Speculation, Estate Planning, and Legal Malpractice
April 28, 2017
thatIn some will contests, lawyers will speculate that the decedent may have misled people as to his true estate plan, either out of weakness, to keep the peace, to measure reactions, to avoid uncomfortable conversations, and perhaps, sadly, intending to cause pain and disappointment. When this happens, it may be easier, for example, for a son to believe that his sister was responsible for subverting their mother’s wishes than to even approach the idea that his mother was not being truthful when she told him that he would receive “everything.” Bitter litigation is often the result. We can speculate that there may have been a bit of that going on with the parties involved in Gersh v. Nixon Peabody LLP, 2017 NY Slip Op 30363(U), (Sup Ct, New York County 2017), outside of the context of a will contest.
Decedent’s surviving spouse was the Plaintiff in Gersh, suing individually, and as executor of Decedent’s estate, for legal malpractice against Nixon Peabody LLP. She alleged that the firm committed malpractice in rendering planning services to her and to the Decedent, who jointly retained the Nixon firm in 2003. At that time, the Decedent — married for the third time, some forty years after his divorce from his first wife — decided to create a will and amend an existing revocable trust. When he did so, his obligations to the children of his first marriage under a separation agreement were seemingly unaccounted for in his estate plan.
Decedent and his first wife had two children, Laurie and Ellynn. The couple entered into a separation agreement 1963. The agreement provided that if the first wife survived Decedent, and if Laurie and Ellynn had reached the age of 21 at the time of Decedent’s death, then Decedent was obligated to leave 50% of his estate in trust for the first wife, with the remainder passing to Laurie and Ellynn upon their mother’s death. This provision is not a model of clarity. For example – – what are the terms of this “trust”? What is this separation agreement referring to when it refers to Decedent’s “estate”? Is it the Decedent’s probate estate? Or the Decedent’s net estate for estate tax purposes? Or something else?
If the Decedent had wanted his surviving spouse to receive all of his wealth despite the separation agreement, he could have employed trusts, life insurance, beneficiary designations, lifetime transfers and gifts, and other mechanisms to, at the very least, reduce what his first wife and children would receive . Arguably, it was possible to plan around the separation agreement, and for the Decedent to ensure that his surviving spouse received all of his assets, and that his first wife and Laurie and Ellynn received nothing. However, no such planning was done.
The Decedent died in 2014, and it appears that he died with a substantial probate estate. The Decedent’s first wife died shortly thereafter, and their children, Laurie and Ellynn, promptly claimed that they were entitled to 50% of their father’s estate pursuant to the separation agreement. Their claim against the Decedent’s estate ultimately settled for $2.367 million.
After compromising the claim, Plaintiff sued the Nixon firm. She alleged that the Nixon firm was aware that the Decedent had been divorced twice, but nevertheless neglected to perform a proper inquiry and investigation to determine the existence of the separation agreement. She maintained that the Nixon firm committed legal malpractice because it never inquired about or obtained a copy of the agreement, and never informed her and the Decedent that the Decedent’s first wife and children had a potential claim to as much as 50% of his estate. She further alleged that the Nixon firm did not provide her and the Decedent with advice to reduce exposure to such a claim in order to fulfill the Decedent’s wish to leave virtually all of his assets to Plaintiff. She claimed that if the Nixon firm had done so, the Decedent would have taken appropriate steps in planning and that she would have received the $2 million-plus that was paid to Laurie and Ellynn in settlement of their claim.
Examining Plaintiff’s claim on a motion to dismiss, the Court observed that it was undisputed that the Decedent was aware of the separation agreement at all relevant times, and that the Decedent did not inform the Nixon firm of the existence of the separation agreement. Citing well-settled law, the Court held that an attorney cannot be held liable for legal malpractice for failing to disclose facts already known to the client. Moreover, the Court held that even assuming that the Nixon firm had a duty to investigate separation agreements attendant to the Decedent’s prior marriages, and advise as to the effect of same, and was negligent in failing to do so, that Plaintiff could only speculate that this negligence was the proximate cause of her loss in the settlement paid to Laurie and Ellynn. Citing the familiar case of Leff v. Fulbright & Jaworski, LLP, 78 AD3d 531 (1st Dept 2010), the Court held that Plaintiff’s assertions as to what Decedent would have done had he received advice concerning the effect of the separation agreement on his estate plan were speculative and insufficient to support a legal malpractice claim.
In Gersh, it may have been that the Decedent had some sense of obligation to his first wife and Laurie and Ellynn. He may have known full well that his first wife and/or children might make a claim for 50% of his estate when he was working with the Nixon firm on his estate plan. He may have decided that it would be easier to let his first wife and children make a claim against his estate rather than talk to his wife about how he wanted to leave them something out of a sense of obligation. He may have wished to avoid a conversation, or a series of excruciating conversations, with his wife about whether and to what extent his children should receive assets upon his death. On the other hand, perhaps Decedent relished the idea of a fight between his surviving spouse and his first wife and children after his passing and his estate plan was so designed. Even if the Nixon firm had enlightened him as to the effect that the separation agreement would have had on his estate plan, he might have opted to do nothing. We can only speculate.