Two Attorneys: Would You Choose Right the First Time?

 

          This analysis refers to the case Murphy v. Housel & Housel, summarized in our blog titled “ESTATE ATTORNEY MALPRACTICE–CASE SUMMARY (MURPHY V. HOUSEL).” To best appreciate the following analysis, read this previous blog summarizing the case.  (Hover over the title with your cursor and click.)

            The two lessons to be learned from this case are straightforward:

                    1. Estate planning law is complex and

                    2. Choose your attorney carefully.

            Estate Planning Law is Complex.  There is a misperception among some lawyers that estate planning law is easy.  This is particularly true for new law school graduates or general practitioners.  Even some experienced lawyers may have a perception that estate law is for those lawyers who could not make it in international corporate law or complex business litigation or corporate mergers and acquisitions. I remember many years ago watching the television series “Boston Law.”  In one episode, the slick and sophisticated corporate lawyers mocked their estate planning colleague with the statements that he “just does wills”—the clear message being that estate planning was far beneath the heights of corporate legal complexities.

            Experienced estate planning attorneys (particularly those who work orchestrating complex estate tax laws, or work transferring a variety of corporate or other assets to beneficiaries, or work litigating an inheritance conflict)—these experienced estate attorneys shrug off such criticisms.  We know our area of law is as complex as any area of law. And we are confident we could be competent international corporate lawyers—it’s just that those areas of law seem so boring!

            The complexities of estate planning law are not limited to high-value estates or perceptions among lawyers themselves.  The real problem is the perception among common folks that their middle-class assets (a home, retirement account, life insurance policy) are easily transferred using an online LegalZoom will, or easily probated with an Office Depot probate document kit.  It may be impossible for these folks to really believe that they will save much more money than they will ever pay by hiring a competent estate planning attorney.  Even “simple” estates can be surprisingly complex.

            Choose Your Attorney Carefully.  In the Housel case, compare attorney Housel with attorney Diane Walsh.  What more need be said?   The contrast is clear: a poor attorney and a competent attorney.

            In my experience, poor attorneys are often not so much incompetent or unintelligent as they are incapable of standing up to clients, insisting on doing quality work, and demanding to be paid for that quality work.  That is, poor attorneys are often embarrassed to look a client in the eye and say, “This is potentially complex work and will require 40 to 50 hours of my time to get started. That will be $12,000 to $15,000, initially.  If you can’t pay that, I am not your guy.”

            I think incompetent attorneys are attorneys who are unwilling to walk away from a cheap-skate client. The cheap-skate client gets the cheap, incompetent attorney, and they both proceed to hate each other.  They each got exactly what they wanted.

            Clearly, Diane Walsh was a straight shooter—a competent attorney.  Was she expensive?  I am certain she was.  But do you want an expensive straight shooter or a cheap document-mill attorney?  You are not going to have your cake and eat it too.

           See our summary of this case in the blog titled “ESTATE ATTORNEY MALPRACTICE–CASE SUMMARY (MURPHY V. HOUSEL).

          See Murphy v. Housel & Housel, 955 P.2d 880 (Wyoming 1988).

By Craig E. Hughes

 

 

Amendments: So Easy, So Dangerous – Case Summary (Iacono v. Hicken)

 

            In Iacono v. Hicken, the parents of Julie Iacono (“Iacono”) created a trust that named them as the trustees and beneficiaries, leaving the residue at their deaths in equal shares to their four children. The trust contained a provision that made it irrevocable upon either parent’s death.

            In 1998, Iacono’s mother died and the father appointed Iacono as the new co-trustee.  Two years later, in recognition of Iacono’s diligence in caring for him, the father hired an attorney, Keith Weaver, to amend the trust giving his home solely to Iacono, rather than the four children equally.

            In 2001, Iacono’s father passed away.  Shortly thereafter, Iacono’s siblings challenged the validity of the trust amendment, arguing that the trust was irrevocable at the time of the amendment and therefore the amendment was invalid. The siblings brought serious additional claims against Iacono relating to her actions as the trustee.  At that point, Iacono hired an attorney, Bret Hicken, to represent her.

            Ruling on summary judgment, the District Court agreed with the siblings that the amendment giving the home to Iacono was invalid.  In the end, Iacono settled all her sibling’ claims against her and as a result received nothing from her parents’ estate.

            Iacono subsequently brought a legal malpractice action against both attorneys Hicken and Weaver.  Iacono claimed that Weaver committed malpractice when amending the trust.   Iacono and Weaver settled their dispute before trial.  Iacono claimed her probate litigator committed malpractice in the way he represented Iacono against her siblings.  Hicken did not settle.

            At trial, Iacono alleged that Hicken “failed to assert any defenses against summary judgment, failed to conduct discovery of his own, and failed to timely respond and object to Siblings’ discovery request” (¶ 4). Two of Iacono’s witnesses, including the siblings’ former attorney, testified that Hicken’s representation was far below the necessary standard of care and that if Hicken had properly argued the case, Iacono would have had “a good shot at prevailing” (¶ 5).

            The District Court agreed that Hicken had breached a duty owed to Iacono.  Nevertheless, the District Court was not persuaded that Iacono, even with adequate representation, had a good shot at prevailing against her siblings.   The court held that because the substandard representation was not the actual or proximate cause of the damages suffered, Hicken did not commit attorney malpractice.  The Appellate Court upheld the District Court’s decision and Iacono was again left with nothing.   Iacono v. Hicken, 265 P.3d 116 (Utah App. 2011).

By R. Zenock Bishop

 

Estate Attorney Malpractice – Case Summary (Murphy v. Housel)

   

            In 1985, Dominic Badura died. His will named his brothers and sister as the personal representatives (or executors) of his estate. One of the brothers, Mr. Badura, hired a law firm, Housel & Housel (“Housel”), to probate the will in court.  Housel proceeded to make serious mistakes. See Murphy v. Housel & Housel.

            In 1987, Housel filed paperwork valuing the estate at less than $400,000. In 1986, if an estate was worth over $400,000, the estate owed an “estate tax” to the IRS, so valuing the estate at less than $400,000 meant that no estate tax was due.  Subsequently, in late 1987, Housel determined that certain estate assets were not valued as part of the estate.  Therefore, Housel prepared additional paperwork valuing the estate at over $400,000 ($476,000).

            Unfortunately, Housel failed to inform the IRS about the new valuation of the estate.  Therefore, the estate taxes due were not paid to the IRS.

            In 1989, Mr. Badura hired a new attorney to look at the estate (Diane Walsh). Over the next eighteen months, Walsh diligently investigated the Badura estate and determined there was at least another $834,000 in assets that Housel had not accounted for, putting the estate at a total value of over $1.3 million.  Diane Walsh appropriately informed Mr. Badura that he would need to re-open the estate and pay the estate tax along with interest and penalties for not paying the taxes on time.

            In 1993, Diane Walsh ensured the correct tax returns were filed, and in 1995, the IRS informed Mr. Badura that the estate owed $108,000 for the federal estate tax and over $200,000 in interest and penalties. Ouch!

            The case does not end there.  Back in 1991, Mr. Badura’s new attorney (Diane Walsh) informed Mr. Badura that he could pursue a legal malpractice claim against Housel.  At that time, Mr. Badura chose not to pursue the claim against Housel.  But after the IRS lowered the boom in 1995, Mr. Badura initiated a lawsuit for legal malpractice against Housel.

            The Housel & Housel law firm asserted that Mr. Badura’s time to file a lawsuit against the firm had expired. (A deadline to bring a lawuit is referred to as a “statute of limitation.”)  The trial court agreed with the Housel firm and Mr. Badura appealed his case.

            The appellate court agreed with the district court.  The court stated that Mr. Badura was informed of his ability to bring a legal malpractice suit in 1991.  But Mr. Badura failed to file a lawsuit until 4 years later.  The statute of limitations was two years for filing the lawsuit. Therefore, time had run out for Mr. Badura to sue the firm for legal malpractice.

            Housel & Housel had clearly committed malpractice, but the Badura family simply waited too long to pursue any claim.

           See our analysis of this case in the blog titled “TWO ATTORNEYS: WOULD YOU CHOOSE RIGHT THE FIRST TIME?

            See Murphy v. Housel & Housel, 955 P.2d 880 (Wyoming 1988)[1].    

By: Kelly Perri

[1] After Mr. Badura filed the lawsuit, Delphine Badura Murphy was substituted as a party to this case. Thus, the name of the case. 

Divorce, Inheritances, and Estate Planning

 

            This brief analysis refers to the case Smith v Smith that is discussed in our previous blog titled “Divorced Husband Demands Portion of Ex-Wife’s Inheritance.” To best appreciate the following analysis, read this previous blog.  (Hover over the title with your cursor and click.)

            The problem in Smith was not the husband.  The real problem was the attorney who drafted the Smith Family Trust.

            First, the attorney drafted a broad provision in the Trust regarding new bank accounts established by either spouse. In suggesting that new bank accounts would be part of the marital estate, this broad provision was itself poorly-drafted.  Second, the attorney then drafted specific provisions regarding a spouse’s potential inheritance.  These two provisions were not carefully coordinated.  This lack of clear coordinated provisions led directly to the lawsuit.

            Worst of all were the attorney’s three additional failures:

  1. The attorney it seems may have failed to take the full time needed to interview his clients, determine the extent of the wife’s potential inheritance, and truly appreciate the desires of the wife to keep that inheritance separate.  Or the attorney failed to do this careful work in annual or regular follow-up interviews with the clients.
  2. The attorney then failed it seems to fully appreciate that under Utah law, a traditional inheritance, like the one the wife received from her mother, is considered separate property.
  3. The attorney then fatally failed to carefully draft a provision in the Smith Family Trust (or a later amendment after follow-up interviews), (1) clarifying beyond dispute that the wife’s inheritance would be her separate property in the event of a divorce, and (2) clarifying beyond dispute what the wife needed to do to preserve her inheritance as a separate asset, and (3) clarifying beyond dispute under what conditions the separate inheritance would lose its status as separate property and be considered marital property. References to the law in the provisions would have helped.

            This lack of careful work on the part of the Smith’s attorney directly created ambiguity.  And ambiguity is the enemy of good estate planning.  In this cesspool of ambiguity, the husband and his probate litigator were happily enabled to create a litigation mess.  Clarity would have gone a long way in containing the husband and his probate attorney—in perhaps even shutting down the conflict before the case was ever filed in the courts.

            By Alicia Knight Cunningham

            Click here to see Smith v Smith (2017) UT App 40.

            Click here to see our summary of this this case in the blog titled: “Divorced Husband Demands Ex-Wife’s Inheritance.”

 

Failures Regarding Undue Influence

 

This brief analysis refers to the case of Ellsworth v Huffstatler (2016) that is discussed in our previous blog titled “Coins and the Offended Widow.” To best appreciate the following analysis, read this previous blog.  (Hover over the title with your cursor and click.)

Ellsworth teaches us at least two important lessons about estate planning.

Undue Influence is Extraordinarily Difficult to Prove. The Ellsworth court got it exactly right. To prove undue influence, you practically need a video of someone putting a gun to the head of a benefactor and forcing them to sign some document. That is undue influence: a gun-to-the-head standard. Courts are very reluctant to accept accusations by a self-interested party that a benefactor was unduly influenced to disinherit them.

With that said, is there any question in the mind of any rational person reading Ellsworth that Barbara Ellsworth was influenced by her daughter Terry? No. The evidence cited strongly suggests Terry was a strong influence in her mother’s life. But did Terry unduly influence her mother? This is a question that is almost impossible to answer definitively, especially in the law.

One can easily understand why someone could believe that Terry was poisoning the mind of her mother. But the evidence suggested that despite this poisoning, Barbara still knew what she was doing and wanted to do it (disinherit her husband’s children). Barbara was influenced, likely even strongly influenced by Terry, but legally there was no evidence Barbara was forced to do what she did. Her own willpower was not forcibly overwhelmed to disinherit Elmer’s children. In a strictly legal interpretation of the term, the court interpreted the law exactly right. And the law on this point is that undue influence is extraordinarily difficult to prove.

The Real Problem Was the Attorney. The real problem in Ellsworth is never mentioned in the case at all. The real problem was the attorney who drafted the original 1991 Ellsworth trust.

One of the numerous problems with the 1991 attorney is that he probably did not have any experience in probate litigation. That is, the 1991 attorney was unfamiliar with how easy it is for a benefactor to be unduly influenced in reality, and how difficult it is to prove undue influence legally.

An attorney who understands these brutal facts, and who is honest and diligent, can in fact prevent the surprises of undue influence. But this requires more than ordinary communication with clients—and their beneficiaries. This requires thoughtful anticipation of the surprises, and careful documents.

The attorney who prepared the 1991 trust for Elmer and Barbara Ellsworth could only have been a typical document-mill attorney who had no concept of undue-influence and how it could undermine the Ellsworth’s estate planning. The attorney’s failure to anticipate and prevent this common surprise utimately resulted in expensive, protracted litigation.

Does anyone rationally imagine that Elmer Ellsworth wanted his own children completely disinherited after his death? Shame on the lazy, document-mill attorney who did not competently ensure the desires of both Elmer and Barbara Ellsworth were honored–despite what surprises may occur.

An Unwise Father, Greedy Wife, and Bad Attorney

 

          This brief analysis refers to the case of Ellsworth v Huffstatler (2016) that is discussed in our previous blog summarizing this case, titled “SECOND MARRIAGES: PLANNING A DISASTER–CASE SUMMARY (ELLSWORTH V. HUFFSTATLER).” To best appreciate the following analysis, read this previous blog summarizing the case.  (Hover over the title with your cursor and click.)

          Ellsworth teaches us at three important lessons about estate planning.

Kaboom: Second Marriages and Adult Children From First Marriages.

          The Ellsworth case is one of a thousand cases proving that a second spouse and children from a first marriage arealmost always a lethal combination.

          A second wife does not want the adult children of her husband’s first marriage dictating to her what is going to happen to the assets of her husband/their dad. This is exactly what Elmer Ellsworth’s son Mark attempted to do (no matter how calmly or rationally he may have attempted to do it).

          Further, children from a first marriage definitely do not want to be dealing with their parent’s second spouse who very rarely loves them as much as she loves her own children.

The First Problem Was Mr. Ellsworth

          The first and primary problem was Mr. Ellsworth, a man who failed deeply to comprehend the challenges that awaited his second wife and children.  He was likely similar to every other man who cannot comprehend that his second wife is most likely to have serious conflicts with his children from his first marriage–no matter how well they seem to get along while he is alive.

          Mr. Ellsworth simply failed in his fundamental duty to do his estate planning correctly. 

The Final Problem Was the Attorney.

          Perhaps the most serious problem in Ellsworth is never mentioned in the case at all. This serious problem was the attorney who drafted the original 1991 Ellsworth trust. The 1991 attorney blew it. The attorney’s incompetence in 1991 led straight to the courts 12 to 15 years later.

          It is possible to prepare a trust in second marriage situations that both protects the second, surviving spouse and the children from the first marriage. But such a trust requires more than ordinary communication with clients—and their children. Such a trust requires thoughtful anticipation of surprises, and careful drafting. Such a trust requires everything a document-mill attorney is not inclined to do.

          The attorney who prepared the 1991 trust for Elmer and Barbara Ellsworth could only have been a typical document-mill attorney who had no concept of second-marriage surprises—or any interest in preventing such surprises. The attorney’s failure to anticipate and prevent common surprises that occur in second marriages ultimately resulted in expensive, protracted litigation.

          While the court ruled correctly, does anyone rationally imagine that Elmer Ellsworth wanted his own children completely disinherited after his death? Shame on him for retaining an incompetent attorney, and shame on the lazy and incompetent attorney who did not honestly ensure that the desires of both Elmer and Barbara Ellsworth were honored.

          See our summary of this case in the blog titled “SECOND MARRIAGES: PLANNING A DISASTER–CASE SUMMARY (ELLSWORTH V. HUFFSTATLER).”

By: Craig E. Hughes  

        See Ellsworth v Huffstatler, 385 P.3d 737 (Utah App. 2016).

 

Trustee Fees and the Terrestrial Kingdom of God

 

            This brief analysis refers to the case Smith v Kirkland (2017).  This case is summarized in a previous blog titled: “TRUSTEES: CHOOSE WISELY–CASE SUMMARY (SMITH V. KIRKLAND).”  To best appreciate the following analysis, read this previous blog.  (Hover over the title with your cursor and click.)

            The Kirkland case is a perfect example of a Trust that was drafted with almost incredible blindness to a host of perfectly foreseeable surprises. While the full ironies in the case are only best appreciated by a person steeped in the culture of fringe Utah religious groups, the straightforward legal issues presented in the case are still a lesson for everyone interested in creating an estate plan that actually works.

            Initially, it should be noted that paying a professional trustee $50 per hour to administer a trust is not unreasonable at all; such a rate is not in left-field; in fact, such a fee is on the lower end of the spectrum.  Professional trustees–especially trustees who are also attorneys or CPAs–charge five to six times this amount in performing the complex accounting, administrative, and legal work of managing a trust.

            Professional trustees who are not attorneys or CPAs may charge $50 to $100 per hour in the end, but when legal or accounting issues arise in administering a trust—and such issues arise constantly—the professional trustee must retain the attorney or CPA at their higher rates to address those issues.

            The point is that professional trustees—and related attorneys and CPAs—are charging an average of five or six times $50 per hour.

            Further, diligent and honest professional trustees are worth every dollar they ask. Professionals can do in one hour what it takes a non-professional family trustee ten hours to do.  Professionals do not make costly mistakes.  Professionals account to beneficiaries.  Professionals minimize and contain conflicts.

            Now, with all this in mind, if Mr. Kirkland still insisted on naming amateur trustees to manage his “Kingdom of God Trust,” he should have at least indicated in his trust a clear hourly rate his trustees would be paid (say $25 per hour, to increase each year by say 3%) instead of using the boilerplate and ambiguous phrase “reasonable compensation.”

            But there are much more serious problems with the Kingdom of God Trust than ambiguous compensation terms.  These problems include poor choice of trustees; failure to appreciate the role of good trustees; poor beneficiary notification provisions; poor accounting requirements; and poor amendment provisions.

            Like all other cases summarized in this blog, the conflict in this case could have been avoided altogether if the documents had been drafted by an obsessive, paranoid, competent attorney. But perhaps Mr. Kirkland was just too smart to retain an attorney. And if he did retain an attorney, where was this attorney mentally when he prepared the “Terrestrial Kingdom of God Trust”?

            By Craig E. Hughes

            Click here to see Smith v Kirkland (2017), 2017 UT App 16.

            Click here to see our summary of this case in the blog titled: “TRUSTEES: CHOOSE WISELY–CASE SUMMARY (SMITH V. KIRKLAND).”

 

Interview Your Potential Estate Planning Attorney

 

          I had a client come in two days ago.  He has a special-needs son.  He is a retired military officer and professor at a military academy.  A no-nonsense guy.

          Right off the top, he politely excused himself, said he hoped he would not offend me, but that he had a list of questions for me about special needs trusts (SNTs).

          I was thrilled by the prospect of a potential client who actually had a list of questions for me—who actually wanted to interview me for the job of helping him and his son.  Seriously.  I knew this was a client who was intelligent, someone I could work with.  This was a client who would appreciate the host of surprises that could occur and would do everything necessary to prevent them from occurring.

          His first question had to do with “Crummey” powers in a special needs trust. It was a pleasure to look him in the eyes and immediately explain the case of “Crummey v. Commissioner” and the use of Crummey powers in an SNT.  The questions went on from there.

          I am certain that if this man had not been comfortable with my answers to every question he had, he would have graciously indicated he needed to think about his situation and would have walked out—never to return. Instead he wrote out a retainer check.

          To all of you looking for a good attorney. There is no reason for you to be intimidated in the least by another human being who calls himself an attorney.  You are the one hiring the attorney.  Be prepared to put that potential attorney to the test.  No matter how highly recommended the attorney is, interview him or her with questions.  If an attorney cannot answer your questions in a way you can easily understand, or dismisses your questions in any way, or if you are simply uncomfortable, then politely excuse yourself and do not go back.

By Craig E. Hughes

Ambiguous Deadlines Destroy Estate Plans

 

          One of the worst probate cases I litigated many years ago centered around the following sloppy provision in a trust: “distribute my assets as soon as possible.” The primary asset was Mom’s home.

          The dictator trustee administering Mom’s trust interpreted the phrase “as soon as possible” to mean at least four years after Mom’s death. The dictator would have delayed even longer than four years if we had not taken over the case three years after Mom’s death and persuaded a court to order his removal and appoint a professional fiduciary.

          Fast forward. Things have not changed. A client met with us just yesterday to ensure that no surprises would disrupt her plans.

          In reading the client’s trust, I came across the following provision: “prior to dividing the trust assets into separate shares, my trustee shall sell in a commercially reasonable manner all real property owned by the trust, and the net sale proceeds shall be included in the assets which are allocated to the separate shares.”

          Like the sloppy provision in that case many years ago, this sloppy provision also had no deadline. There was no deadline imposed on the trustee as to when the properties must be sold. A dictator trustee could take years to sell the properties, supplying a host of excuses: the market is bad, or it would be wiser to rent the properties, or yada yada, blah, blah.

          This provision is sloppy not only because it fails to give deadlines. The provision is sloppy because it does not define what to do if the market is in fact down; it does not address the possibility of renting the properties under various circumstances (again, for example, if the market is down); it does not address whether the properties should be sold as is, or whether the properties should be fixed up and to what extent. And exactly what does the fancy phrase “commercially reasonable” mean?

          Instead, this provision is just sloppy, minimal legaleze meant to impress a gullible client. The provision is another typical mistake by a document-mill estate planning attorney. This attorney was not thinking at all about the host of surprises that could blow this provision apart, create unnecessary conflicts, and put everyone into litigation.

          Be wise. That means cautiously interviewing document-mill attorneys referred to you in pre-paid legal plans. It means being careful about retaining a network attorney advertised on radio by internet will and trust companies. Be wise. Retain an attorney who is carefully paranoid and obsessive about every conceivable surprise that could disrupt your planning.

By Craig E. Hughes