John T. Brooks of Foley & Lardner reports:

An important recent decision by a California appellate court discusses the malpractice liability of estate-planning lawyers in assessing and documenting clients' competence. Many practitioners may view the decision in Moore v. Anderson Zeigler Disharoon Gallagher & Gray, 135 Cal. Rptr. 2d 888 (Cal. App. 2003) as lowering the alert level from orange to yellow.

In a thoughtful and well-written opinion described as one of first impression in the state, Presiding Justice J. Anthony Kline, writing for a unanimous court, held in June that an attorney cannot be held liable to disgruntled beneficiaries when the attorney in good faith prepares estate-planning documents that fundamentally change a client's testamentary scheme — even when the client is in dubious physical and mental health and the attorney takes no steps to document the client's capacity.

At a time when the client in this case, Clyde Smith, was terminally ill, had undergone chemotherapy, and was alleged to be taking powerful medications, the attorney prepared a trust amendment and new will that shifted substantial wealth, in the form of a remainder interest in certain marital trusts, away from eight of Smith's children and gave it outright to a ninth child, who was originally disinherited under the prior documents. Smith died two days after executing the documents.

The children sued each other over their father's capacity, or lack thereof, and eventually reached a settlement, with no determination regarding capacity. Following settlement, some of the children sued the attorney and his firm for malpractice. They claimed that a competent attorney would have realized that litigation was likely to ensue from the changes to the plan, and would have exercised reasonable care to evaluate and ascertain his client's testamentary capacity. They further claimed that an attorney has an affirmative duty to beneficiaries to preserve evidence of such evaluation.

The court first reviewed the general rule that an attorney has no duty to non-clients and then examined the exception to that rule with respect to non-clients who are the intended beneficiaries of the attorney's services. The court summarized that exception by stating that, under certain circumstances, the lack of privity will not necessarily bar an intended beneficiary from recovering against a decedent's attorney either on a third-party beneficiary or negligence theory. The court took great care to distinguish the fact pattern presented in Moore from those cases in which the alleged negligence of the draftsman resulted in some kind of legal defect in the documents that ultimately frustrated the testator's expressed intent.

After listing a number of policy factors to be considered in deciding whether liability should attach, the court focused its decision on two factors supplied by relatively recent case law:

  • the likelihood that imposition of liability might interfere with the attorney's ethical duties to the client; and

  • the extent of the burden imposed on the profession.

In essence, the court found that when a client, especially one of borderline competence, wishes to make a change to his dispositive estate plan, someone is going to be disappointed. Threats of liability from non-clients in this no-win situation would unduly burden the profession and discourage lawyers from following client instructions that might adversely affect third parties. Further, recognizing a duty to non-clients in this situation would subject the attorney to conflicting burdens and dilute the paramount duty of undivided loyalty to the client — not to mention the client's testamentary freedom.

In addition, the court found persuasive the fact that plaintiffs in this situation already have a remedy, in the form of a will or trust contest, if they believe the documents do not accurately express the testator's or settlor's intent.

It is noteworthy that the court examined certain provisions of the model rules of professional conduct and the American College of Trust and Estate Counsel commentaries upon which the plaintiffs relied. Calling such secondary sources “a slim reed upon which to posit such duties to nonclient beneficiaries,” the court nevertheless found them consistent with its decision. While generally cautioning lawyers not to prepare documents for clients the lawyer reasonably believes lack the requisite capacity, both of these sources go on to vindicate the court's position.

Rule 1.14 of the model rules provides: “(a) When a client's ability to make adequately considered decisions … is impaired, … the lawyer shall, as far as reasonably possible, maintain a normal client-lawyer relationship with the client.” The ACTEC commentaries provide: “On the other hand, because of the importance of testamentary freedom, the lawyer may properly assist clients whose testamentary capacity appears to be borderline.”

All in all, the court's opinion is thoughtful and helpful for estate planners as they deal with clients' increased longevity.