substituting the attorney’s judgment for that of the client, which is not in the spirit of what is intended under the attorney’s duty of independent judgment. The growth of limited scope representation supports this conclusion, but I note that the framework and intent for these types of engagement is avoiding malpractice claims from the client and not from intended beneficiaries.
But, in this vein, the key lesson I took from this case (although not the stated issue) is to consider separate representations, and separate engagement letters. It is common to include gifting, and entity formation, under the umbrella of a general estate planning engagement. However, the question of who you represent is always present. And, in the case of the LLCs, what was not discussed in the case was whether the attorney represented the client as the controlling party of the LLCs, or represented the LLCs themselves. You could make arguments either way for how the results may have been different in either scenario.