Over the last decade or so, courts have relaxed the strict privity requirements for legal malpractice claims in the estate planning arena. In many states, estate and trust beneficiaries now have standing to sue the lawyers who helped create the estate plan or trust. It is now common to see not only the fiduciary sued by a disgruntled beneficiary, but the lawyer and law firm that provided the legal representation to the grantor or testator being sued, too. Just how far these malpractice claims extend is a matter of much current fiduciary litigation. A ‘hot topic’ for litigation in this area is the duty to disclose information that affects a beneficiary.
In Scott v. Chuhak & Tecson, P.C., the United States Court of Appeals for the Seventh Circuit explored the extent of a grantor’s lawyer’s duty to disclose pertinent information about a trust to the trust beneficiaries.
Ruth and Milton Kiver had employed Chuhak & Tecson, P.C. for many years for estate planning purposes. C&T prepared for the Kivers at least four trusts intended to benefit the Kivers’ daughters, Maureen Scott and Diane Shah, among others. After Milton’s death, C&T lawyers attended a family meeting during which the attorneys distributed an eighteen-page summary of the Kiver estate plans, identifying each trust’s rights of distribution, powers of appointment, and other significant features. The lawyers, however, did not give the Kivers’ daughters a physical copy of at least one of the four actual trust instruments.
Maureen’s estate sued C&T for, among other things, breach of fiduciary duty arising out of the firm’s estate-planning representation of the Kivers. One of the specific claims was that C&T failed to disclose the existence and terms of certain family trusts to Maureen, to her detriment. Maureen’s estate claimed that these allegations constituted a breach of fiduciary duty, namely malpractice.
An expert witness testified that C&T’s failure to inform Maureen of her rights under the trusts constituted a breach of fiduciary duty. This opinion, however, was contradicted with the admission that, at that family meeting after Milton’s death, C&T informed Maureen of her rights concerning three of the four trusts. The court struck the opinion of the expert with respect to these three trusts. The court did not strike the expert’s opinion regarding the fourth trust, for which C&T failed to give Maureen the trust instrument.
The court determined that C&T did not conceal the terms of three of the four trusts to Maureen because it provided the eighteen-page summary of these trusts. The court found that Maureen’s estate did present evidence sufficient to create a triable issue of fact as to whether C&T breached its duty to Maureen by failing to tell her about the terms of the fourth trust. However, because Maureen died before she would have been entitled to assets of that fourth trust, the court determined that she suffered no damages from C&T’s failure to tell her about the trust.
This case reinforces one lesson but raises some questions. The case encourages estate planners to provide as much information to beneficiaries as is practicable or allowable – especially when it concerns the beneficiaries’ rights in an estate or trust. With respect to those three trusts, the appellate opinion is unclear whether the law firm simply provided the summary of the trusts or whether it also provided the trust instruments. Therefore, it’s unclear whether an estate planner merely needs to provide the governing instruments to a beneficiary or whether the estate planner is required to decipher those instruments for a beneficiary.