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

 

 

Seventy Percent of Estate Plans Fail

 

            Seventy percent (70%) of estate plans fail.  This is the conclusion of an extensive study conducted by Roy Williams and Vic Preisser, and described in their book, Preparing Heirs, Five Steps to a Successful Transition of Family Wealth and Values (San Francisco, Robert D. Reed Publishers, 2003).

            The Williams and Preisser study involved 3,250 estate plans. A failed estate plan was one in which planned asset transfers from benefactors to beneficiaries did not result in the full value of the assets (valued at the date of the benefactors’ deaths) ultimately being transferred to the beneficiaries. The value of all bequests to beneficiaries was less than the value ascribed to all assets at the benefactor’s deaths.  I am assuming their study took into account basic administration costs and economic factors.

            Williams and Preisser argue in their book that the primary reason why estate plans fail is a lack of effective communication between benefactors and their family beneficiaries. In my experience estate plans fail for several other reasons summarized in the introductory video found on this website.

            In my decades of experience in estate planning, Williams and Preisser’s seventy percent failure figure is more than believable.  For numerous reasons, at least 70% of estate plans fail to live up to what they promise to do.  The value of all bequests to beneficiaries is often significantly less than the value of all the benefactor’s assets at the benefactor’s death, after taking into account administrative costs and economic factors. The reasons most estate plans fail in this way include reliance on cheap online documents and document-mill attorneys (poor documents); lack of communication between benefactors and beneficiaries (Williams and Preisser); mistakes and misunderstandings of the law on the part of inexperienced executors; outright fraud; and disputes and litigation.

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. 

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).

 

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