In Ennenga v. Starns (09-3118 ) (7th Cir. decided April 17, 2012), the United States Court of Appeals for the Seventh Circuit found in favor of legal professionals as to malpractice claims based on facts which a factual record shows how easily ordinary estate planning can lead to intra-family litigation. Ennenga separately reinforces the rule applicable to accountants and many other professionals that a professional has potential civil liability not only to clients but also to persons who are not the client but who are known to the professional to be likely to rely on the advice or services delivered to the client.
Ennenga involves wealthy parents, resident in Illinois, who attempted to do careful estate planning for their three children and seven grandchildren. The first mishap by the parents was to involve in their last estate planning their attorney son-in-law plus his law partner to assist a lawyer whom the parents had used for years in prior estate plans. The involvement of the son-in-law and his law partner led to a claim by one of the three children that the preparation of a disputed trust document was tainted by the conflict of interest of the son-in-law as both an attorney for the parents and the spouse of a beneficiary. Courts at several levels rejected that argument because no facts showed any actual misconduct.
The central fact leading to the Ennenga disputes is that the estate plan by the parents provided for non-asymmetric or non-identical trust dispositions to their adult children upon the death of the parents. For the two daughters the estate plan was identical. As to a third, the only son, the trust provided that the son would not receive his 1/3 share of the parents’ estate outright or in a trust within his control, but would receive it instead in a so-called “spendthrift” trust whereby the trustee can limit periodic distributions to the beneficiary and the trust, by its terms, protects the beneficiary from future creditors. The trust established in favor of the spendthrift son also provided that upon the death of the son his only child, a grandchild, would not receive the son’s 1/3 share but would receive, instead, a share equal to the number of grandchildren then living, very likely seven or more. The parents’ trusts in favor of the two daughters provided by contrast that upon the death of the parent the trust principal would be divided only among the children in the family of each daughter. The reason for the non-equal treatment of the sole child of the son was that the son had married into a family which separately had very substantial assets. The parents expected that the wife of the spendthrift son and her parents would provide generously and adequately for the child of the spendthrift son. That reason, unfortunately, was not expressed in the trust documents.
Estate planning in these non-symmetric terms is legal and entirely proper. When it creates the impression that one child has been nonequally treated, however, that impression often lead to doubts, illwill, and possibly to litigation. That is what happened. The parents died in 2004 within a month of each other. Their Wills were immediately the subject of probate proceedings in Illinois. The spendthrift son did not object but at a later date the spendthrift son unsuccessfully sued the estate to object to the sale of the parents’ home. All disputes came to a head several years after the death of the parents when the spendthrift son sued all three trust preparation attorneys for malpractice in allegedly not creating the estate planning and trust documents in the manner intended by the parents.
In Ennenga as in many other cases, disputes as to the interpretation of a trust document are resolved primarily by looking at the document to see whether the text is clear and non-ambiguous. In Ennega the text was clear, but the allegation was that the text was a mistake. Several facts permitted the son to argue mistake. The three lawyers for the parents left a trail of letters and notes which were inconsistent and not entirely clear. Those allowed the spendthrift son to argue that the intent of the parents was not accurately reflected in the non-symmetric terms of the trusts, particularly the terms as to shares to grandchildren. An added element of uncertainty arose because two years after preparation of the trust documents and for reasons not described, someone made an informal videotape of the father describing his estate plan and the trusts for his children. In describing the trusts the father on video neglected to describe the non-identical trust provisions for the grandchildren.
Videotape or other audio visual evidence has been used over last 20 or more years by some professionals in the execution of estate planning documents to record that the person signing the documents is of sound mind and fully competent. That device can have advantages and disadvantages. Persons close to an elderly client often think that because the client is reasonably lucid the video will show that the client was fully competent. The same videotape viewed by persons not familiar with the decedent can seem to portray a very frail, elderly person not possessed of every faculty and possibly subject to improper influence.
In Ennenga the videotape was offered to show mistake as to what the father intended, because the father in the needless videotape “interview” failed to mention the important but non-equal terms of the trust as to the grandchildren.
For that reason and others the disputes in Ennenga involved a “tangle” of procedural and legal issues which were examined at trial and on appeal and ultimately resolved against the spendthrift son and his daughter. One reason was that the son initially failed to object to the Wills in 2004. A second was that the son unsuccessfully commenced litigation relating to the sale of the parents’ home, but in that litigation failed to pursue all claims relating to the trust instruments or the claims as to attorney malpractice.
A third reason for the Ennenga outcome is that under the applicable state law (Illinois), as in many states, there is a very short “statute of limitations” for the allowed time for claims against professionals related to estate planning. Those claims in Illinois must be brought within two years or less of the death of the testator, the same short time frame as applies for claims against the estate itself. Many states have similar so-called short statutes of limitations as to all claims against any estate. Those statutes reflect the policy that heirs to an estate should not be forced to endure a lengthy delay in distributions while waiting for claims to be asserted. Creditors of a descendant are expected to learn of the death and to act promptly to make any claim. Creditors are in many states required to file claims against an estate relatively quickly, often within one year of the death.
In Ennenga, Wills were entered for probate four days after the death of the father, the mother having died weeks earlier. The short time periods applicable under Illinois law were held to bar the malpractice claims asserted by the spendthrift son and his child six years later. This result is typical of cases involving probate or administration of estates because special rules usually do apply. Those rules are established by the law of the state in which the probate is permitted. Probate rules can be surprising and harsh. Unhappy surprise is best avoided by conferring with a probate law practitioner promptly as to any possible claim involving a deceased person.
One final point of interest in Ennenga is that the Court without extensive discussion noted that the grandchild was allowed to assert malpractice claims related to the estate plan even though any entitlement of the granddaughter was contingent or uncertain. To decide all controversies promptly the Court in Ennenga rules that her remote, contingent, expectation interest in the estate was sufficient for reliance and an expectation that the professionals would perform as required.
Ennenga illustrates that preparation of any estate planning documents needs to be carefully done and that any and all related notes or records by attorneys or other professionals should be as clear as possible about intent and all changes to expressions of intent over the course of time. In Ennenga the risk of disputes would have been greatly reduced if the substantial assets available to the daughter of the spendthrift son had been clearly referenced in both the attorney’s notes and in the trust instrument itself as the explanation for the non-identical treatments of grandchildren. Where a trust instrument is written only in dry or technical terms, other facts, including rumors, casual notes or a needless videotape can all become part of a mix of evidence and suspicion which fuels ill-will and needless litigation.