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ALI-ABA Audio Seminar 

Estate Planning In the Face of Litigation: Current Dilemmas 

and Malpractice Traps 

August 13, 2008 

Telephone Seminar/Audio Webcast 

TABLE OF CONTENTS 

Page 

PROGRAM SCHEDULE ix 

FACULTY PARTICIPANTS xi 

FACULTY BIOGRAPHIES xiii 

STUDY MATERIALS 

1. Bombproofing the Estate Plan to Anticipate and Avoid Litigation 

By Bruce S. Ross and Bruce Stone 

2. 

Legal Malpractice and Ethical Considerations in Estate Planning and 

Administration 

By Bruce S. Ross 

3. Litigating the Total Return Trust 

By Margaret E. W. Sager 

vii 

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PROGRAM SCHEDULE 

for August 13, 2008 

Program Schedule Eastern Central Mountain Pacific/Arizona Alaska Hawaii 

Program Begins 12:00 noon 11:00 a.m. 10:00 a.m. 9:00 a.m. 8:00 a.m. 6:00 a.m. 

Adjournment 1:30 p.m. 12:30 noon 11:30 a.m. 10:30 a.m. 9:30 a.m. 7:30 a.m. 

Program (All Times Eastern Daylight) 

12:00 p.m. Program Begins. 

• Drafting to Minimize Post-mortem Disputes 

• Protecting the integrity of the document (avoiding or winning will and trust contests) 

• Providing good guidance to fiduciaries (Avoiding or minimizing surcharge litigation) 

• Minimizing the Lawyers' Risk of Malpractice Claims 

• Questions and Answers 

1:30 p.m. Program Ends. 

Scope and Purpose: 

While estate planners’ highest career aspirations include structuring documents to avoid 

litigation—alas, where family members and money are concerned, lawsuits do crop up. This 

seminar provides an overview of litigation issues of current concern to those who represent 

settlors, testators, fiduciaries, etc. Experienced estate planners who also litigate contested issues 

from coast to coast provide practical advice on handling thorny estate planning disagreements on 

matters such as conflicts of interest, prudent trust management, and malpractice avoidance. 

There are real malpractice traps here for the unwary planner and litigator. Don’t miss this 

insightful, convenient, and interactive seminar. Participants may e-mail Tsquestions@aliaba.org 

with questions to be answered during the presentation as time permits. 

Suggested Prerequisite: At least two or three years of estate planning or civil litigation 

experience. 

Educational Objectives: Information designed to keep practitioners current in their field of 

practice; Instruction for the purpose of helping lawyers avoid malpractice and maintain 

competence. 

Level of Instruction: Intermediate 

Total 60-minute hours of instruction: 1.0. Total 50-minute hours: 1.8. 

ix

Robert W. Lang, Esquire 

Holland + Knight 

100 North Tampa Street 

Suite 4100 

Tampa, FL 33602 

Estate Planning in the Face of Litigation: 

Current Dilemmas and Malpractice Traps 

Live Telephone and Webcast Seminar 

Wednesday August 13, 2008 

12:00 p.m. to 1:30 p.m. EDT 

PLANNER & MODERATOR 

Bruce S. Ross, Esquire 


633 West Fifth Street 

21st Floor 

Los Angeles, CA 90071 

FACULTY 

xi 

Margaret E. W. Sager, Esquire 

Heckscher, Teillon, Terrill & Sager, 

P.C. 

100 Four Falls 

Suite 300 

West Conshohocken, PA 19428

FACULTY BIOGRAPHIES 

Estate Planning in the Face of Litigation: Current Dilemmas and Malpractice Traps 

Live Telephone Seminar & Webcast – Wednesday, August 13, 2008 (TSPB02) 

12:00 p.m. – 1:30 pm. EDT 

Bruce S. Ross is a partner with the Los Angeles office of Holland + 

Knight. Mr. Ross is a nationally recognized trial lawyer with over 30 years experience 

litigating trust, estate, and conservatorship matters. Mr. Ross and Charlie Gibbs (New 

York) co-chair the firm's national Trusts and Estates Litigation Team. Mr. Ross has 

appeared pro hac vice in several states to handle such litigation and has consulted with 

colleagues overseas on cases involving international succession matters, including, in 

particular, Switzerland, Israel and Australia. He is a Certified Specialist in Estate 

Planning, Trust and Probate Law (California Board of Legal Specialization). Mr. Ross is 

a consultant to, and expert witness for, plaintiffs and defense attorneys, accountants, and 

malpractice insurance carriers in the areas of estate planning, probate, fiduciary litigation, 

and professional responsibility. He has received a number of honors and awards over the 

course of his career, including: Best Lawyers in America, 2008 Trusts and Estates; Best 

Lawyers in America, Listed for more than a decade; Chambers USA - Ranked #1 in 

Wealth Management: Western Region – National; Southern California Super Lawyer; 

Top 100 Attorney, Worth Magazine, 2006. Mr. Ross obtained his law degree at the 

University of California, Berkeley Boalt Hall School of Law. 

ROBERT W. “Bob” LANG is an associate of Holland + Knight in 

Tampa and a member of the firm’s Private Wealth Services Section. His primary area of 

practice is focused on fiduciary litigation involving matters affecting trusts and estates. 

Mr. Lang has experience in and deals with general litigation matters as well. Prior to 

joining Holland & Knight, Mr. Lang served as an assistant state attorney for the Sixth 

Judicial Circuit of Florida. He also was a partner with a St. Petersburg law firm, during 

which time he obtained extensive jury and non-jury trial experience in both civil and 

criminal matters. 

xiii

Mr. Lang received his law degree from Stetson University College of Law, where he was 

a member of the National Champion Mock Trial Team and has served as an instructor for 

the trial team at Stetson, leading the team to multiple trial competitions. 

MARGARET E.W. SAGER is a partner with the West 

Conshohocken, Pennsylvania firm of Heckscher, Teillon, Terrill & Sager and practices in 

the areas of estate planning, estate administration, trusts, charitable planning, and 

fiduciary litigation. Ms. Sager graduated from the University of Richmond summa cum 

laude and Phi Beta Kappa in 1982 and from the University of Virginia School of Law in 

1985. She was an associate in the Trust and Estate Department of Duane, Morris & 

Heckscher from 1985 until 1994. A Fellow of the American College of Trust and Estate 

Counsel, Margaret chaired the Probate and Trust Law Section of the Philadelphia Bar 

Association in 2000. She also served as chair of the Section's Rules and Practice 

Committee from 1992 through 1996. Ms. Sager received her law degree from the 

University of Virginia School of Law. 

xiv




August 13, 2008 


Bombproofing the Estate Plan to Anticipate and Avoid Litigation 

By 

Bruce S. Ross 


Los Angeles, California 

Bruce Stone 

Goldman Felcoski & Stone P.A. 

Coral Gables, FL 33134 

(c) 2008 Bruce S. Ross and Bruce Stone. This article first appeared in materials produced for the National 

Academy of Elder Law Attorneys’ National 20th Anniversary Symposium in May 2008. Reprinted with 

permission. 

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I. INTRODUCTION ...............................................................................................................1 

II. WILL AND TRUST CONTESTS GENERALLY..............................................................1 

A. Lack of Testamentary Capacity ...............................................................................1 

1. Videotaping..................................................................................................1 

2. Witnesses .....................................................................................................2 

3. Witness Preparation .....................................................................................2 

4. The Execution Ceremony ............................................................................3 

5. Medical Examination...................................................................................4 

6. Medical Records ..........................................................................................4 

7. Timing of Execution ....................................................................................4 

8. Special Language re Capacity......................................................................4 

9. Attorney's Memorandum .............................................................................5 

10. Client With Diminished Capacity................................................................5 

B. Undue Influence.......................................................................................................7 

1. Contacts with Beneficiary............................................................................7 

2. Undue Influence Suspected..........................................................................7 

C. Execution Formalities in General ............................................................................9 

1. Standardized Procedures..............................................................................9 

2. Supervision of Execution.............................................................................9 

D. General Preventive Measures ..................................................................................9 

1. Serial Documents.........................................................................................9 

2. Attorney Notes.............................................................................................9 

3. Confidentiality Issues.................................................................................10 

III. AVOIDING SUITS FOR ALLEGEDLY IMPRUDENT INVESTMENTS.....................11 

A. Drafting Suggestions..............................................................................................11 

1. Delegation..................................................................................................11 

2. Overriding the Duty to Diversify...............................................................12 

3. Special Trustees .........................................................................................13 

4. Exoneration Clauses...................................................................................13 

5. Total Return Trusts ....................................................................................14 

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B. Administrative Safeguards.....................................................................................14 

1. Written Policies..........................................................................................14 

2. Record Retention .......................................................................................14 

IV. AVOIDING SUITS OVER TRUST DISTRIBUTIONS...................................................14 

A. Clear Drafting ........................................................................................................14 

B. Protectors ...............................................................................................................14 

C. Safety Valves .........................................................................................................15 

V. PREVENTIVE MEASURES GENERALLY ...................................................................15 

A. Engagement Letters ...............................................................................................15 

B. Independent Review; Document Retention ...........................................................15 

C. No-Contest Clauses................................................................................................15 

D. Creative Use of Powers of Appointment ...............................................................16 

E. Exoneration Clauses...............................................................................................16 

F. Attorney-Witness Issues ........................................................................................16 

G. Choice of Law; Multiple Trusts.............................................................................16 

H. ADR Mechanisms..................................................................................................17 

VI. CONCLUSION..................................................................................................................17 

201015812.1 

ii

BOMBPROOFING THE ESTATE PLAN TO ANTICIPATE 

AND AVOID LITIGATION 

I. INTRODUCTION 

Bruce S. Ross 


Bruce Stone 

Miami, Florida 

The thoughtful estate planner can take many steps during the planning process to reduce 

the chances of litigation arising after the key witness, the client, has left the scene. Generally 

organized around the most common causes of actions that are litigated in estates and trusts 

matters, this paper will discuss various prophylactic steps that can be taken: i) to reduce the 

chances a disgruntled beneficiary will attack the deceased client's estate plan or ii), in the event 

of an attack, to heighten the chances that the estate plan will be successfully defended. 

Conversely, the estate planner's unexplained failure to take one or more of the following 

suggested steps may end up as an item on a checklist for the trial lawyer contemplating a postdeath 

challenge to the client's testamentary instruments. 

II. WILL AND TRUST CONTESTS GENERALLY 

A. Lack of Testamentary Capacity 

1. Videotaping. Should the execution of testamentary instruments (wills and 

trusts) be videotaped? There are pros and cons to videotaping. 

a. The videotape may expose and document errors in the execution 

process that otherwise might go unnoticed or be forgotten by the 

time of the client's death. For example, a witness may step out of 

the room while the documents are being signed, so that the client 

and the witnesses did not each execute the instrument in the 

presence of all the others. Similarly, the taping may record 

something that was innocuous but that, when taken out of context, 

creates litigation exposure -- for example, if the client makes a 

statement intended to be humorous, such as that the document was 

too long to read or that it is too complex for the client to 

understand. 

b. If videotaping is not a part of the attorney's customary and ordinary 

practice, it may raise more questions than it answers. (For 

example, "What conditions made you decide to videotape the 

execution of this particular client's will"?; "Why for the first time 

in your 55 years of practice as an estate planning specialist did you 

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decide to videotape this particular execution ceremony?") 

Furthermore, the supervising attorney may not have the experience 

necessary to "direct" the production of a videotape that will be 

convincing when viewed over television monitors in a courtroom. 

c. Will the videotape be admissible into evidence? What 

authentication procedures should be followed, and how should the 

tape be secured? 

d. Note the expense considerations: A professional video operator is 

preferable if the expense is warranted. 

2. Witnesses. How should witnesses be selected for the execution 

ceremony? 

a. In general, witnesses should be persons who are likely to be 

available at trial, who will be credible, and who will be likely to 

remember the details of the document execution once their 

memory is refreshed. 

b. Office employees such as secretaries may not remember the client, 

or they may not be readily available as witnesses at the time of 

trial. If the employee's employment is later terminated 

involuntarily, the witness may not be cooperative. Nevertheless, 

secretaries are readily accessible and, properly trained, are 

familiar with standard execution requirements. 

c. Although their involvement may be inconvenient and disruptive to 

their own practice, other attorneys (such as younger associates) in 

the office may be more likely to be available and may provide 

more credible testimony on questions of capacity. 

d. Long-time friends of the client may be subject to competing 

loyalties to the litigants. If the client and the client's friends are 

elderly, there may be a greater than normal mortality risk that the 

witnesses will not be available at the time of trial. 

3. Witness Preparation. Should the supervising attorney prepare the 

witnesses before the execution ceremony, and if so, how? 

a. The supervising attorney may choose to discuss the client's 

condition and capacity issues with the witnesses before the 

execution ceremony. Doing so, however, may simply cause the 

witnesses to focus on the client's mental status during the meeting 

more than they should, and could raise doubts in the minds of the 

witnesses that might surface on cross examination during the 

litigation. 

2

. If not part of the supervising attorney's customary operating 

practices, the fact that the attorney went out of his or her way to 

prepare witnesses in a particular situation could create credibility 

issues. 

4. The Execution Ceremony. Care should be exercised in handling the 

execution ceremony. 

a. If the client's condition fluctuates, the execution should occur on a 

date and at a time when the client's condition is most favorable. 

This may require advance consultation with the client's doctors and 

other health care providers. If the client seems to be in 

questionable mental or physical condition on the date chosen, the 

execution ceremony should be rescheduled unless it is likely that 

the client's condition will deteriorate further. 

b. When the attorney meets with the client, consideration should be 

given to having the witnesses join the meeting before the actual 

signing of the documents. This will give the witnesses a greater 

chance to observe the client's participation in discussions that will 

bolster their observations about the client's capacity, and also 

increase the chances that the witnesses will be able to give 

meaningful testimony about the client's capacity. The discussion 

should cover topics that establish the client's awareness of current 

events and his or her circumstances (such as current political or 

news events, discussion of the client's family, etc.). Care should be 

taken to avoid the time pressures and interruptions that are typical 

of the usual will or trust signing in an attorney's office. The 

attorney should meet with the client alone at first, however, to 

make a preliminary evaluation of the client's condition and to 

review the estate planning documents in confidence with the client. 

(The presence of a second lawyer or a paralegal assistant may also 

be warranted under the circumstances. Such a person's presence 

may be used to corroborate the principal lawyer's later testimony 

about what transpired.) 

c. "Custom and usage" generally: There is much to be said for 

scripting with care an execution ceremony that the lawyer 

regularly and customarily uses in her practice. Thus, for example, 

if the lawyer always reads the attestation clause to the witnesses, 

asks the witnesses if the statements about the client's capacity, lack 

of undue influence, duress, etc. are true, and can later testify, 

without necessarily remembering the specific execution ceremony, 

"I don't remember all the exact facts of this execution ceremony 

seven years ago, but I always read the attestation clause in full to 

the witnesses and ask them to agree that the statements made 

therein are true and correct," this testimony is likely to impress the 

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trier of fact. Since California permits declarations under penalty of 

perjury, in Bruce Ross's practice we consistently ask the witnesses 

to the will execution to declare to the truth of the statements made 

in the attestation clause "under penalty of perjury." If called 

much later to testify, the forgetful witness can then quite truthfully 

say, e.g., "Well I don't remember the exact circumstances of the 

execution, but I certainly wouldn't have signed my name to any 

statement 'under penalty of perjury' if I didn't believe those facts." 

(See Exhibit A, page 18, Will Attestation Clause for Use in 

California.) 

5. Medical Examination. A medical or mental capacity examination of the 

client, conducted on or near the same date as the document execution, can 

help establish the client's condition. Evaluation of the client by his or her 

attending physician on the day of the document execution may be 

advisable under some circumstances. In cases involving clients whose 

mental capacity is marginal, consider an examination not only by the 

client's regular physician but also by a qualified geriatric psychiatrist or 

psychologist. Absent such an examination, the attorney herself can, at 

least at a basic level, assuage her concerns about a client's mental capacity 

by examining the client with a short, self-contained test such as the 

Folstein Mini-Mental Status Exam. (See Exhibit B, pp. 19-20.) For a 

more detailed questionnaire, see, e.g., "Legal Capacity Questionnaire," 

Mental Capacity: Legal and Medical Aspects of Assessment and 

Treatment, Walsh, Brown, Kaye & Griegsby (2d Ed. Shepard's 1994). 

See also, "Contest Planning for the Client with Marginal Capacity: A 

Checklist of Strategical and Technical Considerations and Options" (Wills 

& Trusts Subcommittee of the Fiduciary Litigation Committee, ACTEC 

1997). 

6. Medical Records. If the client is hospitalized, the client's medical records 

should be preserved. Interviews or witness statements should be obtained 

from persons in regular contact with the client (doctors, nurses, 

attendants). 

7. Timing of Execution. If possible, coordinate the timing of the execution 

of estate planning documents with highly visible events which will present 

the client in a favorable light and supply a large number of potential 

favorable witnesses about the client's capacity -- e.g., an honors award, a 

large birthday celebration, etc. 

8. Special Language re Capacity. Rather than traditional language in a will 

referring to the client "being of sound mind and body" (or no such 

language at all), perhaps a statement in the testamentary instrument 

acknowledging that the client has diminished capacity or health issues 

might have some value. 

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Example: "Because I have been diagnosed as having senile 

dementia, probable Alzheimer's, I recognize that some persons 

who will be disappointed with the provisions of my testamentary 

plan may question my capacity and may consider challenging the 

validity of this instrument. However, my illness has not 

progressed to the point that my judgment and thinking about my 

assets, my loved ones and my estate plan have been materially 

impaired. I have given very careful consideration to my 

testamentary affairs, and I affirm that the dispositions made in this 

instrument reflect my decisions, which I have carefully and 

unequivocally reached after deliberation and after seeking the 

advice and counsel of my attorney J. Doe, who has prepared this 

instrument at my direction. Both my counsel and I are initialing 

here, ______ (Testator), _______ (Attorney), to reflect my 

attention to and understanding of this paragraph. " 

9. Attorney's Memorandum. The attorney may want to consider preparing a 

memorandum summarizing the circumstances leading up to and including 

the execution of the testamentary instrument, and setting forth the 

attorney's own observations of the client. The attorney may also want to 

have each of the witnesses prepare a memorandum summarizing his or her 

observations about the client when the document was executed. 

10. Client With Diminished Capacity. If the attorney believes that the client's 

testamentary capacity is diminished and that any documents prepared by 

the attorney almost certainly will be challenged in litigation, does the 

attorney have a duty to prepare estate planning documents when instructed 

to do so by the client? Consider for example, the ACTEC Commentaries 

on the Model Rules of Professional Conduct (4th Ed. 2006) (hereinafter 

"ACTEC Commentaries"), specifically the Commentary on MRPC 1.14: 

"Testamentary Capacity. If the testamentary capacity of a 

client is uncertain, the lawyer should exercise particular 

caution in assisting the client to modify his or her estate 

plan. The lawyer generally should not prepare a will, trust 

agreement or other dispositive instrument for a client who 

the lawyer reasonably believes lacks the requisite capacity. 

On the other hand, because of the importance of 

testamentary freedom, the lawyer may properly assist 

clients whose testamentary capacity appears to be 

borderline. In any such case the lawyer should take steps to 

preserve evidence regarding the client's testamentary 

capacity. In cases involving clients of doubtful 

testamentary capacity, the lawyer should consider, if 

available, procedures for obtaining court supervision of the 

proposed estate plan, including substituted judgment 

proceedings." ACTEC Commentaries at 132. 

5 

9

10 

Compare Florida Bar v. Betts, 530 So.2d 928 (Fla. 1988), with 

Vignes v. Weiskopf, 42 So.2d 84 (Fla. 1949). 

In the Betts case an attorney was publicly reprimanded for 

preparing two codicils to the will of his client when the client was in a 

rapidly deteriorating physical and mental state. In the first codicil the 

testator removed his daughter and son-in-law as beneficiaries. After 

speaking with his client several times in an effort to persuade the testator 

to reinstate his daughter as a beneficiary, the lawyer prepared a second 

codicil reflecting this change. However, when the codicil was presented 

to the testator for execution, he was in a comatose state. The lawyer did 

not read the second codicil to the testator nor did the testator make any 

verbal response when the lawyer gave the codicil to him. The lawyer had 

the codicil executed by an "X" that the lawyer marked on the document 

with a pen that he had placed and guided in the testator's hand. The court 

observed: 

"Improperly coercing an apparently incompetent client into 

executing a codicil raises serious questions both of ethical 

and legal impropriety, and could potentially result in 

damage to the client or third-parties. It is undisputed that 

[Lawyer] did not benefit by his action and was merely 

acting out of his belief that the client's family should not be 

disinherited. Nevertheless, a lawyer's responsibility is to 

execute his client's wishes, not his own." 530 So. 2d at 

929. 

In Vignes v. Weiskopf, supra, the Supreme Court of Florida held 

that it was not improper for a lawyer to prepare and supervise the 

execution of a codicil for a client who was "incurably ill and was in such 

pain that a great deal of medication to relieve him of his suffering was 

being administered, such as phenobarbital, novatrine, demerol, cobra 

venom, and so forth." The court stated that: 

"We are convinced that the lawyer should have complied as 

nearly as he could with the testator's request, should have 

exposed the true situation to the court, which he did, and 

should have then left the matter to that tribunal to decide 

whether in view of all facts surrounding the execution of 

the codicil it should be admitted to probate. 

"Had the attorney arrogated to himself the power and 

responsibility of determining the capacity of the testator, 

decided he was incapacitated, and departed, he would 

indeed have been subjected to severe criticism when, after 

the testator's death, it was discovered that because of his 

6

B. Undue Influence 

presumptuousness the last-minute effort of a dying man to 

change his will had been thwarted." 42 So. 2d at 86. 

1. Contacts with Beneficiary:. What should the estate planning attorney do if 

a potential will beneficiary has initiated the client's first contact about 

estate planning with the attorney? 

a. Communication with the potential beneficiary should be limited to 

providing information that is relevant to retention of the attorney. 

b. If the attorney believes that the potential beneficiary is attempting 

to influence the direction of the planning or is seeking more than 

routine information, the attorney should advise the potential 

beneficiary about the risks of undue influence. Failure to do so 

conceivably could subject the attorney to negligence claims if the 

attorney proceeds with estate planning that is later invalidated 

because of undue influence. 

c. In close cases, such as, for example, where the attorney has had a 

long relationship with the principal beneficiary of the new client's 

estate plan, the attorney should refer the potential client to another 

attorney. 

2. Undue Influence Suspected. What if the attorney suspects undue 

influence is being exerted on the client by a potential beneficiary? 

a. The attorney should meet with the client outside the presence of 

the potential beneficiary, and preferably without the potential 

beneficiary being present in the immediate vicinity (for example, 

not present at the attorney's office while the attorney is meeting 

with the client). 

b. If the testamentary instrument makes a gift that the attorney 

believes will create suspicions of undue influence, the attorney 

should consider including statements in the instrument that 

squarely address those potential suspicions and that carefully 

document the client's motives in making the gift. 

Example: "I recognize that my children John and 

Sally may not understand my reasons for giving a 

larger share of my estate to my daughter Jane. They 

may believe that Jane influenced me to give her a 

larger share of my estate, and they may consider 

challenging the validity of this instrument. I state 

unequivocally that Jane has not asked me to make a 

larger gift to her, nor is she even aware that I am 

7 

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12 

doing so. I have given very careful consideration to 

my testamentary affairs, and I affirm that the 

dispositions made in this instrument reflect my 

decisions, which I have carefully and unequivocally 

reached after careful deliberation and after seeking 

the advice and counsel of my attorney J. Doe, who 

has prepared this instrument at my direction. My 

attorney and I are initialing here, ________ 

(Testator), ________ (Attorney), to reflect my 

attention to and understanding of this paragraph." 

c. The attorney should keep a checklist of the various indicia that 

courts have relied upon to determine the existence of undue 

influence and make sure that those indicia are not present or are 

kept to a minimum. See, e.g.,80 Am.Jur. 2d Will § 970 et seq. 

(1975 and Supps.); "Evidentiary Issues Involving Pre-Execution 

Practice and Drafting," March 2001 presentation of the Evidence 

Subcommittee of the Fiduciary Litigation Committee, ACTEC 

Annual Meeting (March 2001) (hereinafter "Evidentiary Issues"). 

For example, the attorney should be careful not to deliver 

possession of the testamentary instrument to a beneficiary who 

might be suspected of exerting undue influence. 

d. If the attorney believes that the client is being unduly influenced 

by a beneficiary, does the attorney have a duty to the client or to 

the client's other beneficiaries to inquire and to document the 

attorney's belief in file notes or other papers? At what point does 

the attorney's participation in the estate planning expose the 

attorney to liability for tortious interference with rights of 

inheritance? If the attorney makes a record in the client's file of 

suspicions of undue influence, consider whether those records can 

used in seeking to establish liability against the attorney. See 

Restatement of the Law (Third), The Law Governing Lawyers, §51 

(American Law Institute West 2000); Illustration 4 (lawyer who 

has drafted a will for a client subsequently found to lack 

testamentary capacity, as a result of which client's will was set 

aside, is not subject to liability to heir in heir's suit for expenses 

incurred in the successful will contest: "Recognizing a duty by 

lawyers to heirs to use care in not assisting incompetent clients to 

execute wills would impair performance of lawyers' duty to assist 

clients even when the clients' competence might later be 

challenged." Query : Does (should) this rationale extend to cases 

of undue influence?) For further discussion of the lawyer's duties 

to a client with diminished capacity, see Restatement, §24. 

8

C. Execution Formalities in General 

1. Standardized Procedures. As noted above, it is critically important that 

the attorney have standardized procedures governing the preparation and 

execution of testamentary documents. Preferably, those procedures should 

be encompassed in a written procedures or office manual. If procedural 

irregularities in the execution of a testamentary instrument are later 

alleged, evidence about the existence of standardized procedures and the 

routine observance of those procedures in the office may overcome such 

allegations even if the attorney and the witnesses do not recall anything 

about the circumstances in which the document was executed. 

2. Supervision of Execution. The attorney should discourage a client who 

wants to execute testamentary instruments outside the attorney's office and 

without the supervision of the attorney. If the client insists and if the 

circumstances require execution under those circumstances, the attorney 

should deliver a written memorandum to the client explaining the 

formalities required for execution, expressed in very clear and simple 

terms. The client should be asked to sign and return the memorandum 

after the execution ceremony, acknowledging that the instructions were 

followed. A copy of that memorandum and transmittal letter (or other 

evidence of its delivery) should be kept in the client's file. 

D. General Preventive Measures 

1. Serial Documents. If a will or trust contest is likely, the attorney should 

consider having the client execute a series of testamentary instruments 

over an extended period of time. Instead of bringing one challenge to one 

instrument, a contestant would face the expensive and difficult prospect of 

having to set aside multiple instruments in order to get to intestacy or to a 

prior testamentary instrument favorable to the contesting party. 

2. Attorney Notes. The attorney should consider the litigation consequences 

of notes made by the attorney. Are detailed or less detailed notes better? 

The attorney should also consider the malpractice implications of notes. 

In some states under certain circumstances less detailed notes may provide 

better insulation against claims of malpractice in estate planning. In 

general, however, the better practice is to keep detailed file notes of the 

client's instructions and communications. Caveat: The attorney's 

practices should be consistent and consistently followed and should dovetail 

with the policies instituted by the attorney's firm governing the 

retention and destruction of client documents generally. Generally, 

retention of even superseded testamentary instruments is recommended 

not only because such a record leaves a "paper trail" of the estate planning 

client's expressed intentions over time but also because the absence of 

such documents may be adversely commentated on by counsel for a 

contestant to a later document. See, "Evidentiary Issues" (ACTEC 2001). 

9 

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14 

3. Confidentiality Issues. The attorney should be conscious of preserving the 

confidentiality of the client's estate planning documents and avoiding 

inadvertent waiver by disclosure to others during the client's lifetime. 

Disclosure of testamentary documents to third parties during client's 

lifetime (for example, to a brokerage firm which insists on having a copy 

of the trust instrument) could result in a waiver of the attorney-client 

privilege confidentiality. 

a. After the client's death, as a matter of state law of evidentiary 

privilege (and not necessarily of professional ethics), attorneyclient 

communications relevant to any material issue concerning 

the client's testamentary dispositions are generally discoverable. 

See, e.g., Swidler & Berlin v. U.S., 118 S.Ct. 2081, 141 L.Ed. 2d 

379 (1998): 

"[T]he general rule with respect to confidential 

communications . . . is that such communications 

are privileged during the testator's lifetime and, 

also, after the testator's death unless sought to be 

disclosed in litigation between the testator's heirs." 

[Citation omitted.] The rationale for such 

disclosure is that it furthers the client's intent. 

[Citation omitted.] Indeed, in Glover v. Patten, 165 

U.S. 394, 406-408, 17 S.Ct. 411, 416, 41 L.Ed. 760 

(1897), this Court, in recognizing the testamentary 

exception, expressly assumed that the privilege 

continues after the individual's death. The Court 

explained that testamentary disclosure was 

permissible because the privilege, which normally 

protects the client's interest, could be impliedly 

waived in order to fulfill the client's testamentary 

intent. [Citations omitted.]" 

b. California's evidentiary rules are typical. 

"There is no privilege . . . as to a communication 

relevant to an issue between parties all of whom 

claim through a deceased client, regardless of 

whether the claims are by intestate or intestate 

succession or by inter vivos transaction." Cal. Ev. 

Code. §957. See also, Ev. Code §959 (no privilege 

with respect to communications with 

lawyer/attesting witness); §960 (no privilege with 

respect to intention of deceased client concerning "a 

deed of conveyance, will or other writing," executed 

by the client and affecting an interest in property); 

§961 (no privilege with respect to communication 

10

elevant to an issue concerning the validity of a 

deed of conveyance, will or other writing). 

The ACTEC Commentary on MRPC 1.6 observes: 

"Obligation After Death of Client. In general, the 

lawyer's duty of confidentiality continues after the 

death of a client. Accordingly, a lawyer ordinarily 

should not disclose confidential information 

following a client's death. However, if consent is 

given by the client's personal representative, or if 

the decedent had expressly or impliedly authorized 

disclosure, the lawyer who represented the deceased 

client may provide an interested party, including a 

potential litigant, with information regarding a 

deceased client's dispositive instruments and intent, 

including prior instruments and communications 

relevant thereto. A lawyer may be impliedly 

authorized to make appropriate disclosure of client 

confidential information that would promote the 

client's estate plan, forestall litigation, preserve 

assets, and further family understanding of the 

decedent's intention. Disclosures should ordinarily 

be limited to information that the lawyer would be 

required to reveal as a witness." ACTEC 

Commentaries at 73. 

Following the death of an estate planning client, however, the 

estate planning lawyer should be cautioned to review not only the 

applicable state law of privilege but also the state's ethics rules for 

insight into whether or not confidential communications with the 

now deceased testator may be ethically disclosed absent a formal 

waiver of the privilege or court proceedings. 

III. AVOIDING SUITS FOR ALLEGEDLY IMPRUDENT INVESTMENTS 

A. Drafting Suggestions. Suits against a fiduciary for making allegedly imprudent 

or improper investments can be discouraged if not effectively prevented 

altogether through careful drafting of the testamentary instrument. 

1. Delegation. Under the Uniform Prudent Investor Act it is possible to 

delegate one or more investment functions to agents, and if the fiduciary 

observes standards of care (and in some states, gives notice of the 

delegation of authority), it is at least theoretically possible to insulate the 

fiduciary from liability for investments. 

11 

15

16 

Example: "The trustee may delegate one or more 

investment functions with respect to any assets held as part 

of the trust estate to one or more investment agents selected 

by it. The trustee may delegate any part or all of the 

investment functions that a prudent investor of comparable 

skills might delegate under the circumstances, if the trustee 

exercises reasonable care in selecting the investment agent, 

in establishing the scope and specific terms of the 

delegation, and in reviewing periodically the agent's actions 

in order to monitor overall performance and compliance 

with the scope and specific terms of the delegation." 

2. Overriding the Duty to Diversify. If appropriate, the testamentary 

instrument should include provisions that dilute or override completely the 

duty to diversify investments. Such clauses should go further than 

traditional exoneration language which authorizes the fiduciary to retain 

original investments. Cf. First Alabama Bank v. Spragins, 515 So. 2d 962 

(Ala. 1987) 

a. If the client has large holdings in a particular company or industry 

sector that would expose the fiduciary to liability for 

"uncompensated risk" under modern portfolio theory, the 

testamentary instrument should specifically identify the company 

or industry sector, express why the client believes it important to 

maintain those holdings, and exonerate the fiduciary from liability 

for following those directions. 

For example: "The trustee may retain the original 

assets it receives for as long as it deems best, and 

may dispose of those assets when it deems 

advisable, regardless of the sizeable value of those 

interests in relation to the other assets held as part of 

the trust estate, without any duty to diversify 

investments that otherwise exists under the prudent 

investor rule or any other rule of law. In particular, 

the Trustee is expressly authorized to retain a 

controlling interest in the stock of Widgets, Inc., 

which the Trustor acknowledges comprises a 

substantial portion of the trust estate and which 

prudence might otherwise dictate be disposed of in 

whole or part. No decision by the Trustee to retain 

all or any part of Widgets, Inc., if taken in good 

faith, may be challenged by any beneficiary 

hereunder." 

Note that such provisions may ultimately prove adverse to the 

client's intended beneficiaries, however, and therefore it may be 

12

more advisable to adopt a middle ground approach that stresses the 

importance of maintaining certain holdings and that permits the 

fiduciary to maintain an imbalanced portfolio. Such an approach 

clearly exposes the fiduciary to greater potential liability for 

substandard investment performance. 

3. Special Trustees. It may be advisable to draft the testamentary instrument 

to create a special investment trustee or agent to manage special assets, or 

to delegate exclusive authority over certain investment functions to a cofiduciary. 

Example: "The Individual Trustee then serving may 

remove (and at his or her sole election subsequently 

reinstate) the investment and voting authority of the 

Corporate Trustee at any time with respect to all or any 

portion, amount or assets of the trust estate, by written 

directions signed by the Individual Trustee and given to the 

Corporate Trustee. The Individual Trustee will be solely 

responsible for the exercise of the investment and voting 

authority removed from the Corporate Trustee. The 

Individual Trustee may exercise the investment and voting 

authority so removed in a manner that does not conform to 

the Corporate Trustee's standard investment models. The 

Corporate Trustee will have no duty and no power to 

question the investment management decisions removed 

from its authority, and it will have no duty to make any 

investment review of the assets removed from its authority. 

The Corporate Trustee will have no liability for failure to 

implement measures over the remaining portion of the trust 

estate in which it does participate in making investment 

decisions that would counter the effects or consequences of 

investment decisions that were removed its authority 

(including, without limit, compensating measures to 

achieve diversification, hedging techniques, or other risk 

reduction techniques). The Corporate Trustee will be 

indemnified and held harmless from any damage or liability 

of any nature that may be imposed upon it because of 

exercise by the Individual Trustees of the authority under 

this clause." 

4. Exoneration Clauses. In their extreme, clauses that exonerate the trustee 

from any fiduciary duty to monitor the performance of investment agents 

or to challenge the actions of investment agents could have adverse tax 

consequences and could even jeopardize characterization of the 

arrangement as a trust. For example, if the trustee of a marital deduction 

trust has no ability to direct investments in income-producing assets, and if 

the investment agent has no fiduciary duties beyond the ordinary duty to 

13 

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18 

exercise care under the business judgment rule, the marital deduction 

could be jeopardized (assuming that the spouse was not given the right to 

require investment in productive assets). 

5. Total Return Trusts. Use of total return trusts may serve to minimize or 

eliminate disputes between competing classes of beneficiaries, particularly 

conflicts that involve "principal" versus "income" interests. 

B. Administrative Safeguards. Observance of proper operating procedures in the 

administration of the fiduciary estate will greatly reduce the risk of litigation over 

investments. 

1. Written Policies. The trustee (particularly an individual trustee) should 

have a written statement of investment procedures, policies and objectives 

that take into account the specific terms and purposes of the trust. That 

statement should be prepared at the beginning of the fiduciary 

relationship, and should be reviewed, preferably at least annually. An 

attorney representing an individual fiduciary should advise the fiduciary to 

prepare such a statement and assist the fiduciary in preparing it if 

necessary. 

2. Record Retention. The fiduciary must maintain records of periodic 

investment reviews, such as minutes, notes, and correspondence. This is 

particularly critical because liability under the prudent investor rule is for 

failure to observe standards of care in making investments (rather than 

specific investment performance). 

IV. AVOIDING SUITS OVER TRUST DISTRIBUTIONS 

A. Clear Drafting. Drafting the testamentary instrument to avoid ambiguities, to 

provide clear guidance to the trustee in the distribution standards to be applied, 

and making the extent of the trustee's authority clear is critical to avoid litigation 

over discretionary distributions. Such clauses should help insulate the trustee 

from any beneficiary's second-guessing. For example: 

"In exercising its discretion to make distributions to or for 

the benefit of a beneficiary under this Section, the Trustee 

shall consider the needs of the remainder beneficiaries to be 

subordinate to the interests of the current [primary] 

beneficiaries. No good faith decision to invade principal 

for the benefit of a current beneficiary shall be subject to 

challenge by any remainder beneficiary." 

B. Protectors. Including provisions that appoint advisory committees or protectors 

to assist the trustee by recommending or authorizing distributions will help to 

prevent suits by disappointed beneficiaries. Even if they do not prevent litigation, 

at the least they will help insulate the trustee from liability. 

14

C. Safety Valves. Inclusion of "safety valves" will help prevent litigation over the 

trustee's distribution decisions. Examples include withdrawal rights given to a 

beneficiary limited either by the "5 and 5" safe harbor rules or by ascertainable 

standards, or by appointing the beneficiary to serve as a co-trustee and limiting 

the beneficiary-trustee's powers to ascertainable standards as defined in the 

Internal Revenue Code. 

V. PREVENTIVE MEASURES GENERALLY 

A. Engagement Letters. Engagement letters that clearly identify whom the attorney 

does and does not represent, and clearly setting forth the scope of the engagement, 

should be maintained for all clients. See Engagement Letters: A Guide for 

Practitioners (for Use with the ACTEC Commentaries on the Model Rules for 

Professional Conduct) (ACTEC Foundation, 2d Ed, 2006). (Both the Guide and 

the ACTEC Commentaries can be accessed on the public side of the ACTEC 

website.) It should be made clear that the attorney is not providing services 

beyond those specifically agreed upon in the engagement letter. 

Example: "Our work will be limited strictly to the legal 

services described specifically in this letter. You are not 

relying on us for business, investment, accounting, or 

valuation decisions, or to investigate the character or credit 

of other persons or firms (such as insurance companies or 

investment advisers), unless otherwise specified in the 

letter." 

B. Independent Review; Document Retention. Independent review by another 

"set of eyes" of testamentary instruments before execution is prudent from the 

standpoints of both litigation avoidance and malpractice prevention. All law 

firms should have policies (preferably in writing) requiring review by a second 

attorney of all testamentary instruments before execution. If review before 

execution is not possible because of time constraints, review should be required as 

soon after execution as possible. Attorneys in individual practices should make 

whatever arrangements are possible for an independent review that will preserve 

client confidentiality, such as working arrangements with other attorneys for 

review (whether on a paid or unpaid basis). Journals with duplicate (or 

electronic) copies of all executed instruments should be maintained, particularly 

when original documents are given to the client. 

C. No-Contest Clauses. The use of no-contest ("in terrorem") clauses should be 

employed to the extent allowed by governing law. (See 1 C, pp. 20-22, for a very 

broad no-contest clause drafted under California law.) When the client is 

disinheriting or making significantly less substantial provisions for a natural 

object of the client's bounty, the attorney should consider including a provision in 

the testamentary instrument explaining the situation, although detailing specific 

reasons for the disparate treatment should normally be avoided. For example, the 

following language might be utilized: 

15 

19

20 

"I recognize and understand that I have intentionally failed 

to provide for my daughter. My son Joe is treated more 

favorably than my daughter Sarah. I have carefully 

considered the disposition of my estate and declare that 

said unequal treatment reflects my intentions." 

D. Creative Use of Powers of Appointment. A difficult or litigious beneficiary 

often can be discouraged from bringing litigation by giving someone else a power 

of appointment (exercisable in a non-fiduciary capacity) that may be exercised at 

any time to divest the beneficiary of all beneficial interests in the trust. Care must 

be exercised to ensure that the power will not be characterized as a general power 

of appointment with respect to the powerholder (as would be the case, for 

example, if divesting the current beneficiary would cause the trust assets then to 

accumulate for the benefit of or pass to the powerholder). Depending upon 

applicable state law, powers of appointment can be granted to trusted persons and 

eliminate the rights of contingent or remainder beneficiaries to trust accountings, 

among other things. Remember: "The power to appoint includes the power to 

disappoint." 

E. Exoneration Clauses. Exoneration clauses providing a lesser or greater standard 

of care may be appropriate and helpful in avoiding litigation. Different standards 

of care can be applied for different fiduciaries. 

Example: "The trustee will be held harmless from and 

indemnified against any damage or liability of any nature 

that may be imposed upon the Trustee because of any 

actions or omissions while serving as trustee. This 

protection, however, does not extend to an individual 

trustee's actions or failures to act that are willful, grossly 

negligent or made in bad faith, or to a corporate trustee's 

actions that are negligent." 

F. Attorney-Witness Issues. If litigation is anticipated, the attorney should consider 

entering into an agreement with the client to compensate the attorney for time and 

expenses incurred if the attorney is required to testify as a witness. However, 

state law and ethics rules should be consulted to insure enforceability and ethical 

compliance. See, "So You are Going to be a Witness?", 24 ACTEC Notes 261 

(Spring 1999). 

G. Choice of Law; Multiple Trusts. 

1. The attorney should consider employing choice of law clauses to select 

other jurisdictions that have more favorable laws with respect to matters 

that might be subject to litigation. For example, if the law of a state that 

ordinarily would govern a matter provides that in terrorem clauses are 

ineffective (as is the case in Florida, for example), the attorney should 

consider a choice of law clause invoking the law of another state (such as 

16

California) that enforces in terrorem clauses. It may be necessary to take 

steps such as appointing a co-trustee in the other state to invoke the nexus 

necessary for application of the other state's law. 

2. Rather than putting all of the client's "eggs in one basket," if the 

circumstances warrant it, multiple separate trusts can be created in a 

variety of jurisdictions, making it exceedingly difficult for a frustrated or 

disgruntled beneficiary to achieve total success in an attack. Monumental 

tax and administrative complications would be involved in such an 

arrangement, however. For example, the multiple trust rules under the 

Internal Revenue Code could cause the various trusts to be aggregated and 

treated as one trust for income tax or generation-skipping tax purposes, 

even with disparate trustees who act without coordinating their actions 

with each other. 

H. ADR Mechanisms. The estate planning attorney should always consider 

including alternative dispute resolution clauses in testamentary documents. Even 

if the use of ADR to resolve disputes cannot be mandated in a testamentary 

document, it is often possible to draft provisions that will provide substantial 

incentives to the affected beneficiaries to invoke ADR to resolve disputes. 

VI. CONCLUSION 

Example: "If there is a dispute or controversy of any nature 

involving the disposition or administration of this trust, I 

direct the parties to the dispute to submit the matter to 

mediation or some other method of alternative dispute 

resolution selected by them. If a party refuses to submit the 

matter to alternative dispute resolution, or if a party refuses 

to participate in good faith in such process, I authorize the 

court having jurisdiction over this trust to award reasonable 

costs and attorney's fees from that party's beneficial share 

or from other amounts payable to that party (including 

amounts payable to that party as compensation for service 

as personal representative or trustee) as in chancery 

actions." 

As the foregoing discussion reflects, numerous disputes, often predictable, often not, can 

arise following the estate planning client's death (or incapacity). Careful, conscientious, and 

forward-looking drafting will dramatically reduce the likelihood of a given dispute and, if the 

unavoidable dispute does arise, may pave the way for a resolution of the dispute favorable to the 

client's estate plan and intended beneficiaries. 

17 

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22 

CALIFORNIA WILL ATTESTATION CLAUSE 

Exhibit A 

The foregoing instrument, consisting of ___ pages, including this attestation page, signed 

by the witnesses, was, on this date, signed by Susan Testator and declared by her to be her Will, 

in the presence of us, who, at her request and in her presence and in the presence of each other, 

have subscribed our names as witnesses thereto. Each of us observed the signing of this Will by 

Susan Testator and by each other subscribing witness and knows that each signature is the true 

signature of the person whose name was signed. 

Each of us is now more than eighteen years of age and a competent witness and resides at 

the address set forth after his or her name. 

We are acquainted with Susan Testator. At this time, she is over the age of eighteen 

years, and to the best of our knowledge she is of sound mind and is not acting under duress, 

menace, fraud, misrepresentation, or undue influence. 

We declare under penalty of perjury under the laws of the State of California that the 

foregoing is true and correct. 

[Add witness names and addresses, etc.] 

18

MINI-MENTAL STATUS EXAMINATION 

Exhibit B 

19 

23

24 

NO CONTEST ("IN TERROREM") CLAUSE 1 

Exhibit C 

If any beneficiary under this Trust in any manner, directly or indirectly (singly or in 

conjunction with other persons), contests or attacks this instrument or any of its provisions or 

seeks to impair or invalidate any part or provision of the Trustor's Estate Plan, any share or 

interest given to that contesting beneficiary under this Declaration of Trust is revoked and shall 

be disposed of in the same manner provided as if that person had predeceased the Trustor 

[without issue]. For purposes of this clause, the "Trustor's Estate Plan" includes the Trustor's 

Will dated __________, including all Codicils, this Declaration of Trust dated _________, 

including all Amendments, any lifetime gifts or transmutations of property, and any designations 

of beneficiary executed by the Trustor with respect to any and all life insurance policies, 

employee benefit plans, IRA's or other contractual arrangements. 

For these purposes, the words "contest" and "attack" include any legal proceeding 

designed to thwart the Trustor's wishes expressed in the Trustor's Estate Plan. Such proceedings 

shall include but are not limited to any formal claim asserted against the Trustor's Estate Plan, 

the Trustor's probate estate, the Trust or any asset encompassed within the Trustor's Estate Plan, 

whether during the Trustor's lifetime or after the Trustor's death, based on any one or more of the 

following: 

1. Lack of capacity; 

2. Undue influence; 

3. Mistake; 

4. Duress, menace or fraud; 

5. Any "quantum meruit" theory; 

6. An action or other legal proceeding to determine the character of property (e.g., as 

separate, community, or quasi-community); 

7. Common law marriage, or any similar or analogous theory including, without 

limitation, any claim based on Marvin v. Marvin, 18 Cal.3d 660 (1976), or on any 

similar theory or on any domestic partnership theory; 

8. Any constructive trust theory; 

1 This clause was drafted for illustrative purposes only. It is intended to comply with California law. It 

should not be used without careful consideration and adaptation to the particular needs of the client and 

applicable state law. The above clause is drafted for insertion into a funded living trust. Obviously, if the clause 

is to be used in a will, appropriate modifications must be made. 

20

9. An alleged oral agreement (or an alleged written agreement which is to be proved 

by parol evidence) claiming that the Trustor agreed to give or bequeath anything 

to such person, whether or not such agreement is also alleged to be made in 

consideration for the provision of personal or other services to the Trustor; 

10. The claimed ownership of an interest in any property alleged by the personal 

representatives or the Trustees to belong to the Trustor's estate or this Trust; 

11. The [filing or] prosecution of any creditor's claim [which has been disallowed by 

the personal representatives of the Trustor's estate]; 

12. Any challenge to the appointment of a person named or designated by the Trustor 

as a personal representative or as a Trustee; 

13. Any attempt to rescind, impair or challenge the validity of any lifetime gift made 

by the Trustor, including, without limitation, any designation of beneficiary 

executed by the Trustor with respect to any and all life insurance policies, 

employee benefit plans, individual retirement accounts or other contractual 

arrangements; 

14. Any challenge to the validity of any irrevocable trust established by the Trustor 

during his lifetime; 

15. Prosecution of any claim for family allowance rejected by the Trustee or the 

personal representatives of the Trustor's estate; 

16. Any tort claim, including but not limited to any theory of intentional or negligent 

interference with any right or expectation of inheritance or beneficial interest. 

The terms "contest" and "attack" shall not be implicated by the participation of one or 

more beneficiaries of the Estate Plan in voluntary mediation conducted for purposes of avoiding 

any formal litigation. 

The Trustee is expressly authorized to vigorously defend, at the expense of the Trust, any 

contest or attack against the Trustor's Estate Plan. The Trustor cautions the Trustee against 

settling any such action and directs that, prior to the settlement of any such action short of a trial 

court judgment, the Trustee seek approval of any such settlement from the appropriate court. 

The Trustor requests that the court, in ruling on any such petition, take into account the Trustor's 

firm belief that no person contesting or attacking his Estate Plan should take or receive any 

benefit from the Trustor's estate under any theory and, therefore, no settlement should be 

approved by the court unless it is proved by clear and convincing evidence that such settlement is 

in the best interests of the Trustor's Estate Plan and the beneficiaries. 

If any provision of this Section is void or ineffective, all other provisions shall 

nevertheless remain in full force and effect. 

21 

25

26 

2




August 13, 2008 


Legal Malpractice and Ethical Considerations in Estate Planning and Administration 

By 

Bruce S. Ross 



27

28 

2

29 

Legal Malpractice and Ethical Considerations in Estate Planning and Administration Chapter 11.1 


I. OVERVIEW: THE ELEMENTS OF A LEGAL MALPRACTICE CAUSE OF ACTION. ................................ 2 

A. In California A Negligence Theory Governs. ................................................................................................. 2 

B. Other Theories of Recovery. ........................................................................................................................... 3 

II. LEGAL MALPRACTICE IN ESTATE PLANNING. ...........................................................................................3 

A. The Issue of Standing or "Privity.".................................................................................................................. 3 

1. The Majority View. ................................................................................................................................. 3 

2. The Minority View. ................................................................................................................................. 7 

B. Malpractice Claims Are Not Assignable......................................................................................................... 8 

C. The Standard of Care....................................................................................................................................... 8 

D. Other Attributes of the Standard of Care....................................................................................................... 13 

1. The "Error in Judgment" Rule and the Duty to Research...................................................................... 13 

2. The Specialist Standard. ........................................................................................................................ 14 

3. The Duty to Refer.................................................................................................................................. 15 

4. The Estate Planner's Duty to Anticipate Future Events......................................................................... 15 

E. Specific Errors in Drafting and Executing Testamentary Instruments.......................................................... 16 

1. Introduction. .......................................................................................................................................... 16 

2. Failure to Proofread............................................................................................................................... 17 

3. Failure to Anticipate Claims By Prospective Pretermitted Heirs. ......................................................... 17 

4. Errors in Supervision of Will Execution. .............................................................................................. 17 

5. Omitted Gifts and Failures to Deal With Contingencies. ...................................................................... 17 

6. Failure to Adequately Plan for the Minimization of Estate Taxes. ....................................................... 17 

7. Breach of Duty Arising Out of Continuing Relationship. ..................................................................... 18 

8. Negligent Delay in Preparation of Estate Plan. ..................................................................................... 18 

F. Defenses to Malpractice Action. ................................................................................................................... 18 

1. Introduction. .......................................................................................................................................... 18 

2. Contributory or Comparative Negligence. ............................................................................................ 19 

3. Statute of Limitations. ........................................................................................................................... 19 

III. LEGAL MALPRACTICE IN ESTATE AND TRUST ADMINISTRATION..................................................... 20 

A. Beneficiaries' Standing to Sue....................................................................................................................... 20 

1. Introduction. .......................................................................................................................................... 20 

2. The Majority Rule: Privity Doctrine Applied....................................................................................... 20 

3. The Minority Rule: Lack of Privity No Defense. .................................................................................22 

4. Willful Misconduct................................................................................................................................ 23 

B. Specific Errors and Omissions in Estate Administration. ............................................................................. 23 

1. Introduction. .......................................................................................................................................... 23 

2. Failure to Correctly Ascertain Heirs of Estate: Dean v. Conn (Miss. 1982) 419 So.2d 148. ............... 23 

3. Incorrect Calculation of Estate Shares or Distribution of Estate Assets: Wisdom v. Neal (D.C.N.M. 

1982) 468 F.Supp. 4 (attorney for the estate incorrectly determined that the estate should be distributed 

per stirpes rather than per capita). ........................................................................................................ 23 

4. Failure to Insure Representative Did Not Misappropriate Assets: Elam v. Hyatt Legal Services (1989) 

44 Oh.St.3d 175, 541 N.E.2d 616; contra Baldock v. Green (1980) 109 Cal.App.3d 234, 167 Cal.Rptr. 

157. ........................................................................................................................................................ 23 

5. Failure to Timely Prosecute Wrongful Death Action: Baer v. Broder (1982) 86 App.Div.2d 881, 447 

N.Y.S.2d 538; Jenkins v. Wheeler (1984) 69 N.C.App. 140, 316 S.E.2d 354, review denied, 311 N.C. 

758, 321 S.E.2d 136............................................................................................................................... 23 

6. Failure to Timely File Estate Tax Return: Sorenson v. Fio Rito (1980) 90 Ill.App.3d 368, 413 N.E.2d 

47; Cameron v. Montgomery (Iowa 1975) 225 N.W.2d 154; In Re Remsen (Surr.Ct. 1979) 99 Misc.2d 

92, 415 N.Y.S.2d 370. ........................................................................................................................... 23 

7. Failure to Timely Elect QTIP Treatment on 706: Cf. Robinson v. U.S. (S.D.Ga. 1990) 90-2 USTC 

60,045. ................................................................................................................................................... 24 

8. Failure to Timely Advise Re Possible Disclaimer: Linck v. Borokas & Martin (Alaska 1983) 667 P.2d 

171; contra, Kramer v. Belfi (1984) 106 App.Div.2d 615, 482 N.Y.S.2d 898...................................... 24 

i

30 


9. Preparation of Inadequate Accounting Resulting in Fiduciary Client's Surcharge: Flynn v. Judge 

(1912) 149 App.Div. 278, 133 N.Y.S. 794............................................................................................ 24 

10. Failure to disclose dual representation in transactions involving estate and trust: Morales v. Field, 

DeGoff, Huppert & MacGowan (1979) 99 Cal.App.3d 307, 160 Cal.Rptr. 239; but see, Goldberg v. 

Frye (1990) 217 Cal.App.3d 1258, 266 Cal.Rptr. 483 (lack of privity bars action for negligence by 

estate's beneficiaries against attorney for executor). ............................................................................. 24 

IV. DAMAGES. .......................................................................................................................................................... 24 

V. ETHICAL CONSIDERATIONS. ......................................................................................................................... 25 

A. Introduction. .................................................................................................................................................. 25 

B. Excerpt from Scope. ...................................................................................................................................... 25 

C. MRPC 1.1: Competence............................................................................................................................... 26 

D. MRPC 1.2: Scope of Representation............................................................................................................ 26 

E. MRPC 1.3: Diligence. .................................................................................................................................. 26 

F. MRPC 1.4: Communication. ........................................................................................................................ 26 

G. MRPC 1.6: Confidentiality of Information. ................................................................................................. 26 

H. MRPC 1.7: Conflict of Interest: General Rule. ........................................................................................... 27 

I. MRPC 1.8: Conflict of Interest: Prohibited Transactions. ........................................................................... 27 

J. MRPC 1.14: Client Under a Disability......................................................................................................... 28 

K. MRPC 2.2: Intermediary. .............................................................................................................................. 28 

L. MRPC 3.3: Candor Toward the Tribunal. .................................................................................................... 29 

M. MRPC 4.3: Dealing With Unrepresented Person. ........................................................................................ 29 

VI. CONFLICTS OF INTEREST AND THE RULES OF PROFESSIONAL CONDUCT....................................... 29 

A. Representing Conflicting Interests. ............................................................................................................... 29 

B. The Role of Ethical Rules in Malpractice Litigation..................................................................................... 30 

VII. CONCLUSION. .................................................................................................................................................... 31 

ii

31 


INTRODUCTION 

Attorneys practicing in the fields of estate planning, trust and probate law must be capable of applying legal 

expertise in a wide variety of rapidly changing areas. The estate attorney must keep abreast of myriad alterations in 

the law of individual, estate and trust taxation, both state and federal; in addition, he or she must develop drafting 

expertise with respect to numerous types of estate planning documents whose constantly changing formats are 

dictated by alterations in governing regulations and statutes on the state and federal level. The probate and estate 

attorney engaged in litigation must master the intricacies of general litigation procedures and techniques, as well as 

those specific to the probate and estate context. In short, the potential malpractice pitfalls for the practitioner in the 

area of estate planning and probate are considerable. 

Simultaneously with the tasks of learning and applying the tax and non-tax complexities of substantive law 

governing estate planning and probate matters and rendering competent advice to their clients, estates and trust 

lawyers must grapple with numerous ethical concerns and the often uneven application of their state's Rules of 

Professional Conduct. Handling estate planning and probate matters regularly involves the lawyer in the 

representation of joint or multiple clients, potential and actual conflicts of interests, problems with respect to 

confidentiality, elderly and disabled clients of questionable competence, and potential prohibited transactions 

between attorney and client. Often, the Rules of Professional Conduct are not well designed for application in a trust 

and estates practice which commonly involves the representation of family members in a non-adversarial manner. 

Further complicating these ethical problems, although the Rules of Professional Conduct are generally stated as rules 

of ethic conduct only (and are often described aspirational), there is a growing tendency in civil litigation to apply the 

Rules of Professional Conduct in the legal malpractice context and to impose malpractice liability for failure to 

observe one or more applicable Rules. For all of these reasons estates and trusts lawyers must have a fundamental 

grasp of the Rules of Professional Conduct and how they may apply in a typical estate planning or probate case. 

This Article will first focus on the substantive law of legal malpractice in the estate planning and administration 

context as it has developed throughout the United States in the past few years. It will then turn to a brief discussion 

of the ABA Rules of Professional Conduct most often encountered in the estate planning and administration context. 

(The author recognizes that many states, including his own, California, have not adopted the ABA Rules of 

Professional Conduct. Nevertheless, these Rules are applicable in 38 jurisdictions and have generally been 

disseminated throughout the country. They thus form a basic framework for the analysis of ethical issues.) 

The Article will close with a discussion of how the Rules of Professional Conduct have been considered by the 

courts in legal malpractice litigation. 

1

32 


I. OVERVIEW: THE ELEMENTS OF A 

LEGAL MALPRACTICE CAUSE OF 

ACTION. 

A. In California A Negligence Theory Governs. 

The clear trend in California law is to treat claims 

for legal malpractice similarly with other tort claims 

based on negligence by a professional. Thus, the key 

elements of a cause of action for legal malpractice, in 

general, are as follows: 

1. The attorney is under a duty to use such skill, 

prudence and diligence as other members of the 

profession commonly possess and exercise; 

2. The attorney has breached that duty by failing 

to perform with the requisite degree of skill; 

3. There is a proximate causal connection 

between the attorney's negligence and an injury; 

causing 

4. Damage to the "client." 

See Budd v. Nixen (1971) 6 Cal.3d 195, 98 

Cal.Rptr. 849; Gambert v. Hart (1872) 44 Cal. 542; 

Ishmael v. Millington (1966) 241 Cal.App. 2d 520, 50 

Cal.Rptr. 592. (The Supreme Court of California has 

recently modified the "proximate cause" instruction 

generally given to juries in negligence cases. In 

Mitchell v. Gonzales (1991) 54 Cal.3d 1049, 1 

Cal.Rptr.2d 913, the Supreme Court of California ruled 

that the term "proximate cause" should no longer be 

employed in any jury instruction in California since it 

is likely to mislead jurors to focus improperly on the 

alleged cause that is spatially or temporally closest to 

the damage caused. Therefore, the court ruled, juries 

should be instructed that "a legal cause" of damage is a 

cause which is a "substantial factor" in bringing about 

the damage (BAJI 6.37). 

As stated in BAJI: 

"In performing professional services 

for a client, an attorney has the duty to 

have that degree of learning and skill 

ordinarily possessed by reputable 

attorneys, practicing in the same or a 

similar locality and under similar 

circumstances. 

"It is his or her further duty to use 

the care and skill ordinarily used in like 

cases by reputable members of his or her 

profession practicing in the same or a 

similar locality under similar 

2 

circumstances, and to use reasonable 

diligence and his or her best judgment in 

the exercise of his professional skill and in 

the application of his learning, in an effort 

to accomplish the purpose for which he or 

she was employed. A failure to fulfill any 

such duty is negligence." 

6.37, California Jury Instructions Civil: Book of 

Approved Jury Instructions ("BAJI"), Committee on 

Standard Jury Instructions, Civil, Superior Court of 

Los Angeles County, West 1986. 

The standard of care applicable in a legal 

malpractice action generally must be proven by expert 

testimony. As the court observed in Wright v. Williams 

(1975) 47 Cal.App.3d 802, 121 Cal.Rptr. 194: 

"In some circumstances, the failure 

of attorney performance may be so clear 

that a trier of fact may find professional 

negligence unaided by the testimony of 

experts. [Footnote omitted.] Where, 

however, the malpractice action is brought 

against an attorney holding himself out as a 

legal specialist and the claim against him is 

related to his expertise as such, then only a 

person knowledgeable in the specialty can 

define the applicable duty of care and 

opine whether it was met." Wright v. 

Williams, supra, 121 Cal.Rptr. at 200. 

See also, e.g., Sanders v. Smith (N.M.App. 1972) 496 

P.2d 1102; Fidler v. Sullivan (1983) 93 A.D.2d 964, 

463 N.Y.S.2d 279; Trubell v. Patten (Tex.Civ.App. 

1979) 582 S.W.2d 606; Olfe v. Gordon (Wisc. 1980) 

286 N.W.2d 573. 

In determining the applicable "locality" for 

measuring the care and skill employed by reputable 

members of the profession, the trend is to impose a 

statewide standard. See, e.g., Hansen v. Wightman 

(1975) 14 Wn.App. 78, 538 P.2d 1238; Hinzey v. 

Carpenter (1992) 119 Wn.2d 251, 830 P.2d 646; Russo 

v. Griffin (Vt. 1986) 510 A.2d 436; Hodges v. Carter 

(N.C. 1954) 80 S.E.2d 144. 

On the requirement imposed on a plaintiff to 

prove damages resulting from the attorney's 

negligence, see BAJI 6.37.5. 

California courts have also acknowledged that, in 

failing to exercise reasonable care, an attorney may be 

found to have breached an implied duty to exercise 

reasonable skill, care and diligence implied in the 

contract for services entered into between attorney and 

client. See, e.g., Lucas v. Hamm (1961) 56 Cal.2d 583,

33 


15 Cal.Rptr. 821, 364 P.2d 685. Thus, it is not atypical 

for a plaintiff to plead a malpractice action on the two 

alternative theories of negligence and breach of 

contract. The difference in applicable theories may 

result in the application of a different measure of 

damages and differences in the availability of certain 

defenses. However, in California the applicable statute 

of limitations for legal malpractice actions does not 

vary depending upon the theory of recovery. CCP 

§ 340.6 (discussed infra). 

Some states, for example, Pennsylvania, have 

specifically rejected a negligence theory in the estate 

planning malpractice context and have instead applied 

a third party beneficiary contract analysis. Thus, in 

Guy v. Liederbach (1983) 501 Pa. 47, 459 A.2d 744, 

the Supreme Court of Pennsylvania rejected 

California's approach but nevertheless held that a 

beneficiary disappointed by an estate planning 

attorney's negligent drafting may bring suit as an 

intended third party beneficiary of the attorney's 

contract with the deceased client under the rationale of 

the Restatement (Second) of Contracts, § 302. 

Application of one or the other of these theories 

may give rise to conflicting decisions with respect to a 

beneficiary's standing to sue, the applicable statute of 

limitations, and the damages available. 

B. Other Theories of Recovery. 

In addition to traditional negligence and breach of 

contract, the liability of an attorney to his or her client 

may also be predicated on theories of breach of 

fiduciary duty, negligent misrepresentation or fraud. 

See 1 R. Mallen & J. Smith, Legal Malpractice § 8.1 

(3rd ed. 1989). While an attorney may agree to 

perform a particular task, thus creating an express 

contract (see e.g., Lindner v. Eichel (1962) 34 Misc.2d 

840 232 N.Y.S.2d 240, aff'd, 233 N.Y.S.2d 238 

(1962)), the more common situation is one in which 

the attorney impliedly agrees to act with ordinary 

professional skill. All the theories are alike in that 

each requires a finding that the attorney had a duty to 

the client that the attorney has breached. See 1 Mallen, 

§§ 8.2, 8.3. 

A fraud cause of action is not, strictly speaking, a 

category of tort peculiar to legal malpractice; it does 

not differ from fraud and deceit committed by the 

nonprofessional in a nonlegal context. However, the 

legal practitioner must recognize that intentional 

misrepresentations about the law and legal principles 

will give rise to fraud claims to the extent a client 

justifiably relies on those statements. See, Mallen at 

§ 8.8; Lawson v. Cagle (Ala. 1987) 504 So.2d 226; 

Lietz v. Primock (1958) 84 Ariz. 273, 327 P.2d 288; 

3 

Easton v. Chaffee (1941) 8 Wn.2d 509, 113 P.2d 31. 

Fraud in the legal malpractice context is most likely to 

arise when a lawyer is attempting to "cover up" a 

previous error or oversight. 

II. LEGAL MALPRACTICE IN ESTATE 

PLANNING. 

A. The Issue of Standing or "Privity." 

As the analysis above reflects, in general an 

attorney may only be held liable in malpractice to his 

or her “client." The so-called doctrine of "privity" 

requiring the showing of a contractual attorney-client 

relationship between plaintiff and defendant has a long 

and storied history. Unfortunately, the analysis in the 

estate planning context requires an inquiry beyond 

whether or not the individual now suing the estate 

planning attorney for malpractice was the direct 

"client" of the attorney. Typically, the heir or 

beneficiary of the now deceased testator disappointed 

by the results of the attorney's estate plan had no prior 

relationship with the attorney drafter and clearly cannot 

claim to be the attorney's client. 

1. The Majority View. 

a. Introduction. 

Although courts from different jurisdictions have 

dealt with this issue in a variety of ways, a majority of 

the states that have considered the issue follow 

California in holding that the beneficiaries of a 

defectively drafted will or trust should be considered 

the defendant estate planning attorney's "indirect" 

clients for purposes of the foregoing analysis. That is, 

disappointed heirs or beneficiaries may sue estate 

planning attorneys to the extent that the attorney's legal 

malpractice deprived the plaintiffs of benefits under the 

deceased client's will or trust that they otherwise would 

have received but for the estate planning attorney's 

negligence. The beneficiaries' lack of contractual 

"privity" with the drafting attorney is no defense. See, 

e.g., Biakanja v. Irving (1961) 49 Cal.2d 647, 320 P.2d 

16; see also, Auric v. Continental Cas. Co. (1983) 111 

Wisc.2d 507, 331 N.W.2d 325; Guy v. Liederbach 

(1983) 501 Pa. 47, 459 A.2d 744; Succession of 

Killingsworth (La. 1973) 292 So.2d 536; Ogle v. 

Fuiten (1984) 102 Ill.2d 356, 466 N.E.2d 224; McAbee 

v. Edwards (Fla. 1976) 340 So.2d 1167; Licata v. 

Spector (1966) 26 Conn.Supp 378, 225 A.2d 28; 

Clagett v. Dacy (1980) 47 Md.App. 23, 420 A.2d 1285. 

b. California's "Balancing of Factors" Test. 

In Biakanja, a landmark case abolishing the 

privity defense in California in malpractice cases

34 


involving estate planning, the Supreme Court of 

California set forth six factors that should be balanced 

in a given case to determine liability with respect to a 

plaintiff not in privity with the attorney: 

(1) The extent to which the transaction 

was intended to affect the complaining beneficiary; 

beneficiary; 

(2) The foreseeability of the harm to the 

(3) Whether, in fact, the beneficiary 

suffered harm; 

(4) The closeness of connection between 

the negligent act and the injury; 

future harm. 

(5) The "moral" blame for the act; and 

(6) The public policy in preventing 

In Biakanja, the "moral" blame attaching to the 

defendant's conduct was arguably relevant since the 

defendant was a notary public who, in drafting the will 

in question, was practicing law without a license. 

Generally, this element is no longer considered (at least 

in a simple professional negligence context), and the 

defendant attorney's conduct will be analyzed without 

regard to its "morality" or lack thereof. (Of course, the 

moral blame attaching to a defendant's conduct may 

well be relevant in cases involving alleged intentional 

torts, such as fraud or breach of fiduciary duty; and a 

breach of one or more of the Rules of Professional 

Conduct may also be relevant in a given case on the 

issue of whether or not an attorney failed to exercise 

reasonable skill, care and diligence. See discussion 

infra at p. 71 ff.) 

As the Supreme Court of California noted in 

Heyer v. Flaig (1969) 70 Cal.2d 223, 226, 74 Cal.Rptr. 

225, 499 P.2d 161, the attorney drafting a will 

"realistically and in fact assumes a relationship not 

only with the client but also with the client's intended 

beneficiaries . . . . [Public] policy requires that the 

attorney exercise his position of trust and superior 

knowledge responsibly so as not to affect adversely 

persons whose rights and interests are certain and 

foreseeable." The line of cases in California following 

the Biakanja anti-privity rule indicate that intended 

beneficiaries under either a will or a trust have standing 

to sue for legal malpractice. See, e.g., Bucquet v. 

Livingston (1976) 57 Cal.App.3d 914, 129 Cal.Rptr. 

514 (as with beneficiaries under defectively drafted 

will, beneficiaries of trust have standing to sue 

attorney-drafter). 

4 

The argument against the "privity" defense in the 

estate planning context is compelling: 

"In broad terms, the question is 

whether solicitors who prepare a will are 

liable to a beneficiary under it if, through 

their negligence, the gift to the beneficiary 

is void. The solicitors are liable, of course, 

to the testator or his estate for a breach of 

the duty that they owed to him, though as 

he has suffered no financial loss it seems 

that his estate could recover no more than 

nominal damages. Yet it is said that 

however careless the solicitors were, they 

owed no duty to the beneficiary, and so 

they cannot be liable to her. If this is right, 

the result is striking. The only person who 

has a valid claim has suffered no loss, and 

the only person who has suffered a loss has 

no valid claim." Ross v. Caunters (1979) 3 

All England Reports 580, at 582-83. 

c. Cases From Jurisdictions Other Than 

California. 

In recent years many jurisdictions have affirmed 

the standing to sue of an heir or beneficiary allegedly 

disappointed through the negligence of a deceased 

testator's attorney despite the lack of contractual privity 

between the plaintiff and the attorney drafter. Some 

courts have adopted California's "balancing of factors" 

test, others have utilized a third party beneficiary 

contractual theory of recovery and others have simply 

assumed without discussion that lack of contractual 

privity is no defense to an attorney drafter. Those 

jurisdictions include: 

Connecticut: Stowe v. Smith (1981) 184 Conn. 

194, 441 A.2d 81 (disappointed beneficiary's cause of 

action sounds in both third party beneficiary contract 

and tort theories; absent conflict between rules of 

contract and tort, plaintiff may proceed on either or 

both); Licata v. Spector (1966) 26 Conn.Supp. 378, 

225 A.2d 28 (Biakanja balancing of factors test 

applied). 

Delaware: Pinckney v. Tigani, C.A. No. 02C-08- 

129 FSS (Del.Super.Ct. 2004) (Attorney drafted a trust 

to provide for the plaintiff. Pursuant to the scope of 

the engagement agreement, the attorney was not hired 

to investigate the client’s finances to determine if funds 

were available to fund the bequest to the trust. In 

determining whether the beneficiary had standing, the 

court stated, “Where the drafting is correct [as in the 

instant case], yet the bequest fails for other reasons, the 

disappointed heir must allege facts that irrefutably lay 

the bequest’s failure at the scrivener’s door.” The

35 


court held that the attorney did not owe a duty of care 

to the trust beneficiary to investigate the decedent’s 

finances to ensure that the bequest would be funded 

because the scope of representation was limited to 

preparation of documents, and the engagement letter 

specifically excluded any investigation into the 

decedent’s finances.) 

District of Columbia: Needham v. Hamilton 

(D.C.App. 1983) 459 A.2d 1060 (negligence analysis); 

Knight v. Furlough (1989) 553 A.2d 1232 (privity 

defense not raised). 

Florida: Arnold v. Carmichael (1988) 524 So.2d 

464, review denied, 531 So.2d 1352 (negligence 

theory); McAbee v. Edwards (1976) 340 So.2d 1167 

(balancing of factors test applied); compare DeMaris v. 

Asti (1983) 426 So.2d 1153 (liability to disappointed 

beneficiary may arise only if testamentary intent, as 

expressed in the will, is frustrated; extrinsic evidence 

re intent inadmissible; see discussion infra). 

Georgia: Riser v. Livsey (1976) 138 Ga.App. 615, 

227 S.E.2d 88 (privity doctrine not discussed). 

Hawaii: Blair v. Ing, 21 P.3d 452 (Haw. 2001). 

The beneficiaries of a trust brought legal malpractice 

action against the attorney who created the trust, 

alleging that attorney’s negligence in drafting the trust 

caused adverse tax consequences that diminished their 

inheritance. In a case of first impression for that state, 

the Hawaii Supreme Court held: 

1) Non-client beneficiaries have standing in 

legal malpractice action under both contract 

and negligence theories. In a testator-attorney 

relationship, the attorney is retained for the 

specific benefit of the named beneficiaries, 

thus the attorney owes the non-client 

beneficiaries a duty of care; 2) even where the 

testamentary instrument is valid on its face, 

extrinsic evidence will be allowed in a legal 

malpractice arising in the estate-planning 

context does not accrue at the time of drafting, 

but instead only begins to run when the 

plaintiff knew or reasonably should have 

known of the attorney’s negligence. 

Idaho: Harrigfeld v. Hancock, 90 P.3d 884, 888 

(Idaho 2004). The Idaho Supreme Court adopted the 

rule set forth above in Espinosa v. Sparber, Shevin, 

Shapo, Rosen & Heilbronner, 612 So.2s 1378 (Fla. 

1993), holding that a testator owed limited duties to the 

testator’s beneficiaries. The attorney owed a duty to 

include beneficiaries as requested by the testator and to 

have the instruments properly executed. The attorney 

5 

did not owe any duty to individuals who believed they 

did not receive their fir share of the testator’s estate. 

Illinois: Ogle v. Fuiten (1984) 102 Ill.2d 356, 466 

N.E.2d 224 (action stated under both traditional 

negligence and breach of third party beneficiary 

contract theories); McLane v. Russell (1989) 131 Ill.2d 

509, 546 N.E.2d 499 (negligence theory). 

Iowa: Schreiner v. Scoville, 410 N.W.2d 679 

(iowa 1987). The Supreme Court of Iowa here held 

that the lawyer drafting a will owes a duty of care to 

the direct, intended and specifically identifiable 

beneficiaries of the testator-client and that such a 

beneficiary has an action for legal malpractice against 

the attorney without regard to lack of privity. 

Indiana: Walker v. Lawson (1988) 526 N.E.2d 

968 (third party beneficiary contract theory). 

Iowa: Schreiner v. Scoville (1987) 410 N.W.2d 

679 (negligence theory). 

Kansas: Piezel v. Zuspann (1990) 247 Kan. 54, 

795 P.2d 42, modified on other grounds and reh'g 

denied, 247 Kan. 699, 803 P.2d 205, aff'd (1993) sub 

nom. Pizel v. Whalen 252 Kan.384, 845 P.2d 37 (inter 

vivos trust case). 

Kentucky: Cave v. O’Bryan No. 2002-CA- 

002601-MR, 2004 WK 869364 (Ky.Ct.App. 2004), 

rev’d on other grounds sub. nom. Cave v. O’Bryan, 

No. 2005 –SC- 00018 (Ky. 2006). An intended 

beneficiary of a will may maintain a malpractice action 

against the testator’s attorney alleging that the estate 

was not distributed according to the testator’s intent. 

After acknowledging that the “clear trend” among 

courts in other jurisdictions is to hold that estate 

beneficiaries are intended to benefit from the services 

rendered by attorneys to their testator-clients, the court 

held that an attorney owes a “duty of care to the direct, 

intended, and specifically identifiable beneficiaries of 

the estate planning client, notwithstanding a lack of 

privity. 

Louisiana: Succession of Killingsworth (La.App. 

1973) 270 So.2d 196, aff'd in part and rev'd in part, 

292 So.2d 536; Weintz v. Kramer (1892) 44 La.Ann. 

35, 10 So. 416 (notary public liable on bond). 

Massachusetts: Connecticut Junior Republic v. 

Doherty (1985) 20 Mass.App.Ct. 107, 478 N.E.2d 735 

review denied (1985) 482 N.E.2d 328 (possible 

liability of attorney drafter assumed but no liability 

found since testator ratified attorney's error); Levin v. 

Berley (1st Cir. 1984) 728 F.2d 551 (case decided on

36 


other grounds but court implied privity rule not 

applicable under Massachusetts law). 

Michigan: Mieras v. DeBona, 550 N.W.2d 202 

(Mich. 1996). The Supreme Court of Michigan here 

held that, although a beneficiary named in a will may 

bring a tort-based cause of action against the attorney 

who drafted the will for negligent breach of the 

standard of care owed to the beneficiary by reason of 

the beneficiary’s third party beneficiary status, the 

attorney could not be held liable to the testator’s heirs 

for negligence inasmuch as the will in question 

fulfilled the intent of the testator as expressed in the 

will. (The will did not exercise the testator’s power of 

appointment over her predeceased husband’s marital 

trust, thereby permitting the testator’s daughter, 

disinherited by the testator, to receive one-third of the 

assets held in the husband’s trust.) 

Minnesota: Marker v. Greenberg (Mn. 1981) 313 

N.W.2d 4 (Biankanja balancing test applied to case 

involving alleged negligent drafting of joint tenancy 

deed, but no liability found since plaintiff failed to 

prove he was direct and intended beneficiary of the 

lawyer's services). 

Missouri: Donahue v. Shughart, Thomson & 

Kilroy, P.C., 900 S.W.2d 624 (Mo. 1995). In this 

malpractice case the Supreme Court of Missouri 

aligned Missouri’s law with the majority rule in 

holding that lack of privity was not a defense to an 

action for alleged malpractice in the drafting of a 

testamentary instrument. 

Johnson v. Sandler, Balkin, Hellman & Weinstein, 

P.C., 958 S.W.2d 42 (Mo. Ct.App. 1997). Applying 

Missouri’s recently adopted “modified balancing test” 

as enunciated in Donahue, supra, the court directed the 

trial court on remand to determine whether or not the 

decedent, in employing the defendant estate planning 

attorney, intended to benefit the non-client/beneficiary. 

The court noted that the lawyer, who had prepared a 

total amendment and restatement of an existing trust 

instrument, could be held responsible for the entire 

instrument’s contents even though large portions of the 

instrument were simply copied, verbatim, from the 

original trust document. 

Montana: Stanley L. and Carolyn M. Watkins 

Trust v. Lacosta, 92 P.3d 620 (Mont. 2004). The court 

ruled that it was a factual question, precluding 

summary judgment, whether non-client will and trust 

beneficiaries had standing to bring a legal malpractice 

action against the attorney who drafted the decedent’s 

estate planning documents. The court also ruled that 

the statute of limitations for bringing the action did not 

6 

begin to run until a claim was brought that jeopardized 

the validity of the documents. 

Estate of Watkins v. Hedman, Hileman & Lacosta, 

91 P.3d 1264 (Mont. 2004). In a companion case to 

Stanley L. and Carolyn M. Watkins Trust v. Lacosta, 

supra, the court also held the statute of limitations 

period in a malpractice action brought by the estate of 

the attorney’s client against the attorney who 

negligently created an irrevocable, rather than 

revocable, trust. The court reasoned that the testator’s 

wife’s discovery of the negligence was delayed by the 

complexity of the trust documents and by the lawyer’s 

assurances to the wife that the documents carried out 

the testator’s wishes. 

New Jersey: Rathblott v. Levin (D.N.J. 1988) 697 

F.Supp. 817 (negligence analysis under New Jersey 

law). 

New Hampshire: Simpson v. Calivas, 650 A.2d 

318 (N.H. 1994). This decision reverses the dismissal 

of a malpractice action against the scrivener of a will, 

who was charged with failing to draft a will that 

expressed the decedent’s intent to leave all of his land 

to plaintiff. “We hold that where, as here, a client has 

contracted with an attorney to draft a will and the client 

has identified to whom he wishes his estate to pass, 

that identified beneficiary may enforce the terms of the 

contract as a third-party beneficiary.” 650 A.2d at 323- 

324. 

New Mexico: Wisdom v. Neal (D.C. N.M. 1982) 

568 F.Supp. 4 (estate administration case; California's 

balancing of factors test employed in holding that 

privity was no defense to an action by decedent's niece 

and nephew against an attorney who had incorrectly 

determined that the estate should be distributed per 

stirpes rather than per capita); Jaramillo v. Hood 

(1979) 93 N.M. 433, 601 P.2d 66 (cause of action 

possible though barred by statute of limitations). 

North Carolina: Jenkins v. Wheeler (1984) 69 

N.C.App. 140, 316 S.E.2d 354, review denied 311 

N.C. 758, 321 S.E.2d 136 (estate administration). 

Oklahoma: Hesser v. Central Nat’l Bank, 956 

P.2d 864 (Okla. 1998). Joining the majority of 

jurisdictions that permit a lawsuit for alleged negligent 

will drafting by a disappointed beneficiary, the court 

here applied the third-party/intended beneficiary 

contract theory to permit a suit for malpractice by the 

intended beneficiary of a will that the testator’s lawyer 

allegedly failed to have properly executed. 

Oregon: Hale v. Groce (1987) 304 Or. 281, 744 

P.2d 1289 (malpractice cause of action sounds under

37 


both tort and contract theories); Sizemore v. Swift 

(1986) 79 Or.App. 352, 719 P.2d 500. 

Pennsylvania: Guy v. Leiderbach (1983) 501 Pa. 

47, 459 A.2d 744 (third party beneficiary contract 

theory applied, Restatement (Second) of Contracts § 

302: Contract between testator and attorney is for the 

drafting of a will that clearly manifests the intent of the 

testator to benefit the legatees who are the intended 

beneficiaries of the contract (provided they are named 

in the will); California's balancing of factors test 

criticized as too broad). 

South Dakota: Persche v. Jones (1986) 387 

N.W.2d 32 (bank and bank president who drafted and 

supervised execution of wills and codicil resulting in 

invalidity held liable in negligence and for the 

unauthorized practice of law). 

Washington: Stangland v. Brock (1987) 109 Wn. 

2d 675, 747 P.2d 464 (lack of privity assumed to be no 

bar to action, though liability not found on particular 

facts); Hansen v. Wightman (1975) 14 Wn.App. 78, 

538 P.2d 1238; Ward v. Arnold (1958) 52 Wn.2d 581, 

328 P.2d 164 (attorney liable in breach of contract 

where beneficiary employed defendant to draw will for 

her husband). 

West Virginia: Brammer v. Taylor (1985) 175 

W.Va. 728, 338 S.E.2d 207 (in action by disappointed 

beneficiary under invalid codicil question of whether 

or not bank employees not only had acted as typists 

and attesting witnesses but also had engaged in the 

unauthorized practice of law (in which event the court 

found their supervision of codicils' execution would be 

prima facie negligent) held to be question for trier of 

fact). 

Wisconsin: Auric v. Continental Casualty Co. 

(1983) 111 Wisc.2d 507, 331 N.W.2d 325 (balancing 

of factors test applied). Compare Anderson v. 

McBurney, 467 N.W.2d 158 (Wis. Ct.App. 1991). In 

this case the decedent’s only child was omitted from 

the will drafted by an attorney to whom the decedent 

gave his estate. The attorney’s law firm represented 

the attorney as executor, and the lawyer filed an 

affidavit with the court incorrectly stating that the 

decedent had no heirs. The child’s guardian sued the 

attorneys for negligence in failing to discovery her 

status as a pretermitted heir. The court affirmed the 

dismissal of the child’s claim holding that, under 

Wisconsin’s intended third-party beneficiary/breach of 

contract test, the child lacked standing to sue. 

Thus, whatever the theory applied, the cases from 

a majority of jurisdictions expressly reflect the courts' 

acknowledgment that when an attorney drafts a will 

7 

(and, by extension, a trust) he or she knows that (a) the 

client employed him or her for the precise purpose of 

benefitting other persons (the beneficiaries), and (b) 

the consequences of an error by the lawyer will most 

likely fall upon those intended beneficiaries rather than 

upon the client (who, happily or otherwise, is usually 

deceased when the malpractice claim arises). See 

Dissenting Opinion of Justice Brown, in Simon v. 

Zipperstein (1987) 32 Oh.St.3d 74, at 78, 512 N.E.2d 

636. 

2. The Minority View. 

Despite a sustained and well-reasoned assault in 

many states, the dragon of "privity," applied to bar a 

malpractice claim for the alleged negligent drafting of 

a testamentary instrument, has not been slain, although 

the cases are short on discussion of the theoretical 

justification for the continued application of the 

doctrine. The following statement from the Supreme 

Court of Ohio is not atypical. "It is by now wellestablished 

in Ohio that an attorney may not be held 

liable by third parties as a result of having performed 

services on behalf of the client, in good faith, unless 

the third party is in privity with the client for whom the 

legal services were performed, or unless the attorney 

acts with malice." Simon v. Zipperstein (1987) 32 

Oh.St.3d 74, at 76, 512 N.E.2d 636. See also, 

Firestone v. Galbreath (E.D. Oh. 1990) 747 F.Supp. 

1556 (applying Ohio law). But see Hosfelt v. Miller 

(Ohio App. 2006), not reported in N.E.2d, 200 WL 

1741909. 

In addition to Ohio, the following states have all 

relatively recently reaffirmed the viability of the privity 

defense in the estate planning context: 

Alabama: Robinson v. Denton (Ala. 2002) 842 

So.2d 631. 

Maine: Nevin v. Union Trust Co. (Me. 2001) 726 

A.2d 694. 

Maryland: Noble v. Bruce, 709 A.2d 1264 (md. 

1998). The Court of Appeals (Maryland’s highest 

court) held that a testamentary beneficiary, who is not 

a client of the drafting lawyer, may not maintain a 

malpractice action against the lawyer for allegedly 

providing negligent estate planning advice to the 

testator or negligently drafting the testator’s will in a 

manner which resulted in significant estate and 

inheritance taxes that could have been avoided, thus reestablishing 

the strict privity rule in Maryland. 

Michigan: Ginther v. Zimmerman (Mich. App. 

1992) 491 N.W.2d 282 (alleged intended beneficiaries 

of will failed to state cause of action for legal

38 


malpractice where they did not allege that they were 

named in the will or that testator's intent as expressed 

in the will was frustrated). 

Missouri: Williams v. Bryan, Cave, McPheeters, 

McRoberts (Mo.Ct.App. 1989) 774 S.W.2d 847 

(malpractice action dismissed on ground that will 

contest was plaintiff's proper remedy; court declined to 

address third party beneficiary contract theory 

advanced by plaintiffs). 

Nebraska: Lilyhorn v. Dier (1983) 214 Neb. 728, 

335 N.W.2d 554; Saint Mary's Church of Schuyler v. 

Tomek (1982) 212 Neb. 728, 325 N.W.2d 164; 

Swanson v. Ptak (Neb. 2004) 682 N.W.2d 225. 

New York: Maneri v. Amodeo (1963) 38 Misc.2d 

190, 238 N.Y.S.2d 302 (theory of California cases 

specifically rejected); Viscardi v. Lerner (1986) 125 

A.D.2d 662, 510 N.Y.S.2d 183 (privity rule described 

as "firmly established" and to be applied absent fraud, 

collusion, malice or other "special circumstances"); 

Northern Trust Bank of Florida/Sarasota, N.A. v. 

Coleman (S.D.N.Y. 1986) 632 F.Supp. 648; compare, 

Estate of Douglas (1980) 104 Misc.2d 430, 428 

N.Y.S.2d 558 (recognizing trend, led by California 

courts, toward broadening of privity doctrine but rule 

nevertheless applied to bar suit). 

Texas: Berry v. Dodson, Nunley & Taylor (1986) 

717 S.W.2d 716, writ dismissed by agreement (1987) 

729 S.W. 2d 690; Dickey v. Jansen (1987) 731 S.W.2d 

581; Thomas v. Pryor (1992) 847 S.W.2d 303; Barcelo 

v. Elliot (1996), 387 S.W.2d 575. HOWEVER, 

COMPARE BELT V. OPPENHEIMER, BLEND, 

HARRISON & TATE, INC., 192 S.W.3D 780 (TEX. 

2006). WHICH WILL BE THE FOCUS OF THE 

ORAL PRESENTATION. 

Virginia: Copenhaver v. Rogers (1989) 238 Va. 

361, 384 S.E.2d 593 (no cause of action in tort absent 

privity; allegations re third party beneficiary contract 

theory held insufficient to confer standing to sue on 

decedent's grandchildren who failed to show they were 

"clearly intended" beneficiaries of testator's contract 

with law firm). 

B. Malpractice Claims Are Not Assignable. 

Regardless of whether or not a jurisdiction applies 

the privity rule, a cause of action for legal malpractice 

generally may not be assigned. This principle is based 

on the notion that legal services are distinctly personal 

and fiduciary in nature and that if such causes of action 

were assignable a "trade" in legal malpractice suits 

would develop. See Goodley v. Wank & Wank, Inc. 

(1976) 62 Cal.App.3d 389, 397, 133 Cal.Rptr. 83, 87 

8 

("The assignment of such claims could relegate the 

legal malpractice action to the market place and 

convert it to a commodity to be exploited and 

transferred to economic bidders . . . ."); Clement v. 

Prestwich (1983) 114 Ill.App.3d 479, 448 N.E.2d 

1039; D. Meiselman, Attorney Malpractice: Law and 

Procedure at 53 (1980). 

C. The Standard of Care. 

Assuming lack of privity is no defense to a 

disappointed beneficiary's suit against the estate 

planning attorney, the plaintiff must still show that the 

attorney has failed to meet the applicable standard of 

care. In California the generally applicable standard of 

care is summarized in Lucas v. Hamm, supra, as 

follows: "The general rule with respect to the liability 

of an attorney for failure to properly perform his duties 

to his client is that the attorney, by accepting 

employment to give legal advice or to render other 

legal services, impliedly agrees to use such skill, 

prudence, and diligence as lawyers of ordinary skill 

and capacity commonly possess and exercise in the 

performance of the task which they undertake." 56 

Cal.2d at 591. For later California cases applying the 

Biakanja and Lucas rules and elucidating on an 

attorney's duty of care in the estate planning field, see, 

e.g., Bucquet v. Livingston (1976) 57 Cal.App.3d 914, 

129 Cal.Rptr. 514 (defectively drafted marital 

deduction trust) and Ventura County Humane Society 

v. Holloway (1974) 40 Cal.App.3d 897, 115 Cal.Rptr. 

464 (ambiguous description of charitable legatee 

induced by testator's error in communication to 

attorney). 

Bucquet, supra, and Ventura County Humane 

Society, supra, illustrate the tension between the public 

policy favoring a remedy for the beneficiary 

disappointed by the alleged negligence of the 

beneficiary's deceased benefactor and the courts' 

concern (even in nonprivity jurisdictions) for the scope 

of the duties assumed by the attorney drafter. 

In Bucquet, the beneficiaries of an inter vivos trust 

brought suit against the attorney draftsman alleging 

that as a result of his negligent draftsmanship, the 

plaintiffs had received a smaller portion of the total 

trust estate than had been intended by the settlor. 

Plaintiffs alleged that the settlor ("George") had 

employed counsel to so plan his estate as to pass the 

non-marital one-half of the trust principal to the 

plaintiffs, free of the burden of any Federal estate taxes 

and California inheritance taxes, following the death of 

George's wife ("Ruby"). Plaintiffs further alleged that 

the attorney had negligently included a power of 

revocation in the trust instrument which, since it was 

subject to being interpreted as a general power of

39 


appointment, would subject the non-marital one-half of 

the trust to both Federal estate and California 

inheritance taxes on Ruby's death. In fact, this result 

had been avoided since Ruby had taken remedial steps 

by renouncing and assigning her life estate in advance 

of her death, although the remedial steps did not 

obviate all of the tax costs. 

In executing his trust in 1961, both George and 

the attorney intended that, on George's death, one-half 

of the principal of the trust would be available to Ruby 

and would qualify for the marital deduction for Federal 

estate tax purposes provided by Section 2056 of the 

Internal Revenue Code. The other (non-marital) onehalf 

of the trust would be available for Ruby's use 

during her lifetime but was not to be subject to any 

Federal estate or California inheritance taxes on her 

death and would pass ultimately to the plaintiffs, the 

remainder beneficiaries. George's trust provided that 

the income from the non-marital one-half of the estate 

would, after his death, be paid to Ruby. Upon the 

death of Ruby, the income was thereafter to be paid to 

the couple's only child, and on her death, the corpus 

was to be divided among the children of the couple's 

only child and the latter's husband. Unfortunately, the 

instrument gave Ruby the power to "modify, alter, 

revoke, or terminate this agreement in whole or part" 

even after George's death. 

The attorney draftsman probated George's estate 

in 1964, serving on behalf of Ruby as co-executrix. 

The attorney failed to advise Ruby of the tax effect of 

the general power of appointment in her estate and of 

her ability to disclaim that power under applicable 

Federal and California laws. (The attorney's 

relationship with Ruby continued until her death in 

1969.) When Ruby incurred California inheritance 

taxes on the death of George as a result of retaining his 

power of revocation over the nonmarital one-half of 

the trust, the issue of what taxes might be assessed on 

her estate when she died came up, and it became 

obvious that the nonmarital one-half of the trust would 

be included in Ruby's estate for both Federal estate and 

California inheritance tax purposes. Hoping to solve 

this problem, Ruby executed a disclaimer of the power 

of revocation in an attempt to prevent the nonmarital 

one-half of the estate from being included in her 

taxable estate and also assigned her entire life estate in 

the nonmarital one-half of the trust so that none of the 

property would be included in her taxable estate. 

Ruby died in 1969, and it was subsequently 

determined that the renunciation was effective and the 

non-marital one-half of the trust would not be included 

in her estate. However, the plaintiffs alleged that 

unnecessary California inheritance taxes had been 

incurred by Ruby on the death of her husband and that 

9 

Federal and California gift taxes had been incurred, 

totaling over $50,000.00, as a result of Ruby's 

renunciation of her power of revocation over the 

nonmarital one-half of the trust. Additional damages 

were alleged to include the attorneys' fees paid to effect 

the remedial steps described above. 

In reversing the trial court's judgment for the 

defendant on the pleadings, the Court of Appeal 

summarized the applicable law as follows: 

"Arguably, the provisions of the 

Internal Revenue Code and applicable 

regulations on the subject are as much of a 

"technicality-ridden legal nightmare" as the 

California law on perpetuities, involved in 

Lucas v. Hamm, supra [56 Cal.2d at 592]. 

However, the marital deduction trust, such 

as the one drafted in the instant case, is one 

of the best-known estate planning devices. 

Its details and tax consequences are all the 

more significant for a California attorney 

since it is well-known that the original 

Internal Revenue Code amendments 

permitting marital deduction trusts were 

enacted to make available to residents of 

non-community property states certain tax 

benefits enjoyed by residents of 

community property states, such as 

California. Further the pertinent provisions 

of Internal Revenue Code Section 2041 

making taxable for Federal estate tax 

purposes a general power of appointment 

created after October 21, 1942, were first 

enacted in 1951, ten years before the trust 

instrument here in issue was drafted ... The 

potential consequences of the retention of a 

general power of appointment are a matter 

within the reasonable competence of an 

attorney." Bucquet, supra, 57 Cal.App.3d 

at 922 (footnote omitted). 

After noting that the attorney had been employed 

to minimize the total Federal estate and California 

inheritance taxes payable on the testators' estates, and 

observing that the attorney employed a wellestablished 

tax-saving device (the marital deduction 

trust), albeit incorrectly, the Court stated: 

"As the complaint alleged that the 

trust corpus, as well as the estate of Ruby, 

was reduced by the error in draftsmanship, 

we must assume, for the purposes of this 

appeal and its present posture, that the 

beneficiaries lost an ascertainable portion 

of their testamentary rights because of the 

attorney's failure to advise either George

40 


before his death or Ruby after, that a 

general power of appointment was created 

by [the trust instrument]. We think under 

the above cited authorities, the 

beneficiaries have stated a cause of action. 

Of course, the facts as alleged may not be 

proved in a trial on the merits: For 

example, the attorney may be able to show 

at a later time either that the trust assets 

were in fact not diminished by the 

imposition of the additional taxes and 

attorneys' fees, or that George and Ruby 

were advised of the potential consequences 

of [including the article granting a general 

power in the trust], but chose to ignore 

these for other and more important family 

reasons." Id. at 923-24. 

In finding that the plaintiffs' complaint in Bucquet 

stated a viable cause of action for professional 

malpractice, the Court of Appeal distinguished its prior 

decision in Ventura County Humane Society v. 

Holloway (1984) 40 Cal.App.3d 897, 115 Cal.Rptr. 

464. 

In Ventura, supra, the Court of Appeal dismissed 

a complaint brought by a county humane society 

against a law firm that had prepared a will bequeathing 

the testator's estate in trust to three charities, including 

one designated as "Society for the Prevention of 

Cruelty to Animals (Local or National)," which turned 

out to be a non-existent organization. In fact, there 

were numerous humane societies located throughout 

the country, and a great number of these claimed to be 

entitled to share in the bequest made by the decedent in 

this case. The San Francisco Society for the 

Prevention of Cruelty to Animals took the position that 

it alone was entitled to the bequest in the will of the 

decedent (George Whittell). This claim necessitated 

extensive hearings and a lengthy trial, after which the 

probate court rejected the San Francisco Society's 

exclusive claim and held that the testator intended to 

make a gift to the local and national humane societies 

as a group. Thereafter, the San Francisco Society filed 

an appeal; the case was subsequently settled and the 

appeal dismissed in consideration of a substantial 

payment being made to the San Francisco Society. 

The Ventura County Humane Society brought a 

class action alleging that the will had been negligently 

drafted, as a result of which the various humane 

societies had been damaged by being required to hire 

legal counsel and participate in lengthy litigation to 

oppose the claims of the San Francisco Society and 

that this litigation and the resulting settlement had 

increased the costs of administration of the estate 

causing direct and indirect losses to the other humane 

10 

societies. The Court of Appeal, affirming the trial 

court's sustaining of the law firm's demurrer to the 

second amended complaint without leave to amend, 

found no actionable negligence. Although noting that 

an attorney who drafts a will clearly has a duty not 

only to his client but also to the will's intended 

beneficiaries, the court noted that, while there were 

ambiguities in the designation of the beneficiaries in 

this case, the trust's purpose was nevertheless clear and 

could be fully implemented and went on to hold that 

the plaintiffs' allegations that "Defendants did 

negligently and carelessly fail to inquire as to the 

testator's true intention and did negligently and 

carelessly draft said [clauses] of said will in language 

that was ineffectual to clearly and precisely set forth 

the intention of the testator" did not provide any 

indication as to the true intention of the testator. 

Ventura, supra, 40 Cal.App.3d at 906. 

The Court observed: 

"The cases cited by [the plaintiffs] 

unhesitatingly support the view that an 

attorney may be held liable to the 

testamentary beneficiaries only if the 

above stated test is fully met, that is, if due 

to the attorney's professional negligence 

the testamentary intent expressed in the 

will is frustrated and the beneficiaries 

clearly designated by the testator lose their 

legacy as a direct result of such 

negligence." 40 Cal.App.3d at 903 

(emphasis in original). 

Following its citation of Biakanja, Lucas and 

Heyer, the Court concluded: 

"The foregoing analysis makes it 

evident that the contention that respondents 

owed a duty of care towards appellant class 

as potential beneficiaries, even in the 

absence of an allegation of a clear causal 

connection between the claimed 

malpractice and the alleged loss and 

notwithstanding the fact that appellants did 

receive their testamentary share, is not 

supported by the existing case authorities. 

Appellants' position therefore can only be 

construed as a request to extend the scope 

of the attorney's liability so that any defects 

in wills which result in litigation would 

also constitute actionable legal 

malpractice. Neither appellants nor amicus 

curiae [the California Attorney General's 

office], however, advance any cogent 

reasons why the scope of an attorney's duty 

should be so extended under the principles

41 


enunciated in Biakanja and the cases 

following it and/or on the basis of general 

legal policy. 

In resolving this issue we must call to mind 

the basic principle that, while out of an 

agreement to provide legal services to the 

testator, a duty also arises to act with due 

care with regard to the interests of the 

intended beneficiary, the scope of duty 

owed to the beneficiary is determined by 

reference to the attorney-client 

relationship [citing Heyer, supra]. The 

primary duty is owed to the testator-client 

and the attorney's paramount obligation is 

to serve and carry out the intention of the 

testator. Consequently, when, as in the 

case at bench, the testamentary intent has 

been implemented, no good reason exists 

why the attorney should be held 

accountable for using certain words 

suggested or selected by the testator which 

later prove to be ambiguous. In addition, 

the task of proving whether claimed 

ambiguity was the result of negligence of 

the drafting attorney or whether it was the 

deliberate choice of the testator, would 

impose an insurmountable burden on the 

parties, since in such a case the trier of fact 

would be required to decide this crucial 

issue without the benefit of the testimony 

of the most important witness, the testator 

himself. Once recognized, such a duty 

would apply by parity of reasoning not 

only to wills, but also to contracts, 

conveyances and other legal instruments. 

The duty thus created would amount to a 

requirement to draft litigation-proof legal 

documents. This unlimited liability, as the 

learned trial judge aptly observed, would 

result in a speculative and almost 

intolerable burden on the legal profession 

indeed." Ventura, supra, 40 Cal.App.3d at 

904-905 (emphasis in original). 

Two years later, the same Court which decided 

Ventura in rendering its Bucquet decision 

distinguished the earlier case as follows: 

"The beneficiaries [in Ventura] . . . 

were designated exactly in the manner 

specified by the testator - who apparently 

did not know that there were several 

charitable organizations that fit the 

description that he provided to his attorney 

. . . We held that the attorney had no duty 

to investigate and make specific the 

11 

ambiguous designation of the charitable 

organizations supplied to him by his client 

. . . In the instant case [Bucquet], of 

course, there was no ambiguity, either as to 

the tax-saving intent of George or the 

identity of the beneficiaries. In Ventura, 

we were concerned with establishing a 

precedent that would force attorneys to 

draft litigation-proof documents. Since in 

the instant case the intent and beneficiaries 

were specified and the beneficiaries were 

to receive certain assets, it can be 

determined to what extent they were 

damaged, if the allegations of the 

complaint can be proved." Bucquet, supra, 

57 Cal.App.3d at 924-25 (emphasis added). 

As with the statement of the Supreme Court of 

California in Lucas v. Hamm, supra, that the rule 

against perpetuities was "a technicality-ridden legal 

nightmare" (citing Leach, "Perpetuities Legislation," 

67 Harvard Law Review 1348 (1954), "which no 

attorney in the exercise of reasonable skill, prudence 

and diligence can be expected to comprehend," so the 

suggestion of the Ventura County Humane Society 

opinion that the testator's attorney had no duty to verify 

the testator's ambiguous description of the charity he 

intended to benefit must be viewed with caution. The 

Internal Revenue Service has long published a 

comprehensive volume listing the names of all tax 

qualified public charitable organizations in the country, 

and resort thereto would have obviated the problem 

faced in the Ventura County case. Nevertheless, it is 

also clear that the proposition in Ventura County 

Humane Society that an attorney has no duty to draft a 

"litigation proof" document is, in an appropriate case, 

an accurate statement of the law. As with any 

negligence case, the issue must be: Did the attorney 

under the circumstances in question use reasonable 

skill, care and diligence in drafting the testamentary 

documents to conform to the testator-client's 

instructions? 

Thus, if litigation results from the drafter's use of 

ambiguous language or practices calling into question 

the authenticity of a document and, but for the 

practitioner's failure to exercise reasonable skill, care 

and diligence there would have been no litigation, then 

even a successful litigant in the underlying litigation 

may have a claim for malpractice against the attorney 

drafter. See, e.g., Rathblott v. Levin (D.N.J. 1988) 697 

F.Supp. 817 (litigation expenses incurred in successful 

defense of will contest recoverable where due care by 

drafting attorney allegedly would have avoided 

contest); Sizemore v. Swift (1986) 79 Or.App. 352, 719 

P.2d 500; Temple Hoyne Buell Foundation v. Holland

42 


& Hart (Colo. 1992) 851 P.2d 192. Contra, Morgan v. 

Roller (Wn. 1990) 794 P.2d 1313. 

As the court in Rathblott, supra, observed after 

holding that an attorney may be liable for negligence in 

drafting a will that causes the testator client's intended 

beneficiaries to lose their rights and rejecting the 

defendant attorney's argument that the privity defense 

should shield him because the plaintiff in this case was 

successful in the underlying litigation, "we are unable 

to see a valid legal difference between a plaintiff who 

loses the right to one-half of an estate and a plaintiff 

who loses one-half of an estate in protecting her rights. 

If either was caused by an attorney's negligence in 

drafting, that attorney should be liable." Rathblott v. 

Levin, supra, 697 F.Supp. at 820 (applying New Jersey 

law). On the other hand, compare O'Neill v. Sacher 

(Fla. 1988) 526 So.2d 771 (lawyer's alleged failure to 

draft unambiguous instruments, resulting in lawsuit to 

clarify ambiguity and client's expenditure of attorney's 

fees, held insufficient to state cause of action for 

malpractice where there was no showing that attorney's 

error caused frustration of the testator's intent as 

expressed in the will and trust documents). 

The courts' concerns for the scope of the duties 

assumed by the attorney drafter are reflected in 

numerous cases from other jurisdictions. To a greater 

or lesser extent, these cases, like Ventura County 

Humane Society, supra, reflect the courts' 

determination that, even where the defendant attorney 

drafter may not assert lack of privity as a defense 

against the disappointed beneficiary's suit, the plaintiff 

must nevertheless prove that he or she was intended to 

be the recipient of the deceased testator's largesse. 

In some jurisdictions, such as Florida, this 

principle is reflected in cases holding that, unless the 

drafter's alleged error can be determined from the face 

of the will without resort to extrinsic evidence, the 

disappointed intended beneficiary cannot prevail. 

Thus, DeMaris v. Asti (Fla.App. 1983) 426 So.2d 1153 

holds that the attorney may only be held liable to a 

disappointed beneficiary if the testator's intent, as 

expressed in the will, is frustrated and the beneficiary's 

legacy is lost or diminished as a direct result of the 

attorney's negligence in drafting. Furthermore, 

extrinsic evidence as to the testator's intent is 

inadmissible. See also, Lorraine v. Grove, Ciment, 

Weinstein & Stauber, P.A. (Fla.App. 1985) 467 So.2d 

315 (attorney drafted will provision gifting life estate 

in property subject to property homestead, thus 

invalidating gift; attorney held not liable in malpractice 

since testator's intent had been frustrated by state law 

and not by the attorney, and since there was no proof 

on the face of the will (extrinsic evidence not being 

12 

admissible) of testator's intent to devise comparable 

interest in other property if gift in question failed). 

That such a strict test may defeat justice is well 

illustrated by the Florida decision in Espinosa v. 

Sparber, Shevin, Shapo, Rosen & Hielbronner 

(Fla.App. 1991) 586 So.2d 1221, aff'd (1993) 612 

So.2d 1378. The decedent's surviving spouse, as 

guardian of her three minor children and as personal 

representative of her deceased husband's estate, and the 

decedent's adult daughter appealed from an adverse 

summary judgment dismissing their legal malpractice 

action. The decedent's lawyers had prepared a will for 

him in May 1983. The will established a trust for the 

benefit of the decedent's then three children but made 

no provision for afterborn children. Three months 

later, the decedent executed a first codicil (prepared by 

the defendant firm) that republished his will. A fourth 

child was born to the decedent in March 1984. 

In June of 1986, the decedent executed a second 

codicil changing one of his trustees and apparently told 

the attorney preparing the codicil that he had another 

child. The attorney drafted and sent a new will to the 

decedent who never executed it because of an alleged 

disagreement that the attorney had with the decedent 

over the value of the decedent's assets. The second 

codicil was nevertheless prepared and signed by the 

decedent so that a contemplated change in the marital 

trust could be effectuated immediately. Unfortunately, 

the decedent died shortly after the execution of the 

codicil. Since the second codicil made no reference to 

the decedent's afterborn child but did specifically 

republish the original will, the court in the underlying 

litigation over the child's efforts to establish herself as 

an heir of the estate held that her status as a 

pretermitted child had been destroyed. The trial court 

in the underlying action specifically refused to accept 

any extrinsic evidence on the issue of what the 

decedent may have intended with respect to his 

afterborn child. That decision was upheld by the 

Florida Court of Appeal in the companion case of 

Azcunce v. Estate of Azcunce (Fla.App. 1991) 586 

So.2d 1216. In the malpractice action that followed, 

the Florida court, citing Ventura County Humane 

Society v. Holloway, supra, held that a disappointed 

beneficiary may not prove by evidence totally extrinsic 

to the will that the testator's testamentary intent was 

other than as expressed in his will and, therefore, the 

fourth child's malpractice claim failed. As the dissent 

in Sparber, supra, noted, "clearly, in the instant case, 

the testator's intent is not 'expressed in the will'. That 

is exactly the problem!" Dissenting opinion, 586 So.2d 

at 1227. (Interestingly, however, the court did hold 

that the estate, being in privity of contract with the law 

firm, was entitled to a return of all fees incurred in the 

litigation defending the estage against the action

43 


generated by the lawyer's negligence, namely, the 

companion action brought by the omitted beneficiary 

to receive a share of the estate.) 

It is difficult to square the result in Sparber with 

the decision in Arnold v. Carmichael, supra, decided in 

1988 in the same state. There a Florida appellate court 

held that the intended testamentary beneficiaries under 

the decedent's will could bring an action in malpractice 

against the attorney drafter who prepared the 

decedent's will and omitted the crucial residuary 

clause. While paying lip service to Florida's limited 

exception to the privity rule allowing intended 

beneficiaries to maintain malpractice actions only 

where the testamentary intent as expressed in the will 

is frustrated, the court in Arnold held that the Florida 

version of the privity rule should not apply where as in 

this case the beneficiaries did not seek to "contradict" 

any language expressing testamentary intent in the 

probated will, the will being "entirely silent as to the 

disposition of the residuary estate." Citing Hamilton v. 

Needham (D.C.App. 1986) 519 A.2d 172, "in which 

the court held that evidence extrinsic to the will was 

admissible to establish the testatrix's intent and the 

attorney, who had omitted the residuary clause from a 

will, was liable to the intended beneficiaries," the 

Florida court went on to say, "here, as in Hamilton, the 

absence of a residuary clause, which is customarily in a 

professionally drawn will, 'is internal evidence within 

the will itself that something may be awry.' (citing 

Hamilton, supra, 519 A.2d at 175-76)." 524 So.2d at 

467. See also, Ogle v. Fuiten (1984) 102 Ill.2d 356, 

466 N.E.2d 224. 

The courts' concern over the admissibility of 

extrinsic evidence to allegedly "interpret" the 

instrument in question is misplaced. The rules 

governing the admissibility of extrinsic evidence in the 

interpretation of testamentary documents have no 

application in the professional negligence context 

where the issue is, or should be, whether or not the 

attorney failed to exercise reasonable skill, care and 

diligence in putting to paper the testator's intentions 

and where, if the testator's intentions can be proven by 

credible evidence, the plaintiffs may thereby bring 

themselves within the class of beneficiaries directly 

intended to be benefitted by the testator's execution of 

the document in question. Nevertheless, the 

contractual privity doctrine still lurks in jurisdictions, 

such as Florida, that have failed to come to grips with 

the fundamental issue presented by alleged legal 

malpractice in the estate planning context. The English 

court's dictum in Ross v. Saunders, supra, should be 

required reading in all fifty states. 

13 

D. Other Attributes of the Standard of Care. 

1. The "Error in Judgment" Rule and the Duty to 

Research. 

While the standard of skill, care and diligence 

expected of the estate planning lawyer is high, the 

standard is not tantamount to a requirement for 

perfection. As the Supreme Court of California 

observed in Smith v. Lewis (1975) 13 Cal.3d 349, 118 

Cal.Rptr. 621, 530 P.2d 589: 

"[A]n attorney does not ordinarily 

guarantee the soundness of his opinions 

and, accordingly, is not liable for every 

mistake he may make in his practice. He is 

expected, however, to possess knowledge 

of those plain and elementary principles of 

law which are commonly known by well 

informed attorneys, and to discover those 

additional rules of law which, although not 

commonly known, may readily be found 

by standard research techniques. [Citing, 

inter alia, Lucas v. Hamm, supra; Sprague 

v. Morgan (1960) 185 Cal.App.2d 519, 8 

Cal.Rptr. 347.] If the law on a particular 

subject is doubtful or debatable, an 

attorney will not be held responsible for 

failing to anticipate the manner in which 

the uncertainty will be resolved. [Citing 

Sprague v. Morgan, supra.] But even with 

respect to an unsettled area of the law, we 

believe an attorney assumes an obligation 

to his client to undertake reasonable 

research in an effort to ascertain relevant 

legal principles and to make an informed 

decision as to a course of conduct based 

upon an intelligent assessment of the 

problem." Smith v. Lewis, supra, 13 

Cal.3d at 358-59, 118 Cal.Rptr. at 627. 

Thus, in Smith v. Lewis, supra, where an attorney 

failed to research the issue of whether or not a military 

pension was community property for purposes of 

dissolution in a divorce, although that issue of the law 

was indeed disputed and research would not have 

yielded a clear-cut answer, the attorney's failure to 

perform any research whatsoever and to advise his 

client accordingly, was a breach of the duty to 

research, for which the attorney could be found liable 

in malpractice. See also, Aloy v. Mash (1985) 38 

Cal.3d 413, 696 P.2d 636, 212 Cal.Rptr. 162. 

Conversely, in Davis v. Damrell (1981) 119 

Cal.App.3d 883, 174 Cal.Rptr. 257, where the 

defendant attorney, like the defendant in Smith v. 

Lewis, supra, rendered an incorrect opinion, the 

attorney was nevertheless absolved from malpractice

44 


liability because, although mistaken, his opinion 

"represented a reasoned exercise of an informed 

judgment grounded upon a professional evaluation of 

applicable legal principles . . . . [Thus] respondent's 

error in judgment on a question of law [was] immune 

from a claim of professional negligence." Davis v. 

Damrell, supra, 119 Cal.App.3d at 888-89, 174 

Cal.Rptr. at 260. 

Davis, supra, further holds that, merely because 

the state of the law is unsettled at the time an attorney's 

advice is rendered, the attorney is under no duty to so 

advise his client in order to permit an informed choice. 

The court observed: 

"While we recognize that an 

attorney owes a basic obligation to provide 

sound advice in furtherance of a client's 

best interests [citing ABA Code of 

Professional Responsibility, Canon 7, and 

Ethical Considerations 7-7, 7-8], such 

obligation does not include a duty to advise 

on all possible alternatives no matter how 

remote or tenuous. To impose such an 

extraordinary duty would effectively 

undermine the attorney-client relationship 

and vitiate the salutary purpose of the 

error-in-judgment rule. As a matter of 

policy, an attorney should not be required 

to compromise or attenuate an otherwise 

sound exercise of informed judgment with 

added advice concerning the unsettled 

nature of relevant legal principles. Under 

the venerable error in judgment rule, if an 

attorney acting in good faith exercises an 

honest and informed discretion in 

providing professional advice, the failure 

to anticipate correctly the resolution of an 

unsettled legal principle does not constitute 

culpable conduct. To require the attorney 

to further advise a client of the uncertainty 

of the law would render the exercise of 

such professional judgment meaningless 

. . . . In short, the exercise of sound 

professional judgment rests upon 

considerations of legal perception and not 

prescience." Davis v. Damrell, supra, 119 

Cal.App.3d at 890, 174 Cal.Rptr. at 261. 

See also, Gimble v. Waldman (1948) 193 Misc. 758, 84 

N.Y.S.2d 888 (involving in terrorem clause); Smith v. 

St. Paul Fire & Marine Ins. Co. (D. La. 1973) 366 

F.Supp. 1283, aff'd (5th Cir. 1974) 500 F.2d 1131 

(Louisiana attorney's erroneous determination that 

distribution of assets did not affect estate's entitlement 

to elect alternate valuation date for federal estate tax 

purposes not shown to be negligent where state of the 

14 

law was unsettled and attorney exercised reasonable 

care in rendering opinion; "The question is not whether 

or not the advice given was, by hindsight, correct but 

whether or not the advice given was the result of the 

proper exercise of skill and professional judgment 

under the conditions existing at the time the advice was 

given." 366 F.Supp. at 1286). 

2. The Specialist Standard. 

Not surprisingly, an attorney who holds himself or 

herself out as a "specialist" in the field will be held to 

the standard of care expected of a specialist. A defense 

based on the argument that the attorney's conduct met 

the standard of care expected of the general 

practitioner when a specialist was required will not 

suffice. Wright v. Williams (1975) 47 Cal.App.3d 802, 

121 Cal.Rptr. 194; Horne v. Peckham (1979) 97 

Cal.App.3d 404, 158 Cal.Rptr. 714. 

As stated in BAJI 6.04: "It is the duty of a lawyer 

who is a general practitioner to [refer a client to a 

specialist] or [recommend the assistance of a specialist] 

if under the circumstances a reasonably careful and 

skillful general practitioner would do so." Adapted 

from BAJI 6.04 (medical negligence standard) and 

application in legal malpractice case approved in 

Horne v. Peckham, supra. "If he fails to perform that 

duty and undertakes to perform professional services 

without the aid of a specialist, it is his further duty to 

have the knowledge and skill ordinarily possessed and 

exercise the care and skill ordinarily used by specialists 

in good standing in the same or similar locality and 

under the same circumstances." BAJI 6.04, Horne v. 

Peckham, supra, 97 Cal.App.3d at 414. 

In Horne v. Peckham, the defendant attorney, a 

general practitioner, established an irrevocable trust 

into which the trustor transfered certain royalty rights 

under a nonexclusive license agreement with the 

trustor's wholly owned corporation. Following the 

assessment by the IRS of a deficiency against the client 

on the grounds that the trust failed to adequately assign 

the trustor's income rights in the assets transferred (see 

Helvering v. Clifford (1940) 309 U.S. 331), the client 

sued his lawyer for damages. In affirming a jury 

verdict against the attorney, the Court of Appeal 

rejected the defendant's contentions that the documents 

drafted were in fact valid as a tax shelter and that, even 

if invalid, their invalidity was so debatable that the 

attorney should not be liable for making an error in 

judgment regarding the matter. The court observed 

that the documents were "invalid for their intended 

purpose, and the invalidity is rather obvious." 97 

Cal.App.3d at 409, 158 Cal.Rptr. at 717. Rejecting the 

attorney's reliance upon Lucas v. Hamm, and Smith v. 

Lewis, supra, the court observed:

45 


"Lucas v. Hamm did not condone 

failure to do research, and Smith v. Lewis 

makes it clear that an attorney's obligation 

is not satisfied by simply determining that 

the law on a particular subject is doubtful 

or debatable . . . . In other words, an 

attorney has a duty to avoid involving his 

client in murky areas of the law if research 

reveals alternative courses of conduct. At 

least he should inform his client of 

uncertainties and let the client make the 

decision." 97 Cal.App.3d at 415, 158 


At least one court has held that merely because an 

attorney chooses to limit his or her practice to one or 

more distinct areas of the law (e.g., estate planning) the 

attorney will not be held to the higher standard of care 

expected of a "specialist." Hinzey v. Carpenter (1992) 

119 Wn.2d 251, 830 P.2d 646. However, the Supreme 

Court of Washington indicated that a lawyer's 

limitation of his or her practice and the lawyer's 

representation of such limitation to the lawyer's clients 

would constitute a fact or circumstance to be taken into 

consideration by the trier of fact in applying the 

standard of care expected of a reasonably prudent 

lawyer acting in the same or similar circumstances. 

3. The Duty to Refer. 

As noted above, if a general practitioner faces a 

problem requiring the expertise of a specialist, the 

lawyer should associate such a specialist (with the 

client's consent) or refer the matter out. However, even 

in the act of referring, the original attorney must 

exercise due care; that is, the attorney who decides to 

associate other counsel can be deemed liable to the 

extent he or she does not adequately investigate the 

qualifications of the attorney that is being associated. 

See, e.g., Tormo v. Yorkmark (D.N.J. 1975) 398 

F.Supp. 1159 (attorney could be liable for "negligent 

referral" because he did not adequately investigate the 

qualifications of associated out-of-state attorney who 

subsequently embezzled client's funds); Miller v. 

Metzinger (1979) 91 Cal.App.3d 31, 154 Cal.Rptr. 22 

(attorney initially consulted regarding medical 

malpractice claim referred client to specialist attorney; 

nevertheless, the court held that liability could exist 

because the original attorney did not warn the client of 

an 8-day deadline on the statute of limitations). See 

also 1 Mallen at § 5.7. 

4. The Estate Planner's Duty to Anticipate 

Future Events. 

The scope of an estate planner's duty to anticipate 

and plan for events postdating the execution of the 

15 

testamentary documents which the attorney has been 

hired to prepare and the correlative duty, if it exists, to 

appropriately plan for future contingencies are issues 

that have plagued the courts in the malpractice context 

for years. It is clear in California that an attorney has a 

continuing duty to a client whose will the attorney has 

drafted where the attorney-client relationship continues 

and the attorney is aware of events reasonably 

foreseeable and subsequent to the execution of the will 

which make revisions thereto advisable. That is the 

lesson of Heyer v. Flaig (1969) 70 Cal.2d 223, 74 

Cal.Rptr. 225, 499 P.2d 161. 

In Heyer, an attorney was sued for malpractice by 

the two daughters of his client, the deceased testatrix. 

The daughters' complaint alleged that the testatrix, 

having retained the defendant to prepare her will, 

advised him that she wished her entire estate to pass to 

her two daughters and that she further advised the 

attorney that she intended to marry in the very near 

future. Ten days after executing the will prepared by 

the defendant, the testatrix did, in fact, marry. The will 

purported to leave the decedent's entire estate to her 

two daughters but failed to mention the decedent's 

husband (other than naming him as executor). After 

the will was admitted to probate, the decedent's 

husband successfully claimed a portion of the estate as 

a post-testamentary spouse under former Section 70 

(now Section 6560) of the California Probate Code, 

which then provided: 

"If a person marries after making a 

will, and the spouse survives the maker, 

the will is revoked as to the spouse, unless 

... the spouse is provided for in the will, or 

in such way mentioned therein as to show 

an intention not to make such provision; 

and no other evidence to rebut the 

presumption of revocation can be 

received." 

Plaintiffs alleged that the defendant attorney had 

negligently failed to advise the testatrix of the 

consequences that her marriage after execution of her 

will would have on her estate plan and negligently 

failed to include in the will a provision specifically 

disinheriting the testatrix's soon-to-be spouse. The 

complaint went on to allege that, after the testatrix's 

marriage and until the date of her death, the attorney 

negligently failed to ever advise her of the legal 

consequences of her failure to include any provision in 

her will with respect to her husband. Overruling the 

trial court's sustaining of a demurrer to the complaint 

without leave to amend, and after making the 

observation quoted in the paragraph above, the 

Supreme Court went on to observe:

46 


"A reasonably prudent attorney 

should appreciate the consequences of a 

post-testamentary marriage, advise the 

testator of such consequences, and use 

good judgment to avoid them if the testator 

so desires. In the present case, defendant 

allegedly knew that the testatrix wished to 

avoid such consequences. Despite his 

knowledge that the testatrix intended to 

marry following the execution of the will, 

the attorney drafted a will which arguably 

lacked adequate provision against such 

consequences. [Citation omitted.] 

Furthermore, the complaint alleges that 

defendant negligently failed to advise the 

testatrix that she should change her will 

after her marriage and continued this 

negligent omission until the time of her 

death. The complaint states a sufficient 

cause of action in tort under the doctrine of 

Lucas; ..." Heyer v. Flaig, supra, 74 


However, the duty to plan for future events 

reflected in Heyer v. Flaig, supra, is not unlimited nor 

is the attorney liable as a guarantor for the client's 

future conduct or failure to act upon the attorney's 

advice. Thus, in Wilson v. Clancy (D.Md. 1990) 747 

F.Supp. 1154, the court considered an action for 

malpractice brought by a beneficiary under a testator's 

will which purported to devise jointly held property, "a 

legal impossibility" (747 F.Supp. at 1156). On the 

defendant attorney's motion for summary judgment, 

the court considered the attorney's uncontradicted 

deposition testimony that he realized that jointly held 

property could not pass to the beneficiaries named in 

the will and that he had therefore advised the testator 

repeatedly that in order to make the will effective the 

testator would have to sever the joint tenancy title, a 

step that the testator had failed to take. In granting 

summary judgment for the attorney, the court 

observed, "Certainly, it is not malpractice for an 

attorney to draft a will that he or she knows will not be 

effective unless the client takes further steps and, at the 

same time, to advise the client to take those steps . . . . 

Sound advice that is not followed does not constitute 

malpractice." 747 F.Supp. at 1157. 

The Maryland court considered and distinguished 

an Illinois decision cited by the plaintiff, McLane v. 

Russell (1987) 159 Ill.App.3d 429, 512 N.E.2d 366, 

aff'd (1989) 131 Ill.2d 509, 546 N.E.2d 499. In the 

latter case, the testator advised her attorney that she 

wished to leave her half of a farm owned jointly with 

her sister to the plaintiff. The attorney drafted a will 

that so provided but apparently failed to bring the 

matter of partitioning the property or otherwise 

16 

severing the joint tenancy to the testator's attention. 

The disappointed beneficiaries under the will were held 

entitled to recover in malpractice for the attorney's 

failure to sever the joint tenancy before the testatorclient's 

death. See also, Garcia v. Borelli (1982) 129 

Cal.App.3d 24, 180 Cal.Rptr. 768 (attorney drafted 

will for testator wherein testator purported to devise 

property clearly held in joint tenancy and attorney 

failed to take steps to sever joint tenancy or advise 

testator to do so; held liable in malpractice to 

disappointed will beneficiaries). 

The issue of a continuing duty to advise one's 

estate planning clients (about, e.g., changes in the tax 

laws) is a troublesome grey area. On the one hand, it is 

clear that in today's ethical environment no criticism 

could possibly attach to an attorney who elects, as a 

volunteer, to advise clients, present and former, of 

changes generally in the tax law (contrary to the 

suggestion in Brandlin v. Belcher (1977) 67 

Cal.App.3d 997, 134 Cal.Rptr. 1, that such advice 

might constitute improper solicitation of business). On 

the other hand, it is questionable whether the failure to 

advise clients of changes in the law reflects 

professional negligence. The preferred rule should be 

that, absent an engagement whereby the attorney 

specifically undertakes to continue to advise the client, 

the completion of the estate plan terminates the 

attorney-client relationship. However, prudence 

dictates that this issue be discussed individually with 

the estate planner's client and resolved, preferably in 

writing. (This point is consistent with the advice 

generally given to commit all engagements to writing 

and to commit the terms of all disengagements to 

writing.) 

Ultimately, the issue of whether or not a client is a 

"present" or "former" client for purposes of a 

malpractice action brought for failure to advise re 

future events or developments will turn on the client's 

"reasonable expectations." A written agreement 

between client and attorney will go a long way toward 

establishing what those reasonable expectations are. 

E. Specific Errors in Drafting and Executing 

Testamentary Instruments. 

1. Introduction. 

Not suprisingly, in those jurisdictions where the 

privity rule has been abolished or substantially 

restricted, attorney drafters of testamentary instruments 

have been found liable in malpractice for a wide 

variety of errors and omissions incurred in the estate 

planning process, including the preparation of 

testamentary instruments, the tax and general advice 

given in relation thereto, and the supervision of such

47 


instruments' execution. The following is a nonexclusive 

list of problem areas. 

2. Failure to Proofread. 

In Needham v. Hamilton (D.C.App. 1983) 459 

A.2d 1060, an attorney who failed to proofread a will 

in its final form was found liable in malpractice where 

the will as finally typed failed to include a residuary 

clause. Consider one commentator's suggestion that 

the use of an outlined will would have clearly brought 

this error to the drafting attorney's attention. Johanson, 

"Significant State Court Decisions Involving Wills, 

Trusts and Probate Issues," American College of 

Probate Counsel Annual Meeting (1986). See also, 

e.g., Arnold v. Carmichael (Fla. 1988) 524 So.2d 464, 

review denied 531 So.2d 1352 (residuary clause 

omitted; attorney's lack of privity with intended 

residuary beneficiary no defense). 

3. Failure to Anticipate Claims By Prospective 

Pretermitted Heirs. 

Litigation frequently has arisen with respect to an 

attorney drafter's alleged failure to consider the impact 

of a testator's post-will marriage or after-born children. 

See, e.g., Heyer v. Flaig, supra; Walker v. Lawson 

(Ind. 1987) 514 N.E.2d 629; McAbee v. Edwards 

(Fla.App. 1976) 340 F.2d 1167 (when testator married 

after execution of will, lawyer advised his client no 

changes in will were necessary; claim of subsequently 

married surviving spouse settled during litigation). 

4. Errors in Supervision of Will Execution. 

Lawyers have frequently courted malpractice 

actions by failing to adequately supervise the execution 

of a testamentary instrument or by giving erroneous 

advice with respect to the manner of a document's 

execution. See, e.g., Ward v. Arnold (1958) 52 W.2d 

581, 328 P.2d 164 (plaintiff wife of testator contacted 

defendant attorney to have husband's will properly 

drafted and executed; attorney sent will to wife with 

detailed instructions as to proper execution, which she 

failed to follow; however, because the attorney had 

also erroneously advised her that she would receive the 

same amount of decedent's estate under intestate 

succession as under the will, held that the attorney 

could be liable in malpractice); Schirmer v. Nethercutt 

(1930) 157 Wn. 172, 288 P. 265 (attorney allowed 

beneficiary to witness will); Guy v. Leiderbach (1983) 

501 Pa. 47, 459 A.2d 744 (attorney may be liable in 

malpractice for improperly instructing beneficiaryexecutrix 

to sign as witness to will, thereby voiding her 

legacy and appointment as executrix); Auric v. 

Continental Casualty Co. (1983) 111 Wisc.2d 507, 331 

N.W.2d 325 (attorney who allegedly failed to obtain 

17 

signature of required second subscribing witness to 

will may be found liable in malpractice to disappointed 

beneficiary); Persche v. Jones (S.D. 1986) 387 N.W.2d 

32 (simile). 

5. Omitted Gifts and Failures to Deal With 

Contingencies. 

Stowe v. Smith (1981) 184 Conn. 194, 441 A.2d 

81 (son to receive estate at age 50, but attorney drafted 

will so that when son attained age 50 assets were 

distributed to son's issue); Teasdale v. Allen (D.C.App. 

1987) 520 A.2d 295 (where testator's wife received her 

husband's entire estate and died 62 days after he died 

bequeathing estate to the children of her former 

marriage, grandchildren who alleged that they were the 

intended beneficiaries of the husband's estate were 

found to have standing to sue the attorney drafter). See 

also, Hale v. Groce (1987) 304 Or. 281, 744 P.2d 1289 

(draftsman negligently failed to include large 

pecuniary gift to plaintiff, as requested by testator). 

Compare, Layman v. Layman (1990) 84 Md.App. 183, 

578 A.2d 314 (testator's surviving children sued 

attorney alleging that attorney had negligently failed to 

foresee possibility of testator's second wife waiving 

provisions of will prepared by attorney for testator and 

instead electing her statutory share (contrary to an 

earlier separation agreement between testator and 

children's mother); no malpractice found where intent 

of testator was honored and incorporation of terms of 

separation agreement into will as required by divorce 

court was carried out. Attorney was in no position to 

take any action to preclude testator's second wife from 

exercising her statutory right to elect against the will). 

6. Failure to Adequately Plan for the 

Minimization of Estate Taxes. 

Bucquet v. Livingston (1976) 57 Cal.App.3d 914, 

129 Cal.Rptr. 514 (improperly drafted marital 

deduction trust); Levin v. Berley (1st Cir. 1984) 728 

F.2d 551 (applying Massachusetts law, court affirmed 

dismissal of malpractice action on statute of limitations 

grounds but noted that attorney's alleged failure to 

comply with marital deduction provisions of the Code 

was probably malpractice). Compare, Marker v. 

Greenberg (Minn. 1981) 313 N.W.2d 4 (surviving 

joint tenant, decedent's son, had no cause of action for 

malpractice against attorney who drafted joint tenancy 

deeds since surviving joint tenant was never the 

attorney's client and the deed, although causing 

unnecessary estate taxes over what would have been 

paid if parties had taken title as tenants in common, 

nevertheless accomplished the decedent's objective of 

transferring ownership of real estate to the survivor); 

Mali v. DeForest & Duer (N.Y. 1990) 553 N.Y.S.2d 

391, appeal denied 76 N.Y.2d 710, 563 N.E.2d 671

48 


(action by executor and beneficiary under testator's 

will against attorney-drafter alleging that attorney had 

negligently drafted will contemporaneously with trust 

and caused unnecessary increase in federal and state 

estate taxes subject to motion to dismiss since trust 

provided that any estate taxes incurred should be paid 

therefrom and not from the estate; therefore, only the 

trustees had standing to bring suit). 

7. Breach of Duty Arising Out of Continuing 

Relationship. 

An attorney may also be found liable in 

malpractice for failing to undertake steps postdating 

the preparation and execution of testamentary 

instruments, at least where it was the client's 

reasonable understanding that the attorney had agreed 

to take such steps. See, e.g., Piezel v. Zuspann (Kan. 

1990) 247 Kan. 54, 795 P.2d 42, modified on other 

grounds and rehearing denied, 247 Kan. 699, 803 P.2d 

205, aff'd sub nom. Pizel v. Whalen (1993) 845 P.2d 37 

(intended beneficiaries state cause of action for 

malpractice against attorney who drafted inter vivos 

trust agreement where the attorney allegedly failed to 

advise the trustees of their duties thereunder, failed to 

record a deed transferring property to trust and failed to 

advise the trustor to ensure that the trustees took 

control of the trust principal during the settlor's lifetime 

even though new attorneys had taken over the 

representation of the settlor before the settlor's 

opportunity to fund the trust had ended; as a result of 

the errors and omissions of both the earlier and later 

attorneys, the trust was found invalid and the trust 

property passed under the residuary clause of the 

testator's will). Compare, Stangland v. Brock (1987) 

109 Wn.2d 675, 747 P.2d 464 (law firm, one of whose 

partners drafted decedent's will devising real estate to 

plaintiffs and another of whose partners later prepared 

contract for sale of same property, held not liable in 

malpractice for failing to anticipate testator's sale of 

real estate, thus frustrating client's testamentary intent). 

8. Negligent Delay in Preparation of Estate Plan. 

The attorney's duty to exercise reasonable skill 

and care generally subsumes the correlative duty to act 

diligently in the performance of legal tasks. In the 

litigation context, this principle is axiomatic, and 

liability in malpractice may be imposed for an 

attorney's failure to file an action within the time 

allowed by the applicable statute of limitations. See, 

e.g., Paul v. Goodwin (1986) 186 Cal.App.3d 1407, 

231 Cal.Rptr. 361; Steketee v. Lintz, Williams and 

Rothberg (1985) 38 Cal.3d 46, 210 Cal.Rptr. 781, 694 

P.2d 1153. 

18 

Interestingly, in the estate planning context, the 

author has found only three appellate decisions dealing 

with an attorney's alleged failure to timely prepare 

testamentary documents allegedly requested by the 

now deceased testator resulting in a claimed loss to the 

intended beneficiaries of the uncompleted estate plan. 

In Berry v. Dodson, Nunley & Taylor, P.C. (Tex.App. 

1986) 717 S.W.2d 716, writ dismissed by agreement 

(1987) 729 S.W.2d 690, an attorney was sued for 

allegedly failing to diligently prepare and complete an 

estate plan for his terminally ill client. Though a draft 

of the will requested by the client was prepared, it was 

never signed. Allegedly, the attorney had been 

requested twice by the testator's wife to get the 

document to the hospital for the testator's signature; the 

attorney advised the testator's wife that he would 

obtain the client's signature but that even if he did not, 

he had tape-recorded a conversation with the decedent 

and the taped instructions would be binding. (Of 

course, they were not.) After the trial court's summary 

judgment in favor of the defendant was affirmed by the 

appellate court based upon the prevailing "privity" 

doctrine in Texas, the Supreme Court of Texas granted 

the plaintiff's application for writ of error. Apparently, 

the parties then settled the case, and the writ was 

dismissed by agreement. Thus, the standard of care 

issue was never addressed. 

See also, Krawczyk v. Stingle (1988) 208 Conn. 

239, 543 A.2d 733 (privity rule applied to bar suit by 

disappointed beneficiary against attorney for attorney's 

alleged negligence in failing to have dying testator's 

documents timely executed); Victor v. Goldman (1973) 

74 Misc.2d 685 344 N.Y.S.2d 672, aff'd 43 

App.Div.2d 1021, 351 N.Y.S.2d 956 (privity rule 

applied to bar malpractice action against attorney for 

alleged failure to prepare a new will before death of 

client who had allegedly instructed attorney to name 

plaintiff as beneficiary). 

Again, as in any case of legal malpractice, if the 

plaintiff can show that he or she was intended to be the 

testator's beneficiary, that the testator gave appropriate 

instructions to the attorney drafter and the attorney 

drafter unreasonably delayed in preparation of the 

estate plan, no compelling public policy reason exists 

for refusing to find the attorney drafter liable in 

negligence. The underlying issue again is whether or 

not the attorney's alleged delay reflected a failure to 

exercise reasonable skill, care and diligence resulting 

in damage to the testator-client's intended 

beneficiaries. 

F. Defenses to Malpractice Action. 

1. Introduction.

49 


In addition to the "privity" doctrine and an 

attorney's defense based on the argument that the 

attorney's conduct in the given case met the applicable 

standard of care, it is often the case that, measured by 

the results following from the attorney's conduct (e.g., 

an unexpected tax deficiency or an unintended 

distribution of the testator's estate), to defeat the 

ensuing malpractice action, an attorney must find some 

other defense barring, partially or entirely, the 

plaintiff's claim. After contributory (or comparative) 

negligence, the most often asserted defense is one 

based on the applicable statute of limitations. 

2. Contributory or Comparative Negligence. 

In a negligence jurisdiction, such as California, a 

testator's comparative (formerly contributory) 

negligence may constitute a defense to an estate 

planning malpractice action. See, e.g., Ishmael v. 

Millington (1966) 241 Cal.App.2d 520, 50 Cal.Rptr. 

592; Hansen v. Wightman (1975) 14 Wn.App. 78, 538 

P.2d 1238; compare, Connecticut Junior Republic v. 

Doherty (Mass 1985) 20 Mass.App.Ct. 107, 478 

N.E.2d 735, review denied 482 N.E.2d 328 (testator's 

ratification of attorney drafter's mistake in transcription 

of charitable legatees a complete defense to action for 

malpractice brought by omitted charitable 

beneficiaries). 

3. Statute of Limitations. 

a. In General. 

Two different rules for defining the accrual of a 

cause of action for legal malpractice vie for recognition 

among the states. Under the "occurrence rule," the 

cause of action accrues when all the predicate events 

causing the injury take place, whether or not the client 

discovers those events. See 2 Mallen, at § 18.10. 

Before 1971, California followed the occurrence rule. 

See, e.g., Tuck v. Thuesen (1970) 10 Cal.App.3d 193, 

88 Cal.Rptr. 759; Yandell v. Baker (1968) 258 

Cal.App.2d 308, 65 Cal.Rptr. 606. Such a rule can 

obviously cause great injustice since the client may not 

discover the attorney's negligent act until years after it 

has occurred. Thus, in the estate planning context, 

most mistakes do not have clearly ascertainable effects 

until the underlying testamentary documents are 

examined after the client's death. The harshness of the 

occurrence rule was thus often ameliorated by 

application of another "damage rule" under which a 

cause of action for legal malpractice was held not to 

have accrued until the plaintiff suffered some injury or 

damage. See, e.g., Budd v. Nixen (1971) 6 Cal.3d 195, 

98 Cal.Rptr. 849, 491 P.2d 433. 

19 

Recognizing the injustice of the occurrence rule, 

California abolished this doctrine in 1971 when, in 

Neel v. Magana, Olney, Levy, Cathcart & Gelfand 

(1971) 6 Cal.3d 176, 491 P.2d 421, 98 Cal.Rptr. 837, 

the Supreme Court of California held that the statute of 

limitations should not commence to run until the 

plaintiff discovers or with reasonable diligence should 

have discovered the attorney's negligence. 

California has now adopted a specific statute of 

limitations for legal malpractice. California Code of 

Civil Procedure § 340.6 provides that an "action 

against an attorney for a wrongful act or omission" 

must be commenced within one year after the "plaintiff 

discovers, or through the use of reasonable diligence 

should have discovered, the facts constituting" the 

wrong, or four years from the occurrence of the wrong, 

whichever is first. The statute is tolled as long as: 

(1) The plaintiff has not sustained 

"actual injury"; 

the plaintiff; 

(2) The attorney continues to represent 

(3) The attorney willfully conceals facts 

from the plaintiff; or 

(4) The plaintiff is under a legal or 

physical disability (e.g., minority). 

In Laird v. Blacker (1992) 2 Cal.4th 606, 7 

Cal.Rptr.2d 550, the Supreme Court of California 

recently held that a plaintiff's cause of action for legal 

malpractice in connection with allegedly mishandled 

litigation begins to run on the date the trial court 

renders its decision adverse to the malpractice plaintiff, 

and the one year limitations period is not tolled 

pending an appeal. 

In Stoll v. Superior Court (1992) 9 Cal.App.4th 

1362, 12 Cal.Rtpr. 2d 354, a California Court of 

Appeal broadened even further the scope of 

California's one-year statute by holding it applicable to 

a plaintiff suing an attorney not only for legal 

malpractice but also for breach of fiduciary duty (in 

this case, constructive fraud). The court noted that 

only in the case of "actual" fraud was the otherwise 

applicable one-year statute to be tolled. Since the 

plaintiff in Stoll alleged only the attorney's breach of 

fiduciary duty (a constructive but not an "actual" fraud 

on the plaintiff), the one-year statute applied. 

b. The Statute of Limitations in the Estate 

Planning Context.

50 


It is more or less axiomatic that a cause of action 

for malpractice in the alleged planning of an estate 

cannot arise until the plan has "matured," i.e., the client 

has died. Thus, the general rule is that a cause of 

action for malpractice arising out of a defective estate 

plan starts to run, at the earliest, on the date of the 

testator's death. Heyer v. Flaig (1969) 70 Cal.2d 223, 

74 Cal.Rptr. 225, 449 P.2d 661; Hargett v. Holland 

(N.C.App. 1993) 431 S.E.2d 784. Of course, 

consideration must be given to possible tolling of the 

statute because, for example, the defendant attorney 

continues to represent the testator's successors in 

interest or because the plaintiffs did not and could not 

in the exercise of reasonable care discover the facts 

constituting the malpractice earlier. 

However, in cases involving alleged tax 

deficiencies, the cause of action may arise upon 

assessment of the deficiency, and the period of 

limitations is not tolled by litigation with the taxing 

authorities over the validity of the assessment. See, 

e.g., U.S. v. Gutterman (9th Cir. 1983) 701 F.2d 104 

(applying California law); Levin v. Berley (1st Cir. 

1984) 728 F.2d 551 (in action against attorney for 

alleged negligent failure to take full advantage of 

federal estate tax marital deduction, statute begins to 

run no later than the date of the IRS deficiency notice 

and is not tolled until the date of an adverse decision in 

the Tax Court); Cameron v. Montgomery (Iowa 1975) 

225 N.W.2d 154. 

For cases tolling the statute while attorney 

continues to represent client in underlying action, see, 

e.g., McDermott v. Torre (1982) 56 N.Y.2d 399, 437 

N.E.2d 1108, 452 N.Y.S.2d 351; Wall v. Lewis (N.D. 

1986) 393 N.W.2d 758. 

For statute of limitations cases from jurisdictions 

other than California, see, e.g., Shideler v. Dwyer (Ind. 

1981) 417 N.E.2d 281 (statute begins to run upon 

testator's death and delay incurred in determining 

validity of will clause in collateral action did not abate 

accrual of plaintiff's cause of action). See also, 

Jaramillo v. Hood (N.M. 1979) 93 N.M. 433, 601 P.2d 

666; Hale v. Groce (1987) 304 Or. 281 744 P.2d 1289 

(motion to dismiss malpractice action on statute of 

limitations ground denied on basis that no cause of 

action accrued when defendant attorney's failure to 

include pecuniary gift in will was discovered [as 

opposed to date when reformation proceeding was 

decided adversely] since it was arguable that defendant 

attorney had waived the statute of limitations or was 

estopped from asserting the statute as a defense since 

he had participated in the reformation proceeding); 

Prince v. Holmes (Kan. 1967) 422 P.2d 976. 

20 

III. LEGAL MALPRACTICE IN ESTATE AND 

TRUST ADMINISTRATION. 

A. Beneficiaries' Standing to Sue. 


Even in states like California that have abolished 

the "privity" doctrine as a defense by the estate 

planning attorney to an action for malpractice, courts in 

a majority of jurisdictions (including California) still 

apply the "privity" rule to bar a malpractice action by a 

disgruntled trust or estate beneficiary against the 

attorney for the fiduciary. Generally, this result 

follows from the courts' predilection to hold the estate 

representative or trustee exclusively accountable, via a 

surcharge proceeding, to those beneficiaries who are 

damaged by the representative's negligence or 

misconduct. See, e.g., Estate of Lagios (1981) 118 

Cal.App.3d 459, 173 Cal.Rptr. 506; Baldock v. Green 

(1980) 109 Cal.App.3d 234, 137 Cal.Rptr. 157; In Re 

Brooks Estate (1979) 42 Colo.App. 333, 596 P.2d 1220 

(beneficiaries' remedy is to seek redress from fiduciary 

who may then seek exoneration in malpractice against 

lawyer); Matter of Newhoff's Will (1980) 107 Misc.2d 

589, 435 N.Y.S.2d 632; Kramer v. Belfi (1984) 106 

App.Div.2d 615, 482 N.Y.S.2d 898. 

Of course, the executor or trustee who finds 

himself or herself surcharged as a result of conduct 

taken in reliance on counsel's advice may be expected 

to look to the attorney for recompense or 

indemnification, and privity will not be an issue since 

there is a direct attorney-client relationship. 

2. The Majority Rule: Privity Doctrine Applied. 

A California court recently reemphasized the 

estate attorney's immunity from a malpractice claim by 

the estate's beneficiaries, noting that the attorney's duty 

to exercise reasonable care is owed to only one party, 

the estate fiduciary. 

"Particularly in the case of services 

rendered for the fiduciary of a decedent's 

estate, we would apprehend great danger in 

finding stray duties in favor of 

beneficiaries. Typically in estate 

administration conflicting interests vie for 

recognition. The very purpose of the 

fiduciary is to serve the interests of the 

estate, not to promote the objectives of one 

group of legatees over the interests of 

conflicting claimants. [Citing Estate of 

Poisl, 153 Cal.App.2d 661 (1957).] The 

fiduciary's attorney, as his legal adviser, is 

faced with the same task of disposition of

51 


conflicts. It is of course the purpose and 

obligation of both the fiduciary and his 

attorney to serve the estate. In such 

capacity they are obligated to communicate 

with, and to arbitrate conflicting claims 

among, those interested in the estate. 

While the fiduciary in the performance of 

this service may be exposed to the 

potential of malpractice (and hence is 

subject to surcharge when his 

administration is completed), the attorney 

by definition represents only one party: 

the fiduciary. It would be very dangerous 

to conclude that the attorney, through 

performance of his service to the 

administrator and by way of 

communication to estate beneficiaries, 

subjects himself to claims of negligence 

from the beneficiaries. The beneficiaries 

are entitled to even-handed and fair 

administration by the fiduciary. They are 

not owed a duty directly by the fiduciary's 

attorney. [Citing Estate of Effron, 117 

Cal.App.3d 915, 928-30 (1981).]" 

Goldberg v. Frye, (1990) 217 Cal.App.3d 

1258, at 1269, 266 Cal.Rptr. 483, at 489- 

90. 

The recent decision of a California Court of 

Appeal in Saks v. Damon Raike & Co. (1992) 7 

Cal.App.4th 419, 8 Cal.Rptr.2d 869, is also instructive. 

The Court of Appeal there held that an action would 

not lie in favor of the beneficiaries of a testamentary 

trust against either the former trustee's counsel or the 

trust's real estate agent for alleged negligence (citing 

Goldberg v. Frye, supra) and that the probate 

department of the Superior Court had "exclusive" 

jurisdiction over any action involving the "internal 

affairs" of the trust pursuant to Probate Code § 17000 

et seq. The trustee was an indispensable party to the 

proceedings, and a civil action would not lie in light of 

the probate court's exclusive jurisdiction. The 

beneficiaries' theory that they could maintain the action 

as third party beneficiaries of contracts entered into 

between the trustee and agents of the trustee was 

expressly rejected. The court observed: 

"Although the California Supreme 

Court has held that under certain 

circumstances, agents, including attorneys, 

may be liable in tort to third persons not in 

privity who are affected by their 

negligence [citing Lucas v. Hamm, supra, 

and Biakanja v. Irving, supra] the principle 

of these cases has never been extended to 

trust beneficiaries and agents or employees 

of the trustees. Indeed, it has recently been 

21 

held that the beneficiaries of an estate are 

merely incidental beneficiaries of the 

performance of an attorney employed by 

the estate administrator. [citing Goldberg 

v. Frye, supra] To permit a third party 

beneficiary cause of action in a case such 

as this, parallel to the comprehensive 

remedies and procedures established by the 

Probate Code, would run counter to the 

clear legislative intent to make the probate 

department the exclusive arbiter of these 

kinds of trust disputes." Saks v. Damon 

Raike & Co., supra, 8 Cal.Rptr.2d at 877. 

See also, Baldock v. Green (1980) 109 

Cal.App.3d 234, 167 Cal.Rptr. 157 (attorney for estate 

executor not liable for alleged failure to ensure that 

assets were delivered to remaindermen who were 

entitled to them where husband-executor was 

discharged after decree distributing property in a life 

estate for the husband, remainder to other parties and 

husband misappropriated the funds); Kramer v. Belfi 

(1984) 106 App.Div.2d 615, 482 N.Y.S.2d 898 (suit 

filed by deceased couple's beneficiaries against 

attorneys for executor of deceased husband's estate for 

failing to advise wife's executor to renounce trust 

created under will of deceased wife, resulting in 

adverse tax consequences in the deceased husband's 

estate, held barred by privity rule); Estate of Douglas 

(1980) 104 Misc.2d 430, 428 N.Y.S.2d 558 (attorney's 

alleged negligent misrepresentation in settlement of 

probate estate did not justify deviation from application 

of privity doctrine to bar suit by beneficiaries); 

Weingarten v. Warren (S.D.N.Y. 1990) 753 F.Supp. 

491 (no cause of action stated in malpractice against 

attorney for income beneficiary-trustee who had 

allegedly converted funds to which remaindermen 

were entitled); Felson v. Miller (E.D.N.Y. 1987) 674 

F.Supp. 975 (privity doctrine applied to bar action for 

malpractice by trust beneficiary against counsel for 

trustee where attorney also acted as counsel for 

corporations partially owned by trust); Neal v. Baker 

(1980) 194 Ill.App.3d 485, 551 N.E.2d 704 appeal 

denied 555 N.E.2d 378 (income beneficiary under 

testator's will failed to state cause of action for 

malpractice against attorney retained by executor since 

attorney's primary function was to assist executor in 

proper administration of its duties, and relationship 

between attorney and income beneficiary was 

adversarial). See also, In Re Estate of Cook (1980) 102 

Misc.2d 691, 424 N.Y.S.2d 330 (privity doctrine 

applied to bar suit against attorney for alleged 

negligence in drafting will which incorrectly attempted 

to dispose of pension benefits; case is interesting 

because the beneficiaries' objections were brought in 

an accounting proceeding to settle, among other things, 

the attorneys' fees for services as executor and attorney

52 


for the executor; held that suit for attorneys' fees might 

lie but issue declared moot); Estate of Zalaznick (1975) 

84 Misc.2d 715, 375 N.Y.S.2d 522 (surrogate's court 

took jurisdiction of third party claim for malpractice 

indemnity against law firm representing executrix who 

was subject to surcharge proceedings since attorneys 

had already appeared in the accounting proceeding in 

support of their claim for attorneys' fees). 

3. The Minority Rule: Lack of Privity No 

Defense. 

A minority of jurisdictions have held that the lack 

of contractual privity between an estate or trust 

beneficiary and counsel for the fiduciary is not a 

defense to a direct cause of action for legal malpractice 

against the fiduciary's counsel. 

Ironically, in a jurisdiction where the privity 

doctrine's application in the estate planning context 

was recently reaffirmed, lack of privity was held to be 

no defense in an action brought by a estate's 

beneficiaries against the executor's attorney. In Elam 

v. Hyatt Legal Services (1989) 44 Oh.St.3d 175, 541 

N.E.2d 616, the Supreme Court of Ohio permitted a 

lawsuit on facts similar to those in Baldock v. Green, 

supra. In Elam, the beneficiaries contended that they 

had lost their inheritance through the negligence of the 

estate's attorney who had allegedly recorded a 

certificate of title to certain real estate in the name of 

the deceased testator's husband alone, despite the fact 

that the decedent's will had bequeathed the husband 

only a life estate in the property with the remainder 

devised to the plaintiff beneficiaries. After the 

intermediate appellate court had dismissed the 

beneficiaries' suit for lack of privity, the case went to 

the Supreme Court of Ohio. 

Distinguishing Simon v. Zipperstein (1987) 32 

Oh.St.3d 74, 512 N.E.2d 636 (reaffirming application 

of the privity doctrine in the estate planning context), 

the court held that the estate's beneficiaries were in 

privity with the estate attorney and that, unlike the 

prospective will beneficiaries' interests in Simon, 

supra, the estate beneficiaries' interests were vested. 

"A beneficiary whose interest in an estate is vested is 

in privity with the fiduciary of the estate, and where 

such privity exists, the attorney for the fiduciary is not 

immune from liability to the vested beneficiary for 

damages arising from the attorney's negligent 

performance." Simon v. Zipperstein, 541 N.E.2d at 

618. 

Another jurisidiction (Washington) that has 

abolished the privity doctrine in the estate planning 

context has stated the issue in the estate administration 

context as follows: 

22 

"[I]n probate, the attorney-client 

relationship exists between the attorney 

and the personal representative of the 

estate . . . . The personal representative 

stands in a fiduciary relationship to those 

beneficially interested in the estate. He is 

obligated to exercise the utmost good faith 

and diligence in administering the estate in 

the best interests of the heirs. . . . The 

personal representative employees an 

attorney to assist him in the proper 

administration of the estate. Thus, the 

fiduciary duties of the attorney run not 

only to the personal representative, but also 

to the heirs." [Citations omitted.]" In Re 

Estate of Larson (1985) 103 Wa.2d 517, 

520-21, 694 P.2d 150 1051, 1054. 

See also, e.g., Jenkins v. Wheeler (1984) 69 

N.C.App. 140, 316 S.E.2d 354 (daughter, sole heir of 

deceased mother, had standing to bring action against 

attorney representing mother's estate where daughter 

alleged that attorney had failed to advise estate 

representative to list wrongful death action as an asset 

of the mother's estate, had improperly continued to 

represent conflicting interests and had willfully refused 

to proceed with wrongful death action); Hermann v. 

Frey (Ind.App. 1989) 537 N.E.2d 529 (decedent's 

surviving spouse, sole heir at law, had standing to 

pursue legal malpractice action against attorney 

handling estate where, as personal representative, she 

had retained attorney and was entitled to rely on 

attorney's advice with respect to her personal cause of 

action for wrongful death); Dean v. Conn (Miss. 1982) 

419 So.2d 148 (whether estate attorney who had 

allegedly failed to properly ascertain decedent's heirs 

couuld be liable in negligence to the heirs posed issue 

of fact properly put to jury; jury verdict for liability 

upheld where evidence supported same); Estate of 

Bosico (1980) 480 P.A. 274 412 A.2d 505; In Re 

Estate of Corbin (Fla.App. 1980) 391 So.2d 731; 

Charleson v. Hardesty (Nev. 1992) 108 Nev. 878, 839 

P.2d 1303 (a lawyer who represents a trustee owes a 

duty to the beneficiaries of the trust; held that question 

of fact was presented whether or not lawyer breached 

the duty of care owed to beneficiaries where he 

allegedly asked the trustee to supply an accounting but 

never received one and never informed the 

beneficiaries about the lack of an accounting before 

trustee filed for bankruptcy with no assets remaining in 

the trust). 

In a case involving a defalcating guardian where 

the successor guardian sued the attorney for the 

departed guardian alleging that the attorney had failed 

to discover the former guardian's scheme to 

misappropriate the guardianship estate, an Arizona

53 


court applied the Biakanja balancing of factors test and 

permitted the suit, finding that once an attorney 

undertakes to represent the guardian he assumes a 

relationship not only with the guardian but also with 

the ward. Fickett v. Superior Court of Puma County 

(1976) 27 Ariz.App. 793, 558 P.2d 988; see also, in the 

estate context, Fiduciary Services, Inc. v. Shano (Ariz. 

App. 1993) 141 Ariz.Adv.Rep. 24, ___ P.2d ___; and, 

in the trust context, Morales v. Field, Degoff, Hupoert 

& MacGowan (1979) 99 Cal.App.2d 873, 49 Cal.Rptr. 

239 (distinguished and criticized in Lasky, Haas, 

Cohler & Munter v. Superior Court (1985) 172 

Cal.App.3d 264, 218 Cal.Rptr. 205). 

4. Willful Misconduct. 

Despite the various court decisions holding 

generally that a disgruntled estate or trust beneficiary 

has no direct cause of action assertable in negligence 

against the fiduciary's attorney, estate and trust 

attorneys have often generated such litigation by 

engaging in conduct more intentional than negligent. 

Thus, California has recently held that a cause of 

action may be stated by trust beneficiaries directly 

against the attorneys for the former trustees where it is 

alleged that the attorneys intentionally aided and 

abetted the trustees in the trustees' breach of their 

fiduciary duties. Pierce v. Lyman (1991) 1 

Cal.App.4th 1093, 3 Cal.Rptr.2d 236. In finding that a 

valid cause of action against the attorneys had been 

alleged, the court observed: 

"These allegations [of the 

complaint] demonstrate that [respondent 

attorneys] are accused of active 

participation in breaches of fiduciary duty 

by the former trustees. More than the 

simple rendering of legal advice to 

respondents' clients is alleged. More than 

mere knowledge of the breach of fiduciary 

duty are alleged. Active concealment, 

misrepresentations to the court, and selfdealing 

for personal financial gain are 

described. We find that this is sufficient to 

state a cause of action for breach of 

fiduciary duty . . . ." Pierce v. Lyman, 1 

Cal.App.4th at 1105, 3 Cal.Rptr.2d at 243. 

In a footnote, the court distinguished Goldberg v. Frye, 

supra, as follows: 

"The complaint in Goldberg alleged 

only one cause of action for negligence 

against the estate's attorney. It did not 

concern active, knowing participation in 

breaches of fiduciary duty by the 

23 

administrator. In this case, appellants have 

not attempted to state a cause of action for 

negligence against respondents." Id. at 

1105, fn. 8, 3 Cal.Rptr.2d at 243. 

See also, Weingarten v. Warren (SDNY 1990) 

753 F.Supp. 491 (applying New York law, federal 

court held that trust remaindermen stated cause of 

action against trustee's attorney individually for breach 

of fiduciary duty and against attorney individually and 

as executor of trustee's estate for alleged conversion of 

trust assets, at the same time holding that beneficiaries 

could not assert cause of action in malpractice against 

the attorney). 

B. Specific Errors and Omissions in Estate 

Administration. 


Where contractual privity is not a defense (either 

because the jurisdiction in question does not recognize 

the defense in an action by the estate beneficiaries 

against the estate's attorney or because the estate's 

attorney is being sued by the fiduciary), attorneys for 

estates have been exposed to malpractice liability for a 

variety of alleged errors and omissions. A nonexclusive 

list of examples follows. 

2. Failure to Correctly Ascertain Heirs of Estate: 

Dean v. Conn (Miss. 1982) 419 So.2d 148. 

3. Incorrect Calculation of Estate Shares or 

Distribution of Estate Assets: Wisdom v. Neal 

(D.C.N.M. 1982) 468 F.Supp. 4 (attorney for the estate 

incorrectly determined that the estate should be 

distributed per stirpes rather than per capita). 

4. Failure to Insure Representative Did Not 

Misappropriate Assets: Elam v. Hyatt Legal Services 

(1989) 44 Oh.St.3d 175, 541 N.E.2d 616; contra 

Baldock v. Green (1980) 109 Cal.App.3d 234, 167 

Cal.Rptr. 157. 

5. Failure to Timely Prosecute Wrongful Death 

Action: Baer v. Broder (1982) 86 App.Div.2d 881, 

447 N.Y.S.2d 538; Jenkins v. Wheeler (1984) 69 

N.C.App. 140, 316 S.E.2d 354, review denied, 311 

N.C. 758, 321 S.E.2d 136. 

6. Failure to Timely File Estate Tax Return: 

Sorenson v. Fio Rito (1980) 90 Ill.App.3d 368, 413 

N.E.2d 47; Cameron v. Montgomery (Iowa 1975) 225 

N.W.2d 154; In Re Remsen (Surr.Ct. 1979) 99 Misc.2d 

92, 415 N.Y.S.2d 370.

54 


7. Failure to Timely Elect QTIP Treatment on 

706: Cf. Robinson v. U.S. (S.D.Ga. 1990) 90-2 USTC 

60,045. 

8. Failure to Timely Advise Re Possible 

Disclaimer: Linck v. Borokas & Martin (Alaska 1983) 

667 P.2d 171; contra, Kramer v. Belfi (1984) 106 

App.Div.2d 615, 482 N.Y.S.2d 898. 

9. Preparation of Inadequate Accounting 

Resulting in Fiduciary Client's Surcharge: Flynn v. 

Judge (1912) 149 App.Div. 278, 133 N.Y.S. 794. 

10. Failure to disclose dual representation in 

transactions involving estate and trust: Morales v. 

Field, DeGoff, Huppert & MacGowan (1979) 99 

Cal.App.3d 307, 160 Cal.Rptr. 239; but see, Goldberg 

v. Frye (1990) 217 Cal.App.3d 1258, 266 Cal.Rptr. 

483 (lack of privity bars action for negligence by 

estate's beneficiaries against attorney for executor). 

IV. DAMAGES. 

The damages incurred in an estate planning or 

estate administration malpractice case are generally not 

difficult to calculate: What is the value of the estate 

going to the "wrong" beneficiaries (including the IRS!) 

or what is the loss to the estate resulting from the 

representative's surchargeable conduct? 

However, there may be additional damages to 

consider. For example, in Bucquet v. Livingston 

(1976) 57 Cal.App.3d 914, 129 Cal.Rptr. 514, the court 

observed that the plaintiffs' damages included 

substantial federal and California gift taxes, California 

inheritance taxes and attorneys' fees incurred by the 

beneficiaries after the testator's death to minimize or 

mitigate the adverse tax results of the attorney drafter's 

inclusion of a general power of appointment in the 

deceased testator's residual trust. See also, Sorensen v. 

Fio Rito (1980) 90 Ill.App.3d 368, 413 N.E.2d 47 

(damages for attorney's failure to timely file estate tax 

return included penalties, interest and attorneys' fees 

incurred by executors' challenge to IRS assessment). 

At least two jurisdictions have held that a 

beneficiary who has incurred litigation expenses in 

successfully defending a will contest may state a cause 

of action for the recovery of such expenses from the 

attorney drafter where it is proven that competent and 

unambiguous draftsmanship would have avoided the 

necessity for litigation. See, e.g., Rathblott v. Levin 

(D.N.J. 1988) 697 F.Supp. 817; Sizemore v. Swift 

(1986) 79 Or.App. 352, 719 P.2d 500. As the court in 

Rathblott, supra, observed in ruling favorably on the 

standing of a beneficiary who had successfully 

24 

defended a will contest to sue the drafting attorney for 

the fees and costs incurred in the litigation: 

"[W]e are unable to see a valid legal 

difference between a plaintiff who loses 

the right to one-half of an estate and a 

plaintiff who loses one-half of an estate in 

protecting her rights. If either was caused 

by an attorney's negligence in drafting, that 

attorney should be liable." 697 F.Supp. at 

820. 

However, compare Ventura County Humane 

Society v. Holloway (1974) 40 Cal.App.3d 897, 115 

Cal.Rptr. 464 (dictum that attorney has no duty to draft 

"litigation-proof" documents); Morgan v. Roller (1990) 

58 Wn.App. 728, 794 P.2d 1313 (attorneys' fees 

incurred by beneficiary in successful defense of will 

contest not recoverable from drafting attorney who, the 

court held, owed no duty to the beneficiary during 

testator's lifetime to disclose attorney's belief, arrived 

at after the will was executed, that the decedent was 

incompetent). 

Punitive damages may be recoverable in a 

malpractice case where the misconduct alleged is 

willful and meets the applicable jurisdiction's standard 

for imposition of exemplary damages (i.e., bad faith, 

oppression or malice). See, e.g., Estate of Hartz v. 

Nelson (Minn.App. 1989) 437 N.W.2d 749. 

Emotional distress damages also may be 

recoverable, although that issue has not yet been made 

clear in California. Compare, Tara Motors v. Superior 

Court (1990) 276 Cal.Rptr. 603 (1990) (depublished) 

(estate planning attorney may be liable in malpractice 

action for emotional distress damages even though 

client's other damages are purely economic), with 

Merenda v. Superior Court (1992) 3 Cal.App.4th 1, 4 

Cal.Rptr.2d 87 (client may not recover emotional 

distress damages in legal malpractice action); Smith v. 

Superior Court (Bucher) (1992) 10 Cal.App.4th 1033, 

13 Cal.Rptr.2d 133; Pleasant v. Celli (1993) ___ 

Cal.App.4th ___, 20 Cal.Rptr.2d 138 (simile). 

Not surprisingly, amounts received in settlement 

from third parties will be offset in determining the 

plaintiffs' damages in the malpractice action. McLane 

v. Russell (Ill. 1989) 131 Ill.2d 509, 546 N.E.2d 499 

(damages awarded to will beneficiaries in malpractice 

action against attorney for testator who failed to sever 

joint tenancy offset by one-half of amount received in 

settlement of beneficiaries' independent claims against 

surviving joint tenant); Garcia v. Borelli (1982) 129 

Cal.App.3d 28, 180 Cal.Rptr. 768 (damages 

recoverable in malpractice action properly reduced by

55 


funds received by plaintiff in probate court-approved 

settlement of estate entitlement action). 

V. ETHICAL CONSIDERATIONS. 

A. Introduction. 

This section of the Article will discuss in 

summary form the Rules of Professional Conduct most 

often encountered in estate planning and probate 

administration and cite some of the key cases reflecting 

the principles enunciated in the Rules. Two ongoing 

projects analyzing the applicability of the Rules of 

Professional Conduct to estate and trust lawyers' 

behavior have recently published their work product. 

The Board of Regents of the American College of 

Trust and Estate Counsel at its October 1993 meeting 

adopted the ACTEC Commentaries on the Model 

Rules of Professional Conduct. The work product of 

the American Bar Association Special Committee on 

Professional Responsibility of the Real Property, 

Probate and Trust Law Section (chaired by Malcolm A. 

Moore) dealing with the representation of husbands 

and wives has recently been published in the Section's 

publication "Probate and Property." Two additional 

papers on ethical problems in estate and trust 

administration and the lawyer as fiduciary, 

respectively, will be published shortly. These works 

represent the latest and most comprehensive thinking 

of experts in the field as to the applicability of the 

Model Rules of Professional Conduct to the estates and 

trusts practice. The ACTEC Commentaries reflect the 

considered opinion of the trusts and estates profession 

that neither the Model Rules of Professional Conduct 

nor the Comments to them "provide sufficiently 

explicit guidance regarding the professional 

responsibilities of lawyers engaged in a trust and 

estates practice." The Commentaries are intended to 

provide "some particularized guidance" to ACTEC 

Fellows, courts, ethics committees and other concerned 

with issues regarding the professional responsibility of 

trusts and estates lawyers. 

"The Commentaries generally seek 

to identify various ways in which common 

problems can be dealt with, without 

expressly mandating or prohibiting 

particular conduct by trusts and estates 

lawyers. While the Commentaries are 

intended to provide general guidance, 

ACTEC recognizes and respects the wide 

variation of rules, decisions, and ethics 

opinions adopted by the several 

jurisdictions with respect to some of the 

subjects." ACTEC Commentaries on 

Model Rules of Professional Conduct, 

Preface (ACTEC Foundation 1993). 

25 

In the Reporter's Note introducing the 

Commentaries, the Reporter for the Commentaries, 

Professor John R. Price of the University of 

Washington Law School, and this author, the Chair of 

the Professional Standards Committee of ACTEC, 

have stated the basic themes of the Commentaries: 

"The main themes of the 

Commentaries are: (1) the relative 

freedom that lawyers and clients have to 

write their own charter with respect to a 

representation in the trusts and estates 

field; (2) the generally nonadversarial 

nature of the trusts and estates practive; (3) 

the utility and propriety, in this area of law, 

of representing multiple clients, whose 

interests may differ but are not necessarily 

adversarial; and (4) the opportunity, with 

full disclosure, to moderate or eliminate 

many problems that might otherwise arise 

under the MRPC. The Commentaries 

additionally reflect the role that the trusts 

and estates lawyer has traditionally played 

as the lawyer for members of a family. In 

that role a trusts and estates lawyer 

frequently represents the fiduciary of a 

trust or estate and one or more of the 

beneficiaries." Reporter's Note, ACTEC 

Commentaries, pg. 1. 

B. Excerpt from Scope. 1 

"The Rules of Professional Conduct are rules 

of reason. They should be interpreted with 

reference to the purposes of legal representation 

and of the law itself. Some of the Rules are 

imperatives, cast in the terms of 'shall' or 'shall 

not.' These define proper conduct for the 

purposes of professional discipline. Others, 

generally cast in the term "may," are permissive 

and define areas under the Rules in which the 

lawyer has professional discretion. No 

disciplinary action should be taken when the 

lawyer chooses not to act or acts within the 

bounds of such discretion. . . . Comments use the 

term "should." Comments do not add obligations 

1 All further quotations are from the Model Rules of 

Professional Conduct, adopted by the ABA House of 

Delegates on August 2, 1983 and amended in 1987, 1989, 

1990 and 1991. The Rules and comments and annotations 

thereto are collected in the ABA publication, Annotated 

Model Rules of Professional Conduct (2nd ed. 1992) 

available from the Center for Professional Responsibility of 

the ABA.

56 


to the Rules but provide guidance for practicing 

in compliance with the Rules. 

"Violation of a Rule should not give rise to a 

cause of action nor should it create any 

presumption that a legal duty has been breached. 

The Rules are designed to provide guidance to 

lawyers and to provide a structure for regulating 

conduct through disciplinary agencies. They are 

not designed to be a basis for civil liability." 

However, see the Discussion at Section VI, B 

infra (pp. 52-55) relating to the role of the Rules of 

Professional Conduct in malpractice litigation. 

C. MRPC 1.1: Competence. 

"A lawyer shall provide competent 

representation to a client. Competent 

representation requires the legal knowledge, 

skill, thoroughness and preparation reasonably 

necessary for the representation." 

Sections I through IV of this Article discuss in 

great detail the principle of "Competence" in estate 

planning and probate administration and reflects the 

results that may follow when a lawyer fails to act 

competently in a given case. That the failure to act 

competently in only a single case may arguably be 

unethical has not generally been a factor in the 

decisions imposing malpractice liability. 

D. MRPC 1.2: Scope of Representation. 

"(a) A lawyer shall abide by a client's 

decisions concerning the objectives of the 

representation, subject to paragraphs (c), (d) and 

(e), and shall consult with the client as to the 

means by which they are to be pursued. A lawyer 

shall abide by a client's decision whether to 

accept an offer of settlement of a matter. In a 

criminal case, the lawyer shall abide by the 

client's decision, after consultation with the 

lawyer, as to a plea to be entered, whether to 

waive jury trial and whether the client will testify. 

(b) A lawyer's representation of a client, 

including representation by appointment, does 

not constitute an endorsement of the client's 

political, economic, social or moral views or 

activities. 

(c) A lawyer may limit the objectives of the 

representation if the client consents after 

consultation. 

(d) A lawyer shall not counsel a client to 

engage, or assist a client, in conduct that the 

lawyer knows is criminal or fraudulent, but a 

lawyer may discuss the legal consequences of any 

26 

proposed course of conduct with a client and may 

counsel or assist a client to make a good faith 

effort to determine the validity, scope, meaning or 

application of the law. 

(e) When a lawyer knows that a client 

expects assistance not permitted by the Rules of 

Professional Conduct or other law, the lawyer 

shall consult with the client regarding the 

relevant limitations on the lawyer's conduct." 

For the application of this Rule in the context of 

determining the duties a lawyer for a fiduciary may 

assume to the beneficiaries of the fiduciary estate, see 

the cases discussed in Section III (pp. 34-40) of this 

Article. 

E. MRPC 1.3: Diligence. 

"A lawyer shall act with reasonable diligence 

and promptness in representing a client." 

See discussion of cases cited at Section II, E, 8 

(pp. 30-31) of this Article. 

F. MRPC 1.4: Communication. 

"(a) A lawyer shall keep a client reasonably 

informed about the status of a matter and 

promptly comply with reasonable requests for 

information. 

(b) A lawyer shall explain a matter to the 

extent reasonably necessary to permit the client 

to make informed decisions regarding the 

representation." 

See Stangland v. Brock (Wash. 1987) 747 P.2d 

464. 

G. MRPC 1.6: Confidentiality of Information. 

"(a) A lawyer shall not reveal information 

relating to representation of a client unless the 

client consents after consultation, except for 

disclosures that are impliedly authorized in order 

to carry out the representation, and except as 

stated in paragraph (b). 

(b) A lawyer may reveal such information 

to the extent the lawyer reasonably believes 

necessary: 

(1) to prevent the client from 

committing a criminal act that the lawyer 

believes is likely to result in imminent death or 

substantial bodily harm; or 

(2) to establish a claim or defense 

on behalf of the lawyer in a controversy 

between the lawyer and the client, to establish 

a defense to a criminal charge or civil claim

57 


against the lawyer based upon conduct in 

which the client was involved, or to respond to 

allegations in any proceeding concerning the 

lawyer's representation of the client." 

Subject to the requirements of this Rule and Rules 

1.7 (Conflict of Interest) and 2.2 (Dealing with 

Intermediaries), it is clear that a lawyer may represent 

more than one client with related but not necessarily 

identical interests (for example, several members of the 

same family). Some states, such as California, require 

a written consent on the part of multiple clients to such 

joint representation. See California Rule of 

Professional Conduct 3:310(C). Generally, in a joint 

representation, information is shared between and 

among the clients and there are no confidences 

between client and lawyer that are not shared with the 

other clients in the joint representation. Because of the 

importance of this consequence, the lawyer should 

advise the joint clients, (e.g., husband and wife) of this 

lack of confidentiality as between the two of them. 

H. MRPC 1.7: Conflict of Interest: General Rule. 

"(a) A lawyer shall not represent a client if 

the representation of that client will be directly 

adverse to another client, unless: 

(1) the lawyer reasonably believes the 

representation will not adversely affect the 

relationship with the other client; and 

(2) each client consents after 

consultation. 

(b) A lawyer shall not represent a client if 

the representation of that client may be materially 

limited by the lawyer's responsibilities to another 

client or to a third person, or by the lawyer's own 

interests, unless: 

(1) the lawyer reasonably believes the 

representation will not be adversely affected; and 

(2) the client consents after consultation. 

When representation of multiple clients in a single 

matter is undertaken, the consultation shall 

include explanation of the implications of the 

common representation and the advantages and 

risks involved." 

This is one of the Model Rules whose application 

in the estates and trusts area is frequently uneven. 

Since generally the nature of an estates and trusts 

practice is non-adversarial, most estates and trusts 

lawyers encourage multiple representation because it is 

in the best interests of all the clients and is more costeffective. 

Nevertheless, this Rule clearly requires the 

lawyer to communicate potential conflicts of interest to 

his or her clients and obtain the clients' consent (in 

some states, e.g., California, in writing). The estate 

planning lawyer who runs afoul of this Rule may 

27 

jeopardize (fairly or unfairly) the estate plan of the 

lawyer's testator (see, e.g., Haynes v. First National 

Bank of New Jersey, 432 A.2d 890, 900 (1981): 

"[T]here must be imposed a significant burden of proof 

upon the advocates of a will where a presumption of 

undue influence has arisen because the testator's 

attorney has placed himself in a conflict of interest and 

professional loyalty between the testator and the 

beneficiary." See also the cases discussed infra at 

Section VI, A (pp. 51-52). 

I. MRPC 1.8: Conflict of Interest: 

Prohibited Transactions. 

"(a) A lawyer shall not enter into a business 

transaction with a client or knowingly acquire an 

ownership, possessory, security or other 

pecuniary interest adverse to a client unless: 

(1) the transaction and terms on which 

the lawyer acquires the interest are fair and 

reasonable to the client and are fully disclosed 

and transmitted in writing to the client in a 

manner that can be reasonably understood by the 

client; 

(2) the client is given a reasonable 

opportunity to seek the advice of independent 

counsel in the transaction; and 

(3) the client consents in writing thereto. 

(b) A lawyer shall not use information 

relating to representation of a client to the 

disadvantage of the client unless the client 

consents after consultation, except as permitted 

or required by Rule 1.6 or Rule 3.3. 

(c) A lawyer shall not prepare an 

instrument giving the lawyer or a person related 

to the lawyer as parent, child, sibling, or spouse 

any substantial gift from a client, including a 

testamentary gift, except where the client is 

related to the donee. 

(d) Prior to the conclusion of 

representation of a client, a lawyer shall not 

make or negotiate an agreement giving the 

lawyer literary or media rights to a portrayal or 

account based in substantial part on information 

relating to the representation. 

(e) A lawyer shall not provide financial 

assistance to a client in connection with pending 

or contemplated litigation, except that: 

(1) a lawyer may advance court costs 

and expenses of litigation, the repayment of which 

may be contingent on the outcome of the matter; 

and 

(2) a lawyer representing an indigent 

client may pay court costs and expenses of 

litigation on behalf of the client.

58 


(f) A lawyer shall not accept compensation 

for representing a client from one other than the 

client unless: 

(1) the client consents after consultation; 

(2) there is no interference with the 

lawyer's independence of professional judgment 

or with the client-lawyer relationship; and 

(3) information relating to 

representation of a client is protected as required 

by Rule 1.6. 

(g) A lawyer who represents two or more 

clients shall not participate in making an 

aggregate settlement of the claims of or against 

the clients, or in a criminal case an aggregate 

agreement as to guilty or nolo contendere pleas, 

unless each client consents after consultation, 

including disclosure of the existence and nature 

of all the claims or pleas involved and of the 

participation of each person in the settlement. 

(h) A lawyer shall not make an agreement 

prospectively limiting the lawyer's liability to a 

client for malpractice unless permitted by law 

and the client is independently represented in 

making the agreement, or settle a claim for such 

liability with an unrepresented client or former 

client without first advising that person in writing 

that independent representation is appropriate in 

connection therewith. 

(i) A lawyer related to another lawyer as 

parent, child, sibling or spouse shall not 

represent a client in a representation directly 

adverse to a person who the lawyer knows is 

represented by the other lawyer except upon the 

consent by the client after consultation regarding 

the relationship. 

(j) A lawyer shall not acquire a proprietary 

interest in the cause of action or subject matter of 

litigation the lawyer is conducting for a client, 

except that the lawyer may: 

(1) acquire a lien granted by law to 

secure the lawyer's fee or expenses; and 

(2) contract with a client for reasonable 

contingent fees in a civil case." 

In the estates and trusts context, this Rule most 

commonly comes into play where the lawyer-drafter is 

receiving a gift under an instrument. Although properly 

discouraged, such transactions continue to be a 

problem in the real world. In addition, the lawyer must 

carefully consider the implications of this Rule when 

the client indicates an interest in appointing the lawyer 

as fiduciary. 

Because of some recently publicized, allegedly 

egregious abuses of the lawyer-client relationship in 

California, the California legislature has passed 

legislation (AB 21) prohibiting any gifts to a person 

28 

who drafts or causes to be prepared an instrument 

making a gift to that individual except in the narrowest 

of circumstances and dramatically limiting the manner 

in which the lawyer-drafter may be named as a 

fiduciary by his or her client. 

In 1991 the Real Property, Probate and Trust Law 

Section of the ABA approved a draft statement of 

Principles regarding attorneys acting in other fiduciary 

roles which emphasizes the importance of the attorney 

so serving only after full disclosure of all possible 

conflicts of interest deriving from such service and an 

informed discussion of viable alternatives with the 

client. The decision by the client must be made of the 

client's own free will and both the voluntary nature of 

the decision and its reasonableness under the 

circumstances should be documented (preferably in 

writing). 

J. MRPC 1.14: Client Under a Disability. 

"(a) When a client's ability to make 

adequately considered decisions in connection 

with the representation is impaired, whether 

because of minority, mental disability or for some 

other reason, the lawyer shall, as far as 

reasonably possible, maintain a normal clientlawyer 

relationship with the client. 

(b) A lawyer may seek the appointment of a 

guardian or take other protective action with 

respect to a client only when the lawyer 

reasonably believes that the client cannot 

adequately act in the client's own interest." 

The principle reflected in MRPC 1.14(b) does not 

have unanimous approval. In 1989 California issued 

an ethics opinion that states a lawyer may not initiate 

conservatorship proceedings on a client's behalf 

without the client's consent even though the lawyer has 

concluded that it is in the best interests of the client. 

California Ethics Opinion 1989-12. 

On the issue of the identity of the "client" when 

the attorney represents a guardian or conservator, see, 

e.g., Fickett v. Superior Court, 55 P.2d 988 (Ariz. 

1976), discussed at Section III, A, 3 of this Article (pp. 

37-38). See also, Morgan v. Roller (Wash. App. 1990) 

794 P.2d 1313. 

K. MRPC 2.2: Intermediary. 

"(a) A lawyer may act as intermediary 

between clients if: 

(1) the lawyer consults with each client 

concerning the implications of the common 

representation, including the advantages and risks 

involved, and the effect on the attorney-client

59 


privileges, and obtains each client's consent to the 

common representation; 

(2) the lawyer reasonably believes that 

the matter can be resolved on terms compatible 

with the clients' best interests, that each client will 

be able to make adequately informed decisions in 

the matter and that there is little risk of material 

prejudice to the interests of any of the clients if the 

contemplated resolution is unsuccessful; and 

(3) the lawyers reasonably believes that 

the common representation can be undertaken 

impartially and without improper effect on other 

responsibilities the lawyer has to any of the 

clients. 

(b) While acting as intermediary, the 

lawyer shall consult with each client concerning 

the decisions to be made and the considerations 

relevant in making them, so that each client can 

make adequately informed decisions. 

(c) A lawyer shall withdraw as 

intermediary if any of the clients so requests, or if 

any of the conditions stated in paragraph (a) is 

no longer satisfied. Upon withdrawal, the lawyer 

shall not continue to represent any of the clients 

in the matter that was the subject of the 

intermediation." 

Frequently, intermediation may be indicated in 

estate or trust administration matters where there are 

several clients with actual or potential conflicts of 

interests but all of the clients, (e.g., a family) has 

overriding common goals. However, the specific 

requirements of MRPC 2.2 must be met if the lawyer is 

to act as intermediary. See also, MRPC 1.2 (Scope of 

Representation), MRPC 1.4 (Communication), MRPC 

1.6 (Confidentiality) and MRPC 1.7 (Conflict of 

Interest), supra. Note also that if a disagreement 

follows the intermediation, the lawyer may be barred 

by any party to the intermediation from later 

representing any other party in the same or reasonably 

related matter. 

L. MRPC 3.3: Candor Toward the Tribunal. 

"(a) A lawyer shall not knowingly: 

(1) make a false statement of 

material fact or law to a tribunal; 

(2) fail to disclose a material fact to 

a tribunal when disclosure is necessary to avoid 

assisting a criminal or fraudulent act by the 

client; 

(3) fail to disclose to the tribunal 

legal authority in the controlling jurisdiction 

known to the lawyer to be directly adverse to the 

position of the client and not disclosed by 

opposing counsel; or 

29 

(4) offer evidence that the lawyer 

knows to be false. If a lawyer has offered 

material evidence and comes to know of its 

falsity, the lawyer shall take reasonable remedial 

measures. 

(b) The duties stated in paragraph (a) 

continue to the conclusion of the proceeding, and 

apply even if compliance requires disclosure of 

information otherwise protected by Rule 1.6. 

(c) A lawyer may refuse to offer evidence 

that the lawyer reasonably believes is false. 

(d) In an ex parte proceeding, a lawyer 

shall inform the tribunal of all material facts 

known to the lawyer which will enable the 

tribunal to make an informed decision, whether 

or not the facts are adverse." 

See, e.g., Pierce v. Lyman (1991) 1 Cal.App.4th 

1093, 3 Cal.Rptr.2d 236, discussed at Section III, A, 4 

(39-41). 

M. MRPC 4.3: Dealing With Unrepresented 

Person. 

"In dealing on behalf of a client with a person 

who is not represented by counsel, a lawyer shall 

not state or imply that the lawyer is disinterested. 

When the lawyer knows or reasonably should 

know that the unrepresented person 

misunderstands the lawyer's role in the matter, 

the lawyer shall make reasonable efforts to 

correct the misunderstanding." 

See, e.g., Butler v. State Bar (1986)) 42 Cal.3d 

323, 721 P.2d 585: "The attorney's duty to 

communicate with a client includes the duty to 

communicate to persons who reasonably believe they 

are clients to the attorney's knowledge at least to the 

extent of advising them that they are not clients." 

VI. CONFLICTS OF INTEREST AND THE 

RULES OF PROFESSIONAL CONDUCT. 

A. Representing Conflicting Interests. 

As if the threat of malpractice liability for simple 

negligence were not enough, estate and trust attorneys 

have frequently courted disaster by representing more 

than one party to a given transaction, sometimes 

involving estate planning, sometimes estate 

administration. See, e.g., Butler v. State Bar (1986) 42 

Cal.3d 323, 228 Cal.Rptr. 499 (estate administration); 

Estate of Charters (1956) 46 Cal.2d 227, 293 P.2d 778 

(corporate trustee serving both as testamentary trustee 

and as guardian of the minor income beneficiary's 

estate; final trust accountings set aside following 

minor's attaining majority); Garcia v. Borelli (1982)

60 


129 Cal.App.3d 24, 180 Cal.Rptr. 768; Morales v. 

Field, Degoff, Hupoert & MacGowan (1979) 99 

Cal.App.3d 873, 49 Cal.Rptr. 239; Potter v. Moran 

(1966) 239 Cal.App.2d 873, 49 Cal.Rptr. 229 

(testamentary trustee and guardian of minor 

beneficiaries represented by the same law firm, a fact 

undisclosed to the court; final judgment overturned for 

"extrinsic fraud"). 

B. The Role of Ethical Rules in Malpractice 

Litigation. 

One of the hottest topics in legal malpractice 

litigation today is whether or not an attorney's failure 

to meet the ethical standards imposed by an applicable 

rule of professional responsibility or conduct (e.g., the 

rule against representing conflicting interests) 

constitutes legal malpractice. Generally, courts have 

found such violations to be evidentiary only on the 

issue and still require the plaintiff to show some causal 

connection between the attorney's misconduct and the 

damages suffered by the client. See, e.g., Woodruff v. 

Tomlin (6th Cir. 1980) 616 F.2d 924, cert. denied 449 

U.S. 888 (standards imposed by (former) Code of 

Professional Responsibility constitute "some evidence" 

of the applicable standard of care imposed on lawyers); 

Fishman v. Brooks (Mass. 1986) 487 N.E.2d 1377; 

Avianca, Inc. v. Corriea (D.D.C. 1989) 705 F.Supp. 

666; Gomez v. Hawkins Concrete Constr. Co. 

(N.D.Fla. 1985) 623 F.Supp. 199; Waldman and Steven 

v. Levine, et al. (D.C.App. 1988) 544 A.2d 683; 

Kirschbaum v. Dillon (1991) 58 Oh.St.3d 58, 567 

N.E.2d 1291; Terry Cove North, Inc. v. Marr & 

Friedlander (Ala. 1988) 521 So.2d 22. Compare, 

Lipton v. Boesky (Mich.App. 1981) 313 N.W.2d 163 

(Code violation constitutes rebuttable presumption of 

negligence). 

It is generally held that a private cause of action 

will not lie solely for the violation of a Rule of 

Professional Conduct. See, e.g., Hinzey v. Carpenter 

(1992) 119 Wn.2d 251, 830 P.2d 664 (violation of 

Rule does not create private cause of action nor may 

violation be used as evidence of malpractice). 

Nevertheless, it is also true that the fact that a lawyer's 

conduct may violate an ethical rule does not thereby 

insulate the lawyer's conduct from an action for 

damages or other relief. Maritrans GP Inc. v. Pepper, 

Hamilton & Sheetz (Pa. 1992) 602 A.2d 1277. 

In Lazy Seven Coal Sales, Inc. v. Stone & Hinds, 

P.C. (Tenn. 1991) 813 S.W.2d 400, the Supreme Court 

of Tennessee observed: 

"Even though . . . the [ABA] Code 

[of Professional Responsibility] does not 

define standards for civil liability, the 

30 

standards stated in the Code are not 

irrelevant in determining the standard of 

care in certain actions for malpractice. The 

Code may provide guidance in ascertaining 

lawyers' obligations to their clients under 

various circumstances, and conduct which 

violates the Code may also constitute a 

breach of the standard of care due a client. 

However, in a civil action charging 

malpractice, the standard of care is the 

particular duty owed the client under the 

circumstances of the representation, which 

may or may not be the standard 

contemplated by the Code." 813 S.W.2d at 

405. 

See also, Adams v. Reagan (Tex.App. 1990) 792 

S.W.2d 284; Hendricks v. Davis (Ga.App. 1990) 395 

S.E.2d 632. 

Unlike the Model Code of Professional 

Responsibility which "makes no attempt to prescribe 

either disciplinary procedures or penalties for violation 

of a Disciplinary Rule nor does it undertake to define 

standards for civil liability of lawyers for professional 

conduct" (Model Code of Professional Responsibility, 

Preliminary Statement), the Preamble to the Model 

Rules of Professional Conduct is very explicit on the 

point: 

"Violation of a Rule should not give 

rise to a cause of action nor should it create 

any presumption that a legal duty has been 

breached. The Rules are designed to 

provide guidance to lawyers and to provide 

a structure for regulating conduct through 

disciplinary agencies. They are not 

designed to be a basis for civil liability. 

Further, the purpose of the Rules can be 

subverted when they are invoked by 

opposing parties as procedural weapons. 

The fact that a rule is a just basis for a 

lawyer's self-assessment or for sanctioning 

a lawyer under the administration of a 

disciplinary authority does not imply that 

an antagonist in a collateral proceeding or 

transaction has standing to seek 

enforcement of the Rule. Accordingly, 

nothing in the Rule should be deemed to 

augment any substantive legal duty of 

lawyers or the extra-disciplinary 

consequences of violating such a duty." 

Thus, in a state that has adopted the Model Rules 

of Professional Conduct, there is an additional 

argument to exclude evidence of a Rule violation that 

is not available in those states that continue to follow

61 


the Model Code of Professional Responsibility. See, 

e.g., Stewart v. Coffman (Utah App. 1988) 748 P.2d 

579; State v. Ford (Utah App. 1990) 793 P.2d 397. 

The standard rule in California, however, for use 

of a Rule violation as evidence of professional 

negligence is much broader than in most other 

jurisdictions. In Day v. Rosenthal (1985) 170 

Cal.App.3d 1125, 217 Cal.Rptr. 89, cert. denied (1986) 

106 S.Ct. 1267, in upholding a multimillion dollar 

judgment against an attorney for legal malpractice, 

breach of fiduciary duty and fraud, the Court of Appeal 

observed: 

"Furthermore, 'it is an attorney's 

duty to "protect his client in every possible 

way," and it is a violation of that duty for 

the attorney to "assume a position adverse 

or antagonistic to his client without the 

latter's free and intelligent consent given 

after full knowledge of all the facts and 

circumstances." The attorney is "precluded 

from assuming any relation which would 

prevent him from devoting his entire 

energies to his client's interest".' [Citations 

omitted; emphasis added by court.] An 

attorney's failure to perform in accordance 

with his duty is negligence. [Citing Smith 

v. Lewis (1975) 13 C3d 349, 118 Cal.Rptr. 

621.] From the time he became the 

[client's] attorney, [their attorney] was 

obligated to abide by these high standards 

of professional responsibility." 272 

Cal.Rptr. at 99-100. 

The Court of Appeal continued: 

"An attorney's duty, the breach of 

which amounts to negligence is not limited 

to his failure to use the skill required of 

lawyers. Rather, it is a wider obligation to 

exercise due care to protect a client's best 

interests in all ethical ways and in all 

circumstances. 

"The standards governing an 

attorney's ethical duties are conclusively 

established by the Rules of Professional 

Conduct. They cannot be changed by 

expert testimony. If an expert testifies 

contrary to the rules of professional 

conduct, the standards established by the 

rules govern and the expert testimony is 

disregarded. [Citation omitted.]" Day v. 

Rosenthal, supra, 217 Cal.Rptr. at 102 

(emphasis by court). 

31 

See also, Mirabito v. Liccardo (1992) 4 Cal.App.4th 

41, 5 Cal.Rptr.2d 571 (where the applicable California 

Rule of Professional Conduct provides the standard by 

which an attorney's breach of his fiduciary duty is 

measured, consideration of the Rule by the trier of fact 

in determining breach is entirely proper); Hansen v. 

Wightman (Wash.App. 1975) 538 P.2d 1238; Gulf 

Wide Towing, Inc. v. F. E. White (U.K.) Ltd. (La.App. 

1989) 554 So.2d 1347. 

Despite the conflict in the authorities cited above, 

it is fair to observe that, whether an ethical rule in a 

given jurisdiction 1) establishes the attorney's duty of 

care, 2) is "some evidence" of the attorney's duty, or 3) 

otherwise impinges on the attorney's duty, an attorney 

who has breached an ethical rule in the course of 

representing his or her client will have greater 

difficulty in establishing a defense to the client's later 

action for malpractice than would be the case if no 

ethical violation existed. 

VII. CONCLUSION. 

In conclusion, the myriad duties and 

responsibilities imposed on estate planning and probate 

lawyers may extend far beyond the contractual 

confines of the attorney-client relationship. 

Nevertheless, the attorney practicing in these fields can 

help himself or herself by following several basic 

guidelines: 

(1) Never undertake a case (be it estate plan, 

estate administration or trust proceeding) wherein you 

lack the basic skills, education and training to handle 

the matter competently unless, with the client's 

consent, you associate a qualified specialist; 

(2) Define the attorney-client relationship (and, 

therefore, your client's "reasonable expectations") with 

a written engagement letter and explain not only what 

you are agreeing to do for the client but also what tasks 

you are not undertaking for the client; 

(3) Commit yourself to remaining up to date on 

all important developments, both tax and non-tax, in 

your field; devote time to the regular reading of current 

periodicals and legal newspapers and faithfully attend 

continuing education courses in the field; 

(4) Do not involve your clients in the latest estate 

planning fad or "murky" areas of the law; 

(5) Do use checklists, outlines and tables of 

contents in the preparation of all significant estate 

planning documents;

62 


(6) Have at least two attorneys (or one attorney 

and a qualified paralegal) review every important 

estate planning document in its final form before it is 

presented to the client for execution; no document can 

be proofread enough; 

(7) Advise your clients to assume some 

responsibility for the regular review and updating of 

their estate plans. Do not undertake to provide up-tothe-minute 

tax and non-tax information to your clients 

unless you have a clear understanding that you will do 

so (and presumably will be paid for your efforts); 

(8) If at all possible, personally supervise (or 

have a qualified colleague in your office supervise) 

your client's execution of every estate planning 

document; if for reasons of time or distance this 

approach is not feasible, give your client very specific 

instructions on how the documents should be executed 

and ask your client to confirm in writing that he or she 

has followed those instructions; 

(9) Maintain comprehensive notes of your estate 

planning interview, the estate planning, research and 

drafting process and confirm in writing with your 

client all material aspects of the client's estate plan; if 

the client insists on a plan that might be criticized in 

hindsight by the client's beneficiaries after the client is 

deceased (e.g., a plan that does not maximize the estate 

tax marital deduction), confirm in writing that for good 

and sufficient non-tax or other reasons, the client has 

elected to follow the course in question; 

(10) In all cases where you have more than one 

client (e.g., husband and wife), spell out the potential 

conflicts of interest to your joint clients, indicate the 

circumstances under which separate representation 

may be necessary and have your clients give their 

knowing, informed and written consent to the joint 

representation; 

(11) Whether in the estate planning or estate 

administration context, consider insisting upon the 

retention of separate counsel whenever the interests of 

the parties appear to diverge; anticipate conflicts before 

they arise and always make clear your relationship to 

the parties involved; 

(12) Be candid and honest at all times with your 

clients; after all, you owe them fiduciary duties of 

undivided loyalty, full disclosure and fair dealing. 

Finally, in the words of Professor Jeffrey Pennell, 

"Be nice!" The careful and diligent lawyer who has a 

cordial and friendly relationship with his or her clients 

may not be absolutely immune from a malpractice 

32 

action but the chances of being sued will be 

dramatically reduced.




August 13, 2008 


Litigating the Total Return Trust 

By 

Margaret E. W. Sager 

Jane K. Anastasia 

Heckscher, Teillon, Terrill & Sager, P.C. 

West Conshohocken, Pennsylvania 

63

64 

2

LITIGATING THE TOTAL RETUR TRUST 

By Margaret E.W. Sager, Esquire 

Jane K. Anastasia, Esquire 

Heckscher, Teilon, Terril & Sager, P.C. 

100 Four Falls, Suite 300 

West Conshohocken, PA 19428 

Tel: (610) 940-4171 

Fax: (610) 940-6042 

mewsager(Ihtts.com 

ww.htts.com 


i. INTRODUCTION ...... ................ ............................................. ................. ...... ....................... 1 

II. INESTMENT PERFORMANCE .......................................................................................4 

m. DISTRIUTIONS. ......... ........ .................................... ............... ............. ....................... ........ 9 

IV. TAX EFFECTS .......... .............................................................. ........ ... .... ............... .... .......... 28 

V. DEFENSES..........................................................................................................................30 

VI. REMEDY -- REMOVAL......... ..... ............ ......... ..................... .............. .... .......... ................ 34 

VII. REMEDY -- MONETARY .................................................................................................35 

VIII. TRUSTEE COMMISSIONS & INESTMENT FEES ........................... ...... ..................... 49 

IX. SAMLE LITIGATION SCENAROS...............................................................................51 

II-A-I -MEWS 

65

66 

LITIGATING THE TOTAL RETURN TRUST 



Heckscher, Teilon, Terril & Sager, PC 


West Conshohocken, PA 19428-2983 

Tel: (610) 940-4171 

Fax: (610) 940-6042 

mewsager(ihtts.com 

ww.htts.com 

Note: This outline is a reprint of the materials Ms. Sager presented in January 2006, for the 

Heckerling Institute on Estate Planning, Miami, Florida, for a seminar entitled "The Prophylactic 

Approach for Total Return Trusts: Avoiding Unwanted Litigation." Paul Lee of Bernstein 

Investment Research & Management was a co-presenter for the seminar and his materials were 

entitled "Implementing Total Return Trusts: Solving Three Variable Problems When You're 

Bad At Math." 

NOTE that this outline has not been updated.

LITIGATING THE TOTAL RETUR TRUST 



Heckscher, Teilon, Terril & Sager, P.C. 


West Conshohocken, PA 19428 

Tel: (610) 940-4171 

Fax: (610) 940-6042 

mewsager(Ihtts.com 

ww.htts.com 

NOTE: This outline was originally prepared for an October 2004 American College of 

Trust & Estate Counsel ("ACTEC") seminar entitled "Planng, Admnistering and 

Litigating the Total Return Trust," presented by Margaret E.W. Sager, Robert B. Wolf, 

Esquire, ofTener, Van Kirk, Wolf & Moore, PC, and Paul Lee, Esquire, of Bernstein 

Investment Research & Management. The superb wrtten materials prepared by Bob 

Wolf and Paul Lee for that seminar were extraordinarly extensive and detailed. This 

outline, meant to target the litigation aspects of the topic, does not replicate the detailed 

background and terms of the new unform laws and statutes relevant to this topic, nor 

does it address the considerations involved to determine whether or not to convert a trst 

to a unitrst or exercise the power to adjust. Please reference the materials ofHeckerling 

co-presenter, Paul Lee, for additional information and analysis. Also, the extensive 

materials prepared by Bob Wolf for the ACTEC seminar are a "must have" resource. See 

Robert B. Wolf, Total Return - Meeting Human Needs and Investment Goals Through 

Modern Trust Design, ACTEC Fall Meeting (Oct. 2004), available at the ACTEC 

website (ww.actec.org). 

i. INTRODUCTION 

In the last several years uniform laws and varous state statutes have been adopted 

which permit trsts to be converted to untrsts, permit trstees to exercise a power to 

adjust between principal and income for the benefit of income beneficiares, and under 

certain circumstances wil require trstees to change the way that they approach investing 

trst assets. The statutes adopted by certain states are based on the Uniform Prudent 

Investor Act of 1994 ("UPIA") and the Uniform Principal and Income Act of 1997 

("UP&IA"). 

So far there are few reported cases involving disputes under the new statutes. 

However, the laws are fraught with the possibility of liability for fiduciares, as well as 

for attorneys representing fiduciaries or beneficiares or both, and even for attorneys 

representing individuals for purposes of their estate planning. Disputes will inevitably 

arse, for instance, from converting (or not converting) a "traditional" trust to a untrst, 

II-A-l-MEWS 

67

68 

from exercising (or not exercising) the power to adjust between principal and income, 

from converting or adjusting in a way that disappoints a beneficiar, and from failing to 

modify investments in accordance with these changes to the trst distribution scheme. 

Cases decided under earlier laws may shed light on how the cours might interpret the 

new laws, and maybe where plaintiffs will find their fodder. 

Although the total return trust statutes var from state to state, and despite the fact 

that many statutes have built in safe-guards meant to protect trstees from liability, we 

can categorize the potential litigation into three broad categories: transitional, operational 

and estate plang. 

"Transitional" litigation pertains to disputes involving whether or not to convert a 

trst to a untrst and whether or not to exercise the power to adjust, what the trustee's 

decision makng process was (or what was missing from that process), how and ifthe 

beneficiares were notified of these decisions and alert to the related changes in the law, 

how the actions were undertaken and implemented and so on. In other words, this 

litigation wil arse from the initial decisions to convert or exercise the power to adjust, or 

not to convert or adjust -- or maybe from the trustee's failure to be aware of such options 

and thus even consider them. 

"Operational" litigation pertains to disputes that arise after the trust has been 

converted or where the power to adjust between principal and income has been exercised 

and disputes then arse from the adminstration of those decisions. Those disputes may 

include efforts to reconvert the trst, criticisms of how adjustments are made, disputes 

over valuation (paricularly in a unitrst), and criticism of investments and investment 

performance. The most likely areas of litigation on the operational side will doubtless be 

investments, asset allocation and valuation. Trustees may invest for total retu but then 

fail to change the investments after market fluctuations. Other trstees may fail to 

become informed of the needs and circumstances of the beneficiares. 

The third primar context oflitigation is likely to pertain to estate planing. . 

Although this outline will examine the transitional and operational litigation, estate 

planning attorneys need to be alert to the implications of the new total return trust statutes 

in terms of how they draft wills and trsts. Estate planng attorneys should be talkng 

with their clients about the difference between traditional fiduciar accounting definitions 

of principal and income, and the new definitions available now. Some clients wil want 

to permit their trustee to have maximum flexibility, and others wil want to direct or 

prohibit a total retu approach. Beneficiares will second guess the estate planers and 

have fi opinions about what the testator or settlor must have wanted. 

Only time wil tell where the major litigation risks are likely to arse. In the 

meantime, this outline focuses on the following twelve areas of potential litigation: 

i. What if a trust's investment performance is disappointing? Neither the 

fiduciar nor the investment advisor is the insurer of good results. Does a 

prudent process protect a trustee from liabilty? 

II-A-2-MEWS

2. Can the trstee avoid investment liability by delegating investment 

authority? What is required to make the delegation prudent? 

3. What if the trstee adjusts or converts and some beneficiaries are stil 

disappointed? Is the status quo always prudent or might a trustee be liable 

if the trstee fails to exercise the power to adjust or the power to convert 

to a untrst? 

4. In considering adjusting or converting, how far does the trstee need to go 

to notify or inform the beneficiares of their rights and to ascertain the 

needs of the varous beneficiares? 

5. Does a lawyer have an obligation to inform clients of the new untrst and 

power to adjust options? If the lawyer represents beneficiares, does the 

attorney need to notify them that these new options might result in more 

fuds for them from the trst, whether as income beneficiar or 

remainderman? In representing a trstee, does the lawyer have a duty to 

advise the trstee of these new options? 

6. What if the trstee exercises the discretion to convert to a untrst but 

circumstances change? What ifthe beneficiaries want to reconvert? Will 

a thorough agreement signed by the beneficiares protect the trustee from 

disappointed beneficiares? 

7. Might a trstee be liable for damages incurred by a beneficiary as a result 

of the ta effects of conversion to a total retu trst? 

8. If a beneficiary sues a trstee for breach of fiduciary duty, and claims 

resulting damages, what are the trstee's defenses? What defenses are 

available to trstee's counsel ifthe beneficiares sue counsel for 

malpractice? Are the defenses utilized in the unitrust/power to adjust 

contexts different from any other trustee surcharge or malpractice context? 

9. Can the trustee be removed for failing to adjust or convert when the 

beneficiary wants the trstee to do so or if the investment performance 

falls below certain standards? 

10. What damages are available if a trstee fails to adjust income and 

principal or fails to convert to a unitrst? What ifthe trustee exercises one 

of these powers, but is faulted by the beneficiar for doing so? Can a 

beneficiary claim damages beyond those provided for by statute, if a 

statute based on UP&IA applies? 

11. How wil damages be calculated if the trstee is determined to have 

imprudently invested? Will the court calculate the loss, interest or the 

opportunty cost of the breach? The UPIA does not contain a limitation on 

damages, so how wil the monetar damages for violations of the trustee's 

duty to invest prudently be measured? 

II-A-3-MEWS 

69

70 

12. How will trstee commission be calculated in a trust where the trstee has 

adjusted income and principal or a trst that has been converted? How is 

income defined for puroses of commissions? Will fees be charged to 

income or principal? 

At the end of this outline is a list of possible litigation scenarios. There are many 

more; within the next several years, for better or for worse, you may be able to add 

scenaros (perhaps in the natue of war stories) to the list! 

II. INVSTMENT PERFORMANCE 

A. Investing Under the Uniform Prudent Investor Act 

What if a trst's investment performance is disappointing? Neither the 

fiduciary nor the investment advisor is the inurer of good results. Does a prudent 

process protect a trstee from liability? 

A prudent process may protect a trstee from liability. How the trstee 

"got there" is probably more important than where the trst ends up. "(T)here is little 

protection in arguing from historical averages, . . . protection for the fiduciar rests in 

pretty old-fashioned efforts: good personal relationships, communication and 

consultation, sign-offs and accountings." Deborah S. Gordon, Living With The Total 

Return Litigation Threat, SH002 ALI-ABA 253 (2002). In addition, "(b lad results from 

a carefully strctued portfolio may not constitute a breach of trst; bad results from a 

poor economic plan wil doubtless lead to surcharge." Dominc J. Campisi, Fiduciary 

Litigation: Case Law, FFIEC July 2,2003. 

1. The UPIA provides that fiduciaries should adhere to modern 

portfolio theory of investing, considering the risk and reward 

objectives suitable for a particular trust. UPIA §2(b). 1 The act was 

fialized as a uniform law by the National Conference of 

Commssioners On Uniform State Laws in 1994 and was based on 

the prudent investor rule in the 1990 Restatement (Third) of Trusts. 

See Marin D. Begleiter, Does The Prudent Investor Need The 

Prudent Investor Act -- An Empirical Study of Trust Investment 

Practices, 51 Me. L.Rev. 27 (1999); DiRusso, Alyssa A. & 

Sablone, Kathleen M., Statutor Techniques for Balancing the 

Financial Interests of Trust Beneficiaries, 39 U.S.F.L. Rev. 261 

(2005). 

Although a "uniform" law, many states have adopted statutes which are quite different from the 

UPIA. We have not undertaken a national review of the law, and thus rely on the UPIA for ths general 

discussion. Obviously, the reader must check applicable state law. The following websites include a state 

by state listing of enactments: htt://ww.Ieimberg.com/freeResources/trStates.asp and ww.nccusI.org. 

In addition a char prepared as par of Bob Wolfs materials (reference in the introductory paragraph to this 

outline) is attached as Appendix A, with his pennssion. 

II-A-4-MEWS

2. Massachusetts and Pennsylvana both adopted versions ofthe 

UPIA which delete the strct requirement of risk and reward 

objectives, allowing trustees to consider other factors and theories. 

See Mass. Gen. Laws Ch. 203C §3; 20 Pa. C.S.A. §7203(a). 

3. Under the UPIA, the fiduciar wil be judged on the complete 

portfolio, not on each individual investment. 

A trstee's investment and management decisions 

respecting individual assets must be evaluated not in 

isolation but in the context of the trst portfolio as a whole 

and as a par of an overall investment strategy having risk 

and retu objectives reasonably suited to the trst. 

UPIA §2(b). Furermore, the trstee wil be judged based on 

"facts and circumstances existing at the time of the trstee's 

decision or action and not by hindsight." UPIA §8. See also II 

Austin W. Scott and Willam F. Fratcher, The Law of Trusts 

§227.l2(4thEd.1987). 

4. The UPIA was wrtten in par with a goal of minimizing the 

likelihood of trstee liability. A cour analyzing a trstee's 

investment performance in accordance with the UPIA standard can 

view the standard liberally. "Soft" words in UPIA §2 (e.g., 

"reasonable care" and "reasonable effort") provide plenty of room 

for interpretation and fact specific analysis by the cours. 

5. Some states have adopted far more liberal liability protection for 

trstees. For instance, Pennsylvana law provides as follows: 

The rules of this chapter are standards of conduct and not 

of outcome or performance. Compliance with the rules of 

this chapter shall be determined in light of the facts and 

circumstances prevailing at the time of the fiduciar's 

decision or action and not by hindsight. A fiduciary is not 

liable to the extent the fiduciar acted in substantial 

compliance with the rules of this chapter'or in reasonable 

reliance on the terms and provisions of the governing 

instrment. Afiduciary's investment and management 

decisions respecting individual assets shall be considered 

in the context of the trust portfolio as a whole and as part 

of an overall investment strategy, and not in isolation. No 

specific investment or course of action, taken alone, shall 

be considered to be inherently prudent or imprudent. 

20 Pa. C.S.A. § 7213 (emphasis added to highlight the portion of 

the statute taken from the UPIA). 

II-A-5-MEWS 

71

72 

6. Although the statutes and accompanying comments stress the 

evaluation of the overall portfolio, some courts and jursdictions 

have stil chosen to analyze the pedormance of individual 

investments. 

a. In Estate of Cooper, 913 P.2d 393 (Wash. Ct. App. 1996), 

the Washigton State Cour of Appeals considered 

''whether the prudent investor rule limits the cour's 

consideration to the overall performance of the trst, or 

whether, instead the court may consider the performance of 

specific assets in the trst." The court concluded that 

overall trst performance is only a factor to consider in 

evaluating the trstee's pedormance, and emphasized that 

the focus is the fiduciar's conduct, not the end result. See 

Id. at 398, citing J. Alan Nelson, The Prudent Person Rule: 

A Shield for the Professional Trustee, 45 Baylor L. Rev. 

933,939 (1993). In Cooper, a ban had been named a co- 

trstee, but the fud had been administered for years by the 

individual trstee acting in his capacity as executor. The 

trst's overall performance exceeded the bank's trst 

deparent's average performance and the individual thus 

argued that the trst suffered no loss. Neverteless, the 

cour held that "the prudent investor rule focuses on the 

performance of the trstee, not the trust." It therefore 

affrmed the lower cour's finding that the trstee had 

improperly favored himself in his investments and thereby 

breached his duty. 

b. It is important to note that Cooper was decided prior to the 

enactment of the UPIA and was based on a state statute 

which adopted a prudent investor strategy even before the 

uniform law was finalized. About eleven states, including 

Washington, revised their prudent man statutes to address 

the same concerns with prior law that prompted the UPIA. 

See Martin D. Begleiter, Does the Prudent Investor Need 

the Uniform Prudent Investor Act--An Empirical Study of . 

Trust Investment Practices, 51 Me. L. Rev. 27 (1999). The 

commentares on Cooper suggest that the cour's reasoning 

was flawed, both under the Washington statute and the 

UPIA, because it failed to incorporate the total portfolio 

concept of the statute and failed to consider whether the 

trustees had formulated an appropriate investment plan. 

See also, Flohr v. Flohr, 111 Wash. App. 1004, 2002 WL 

528778 (2002) (unpublished), rev. denied, 67 P.3d 1096 

(Wash. 2003) (Cooper did not require total asset approach 

when evaluating performance but allows court to consider 

each individual asset). 

II-A-6-MEWS

c. In another unpublished opinion, the Washington Cour of 

Appeals cited Cooper's holding that overall trst 

performance is just one of many factors to be considered in 

evaluating the trstee's performance under the prudent 

investor rule and that the trustee's conduct, not the end 

result, should be the cour's focus. Conran v. Seafirst 

Bank, 89 Wash. App. 1005, 1998 WL 40659 (1998). 

7. The Delaware Supreme Cour overted a Delaware Chancery 

Cour's determination of damages based upon how a trst could 

have been invested. See Law v. Law, 753 A.2d 443 (DeL. 2000). 

The lower court surcharged the trstees for investing solely to 

provide tax-free income for the benefit of the income beneficiar. 

See Law v. Law, 1999 WL 126997 (DeL. Ch. 1999) (unpublished). 

However, on appeal, the Supreme Cour found that the trstees had 

not breached any duty regarding the investments, given the 

trstees' lack of professional expertise and granting the trstees 

wide latitude to determine a safe investment scheme even if it 

failed to increase the corpus. See Law, 753 A.2d at 443. Whle 

citing the Restatement (Third) of Trusts' prudent investor standard, 

the cour appears to have judged the trstees' conduct accordig to 

the prudent man standard of the Restatement (Second) of Trusts 

and the pre-UPIA rules. 

8. In another case, a remainder beneficiary complained that the 

trstees violated their duty of impariality because their new 

investment scheme unfairly benefited the income beneficiary. 

Matter of Jane Bradley Uihlein Trust, 417 N.W.2d 908 (Wis. 

1987). The court disagreed based in par on the fact that the 

instrment named the income beneficiar as the "primary" 

B. Prudent Delegation 

beneficiar of the trst, and noted that trustees had the right to 

invest without restrction on the ratio of fixed-income investments. 

¡d. See also James C. Hardin, II and Laura Pleicones, New 

Regime For The Total Return Trust: The 2001 South Carolina 

Uniform Principal and Income Act, l4-Aug S.C. Law. 28, 30-31 

(2002) (practitioners should encourage clients to be as specific as 

possible in naming beneficiares and specifying who is the 

intended or primary beneficiar or beneficiares of a trst). 

Can the trstee avoid investment liability by delegating investment 

authority? What is required to make the delegation prudent? 

1. Section 9 ofthe UPIA allows a trstee to delegate investment 

authority, however, the delegation itself must be prudent. The 

UPIA allows delegation but requires the trustee to exercise 

II-A-7-MEWS 

73

74 

reasonable care, skill and caution in selecting the agent, definig 

the terms of engagement, and monitorig performance. If those 

requirements are met, the UPIA relieves the trstee of liabilty for 

the decisions of the agent. See also T. David Cowar and Allison 

T. Cravens, The Duty To Monitor: A Fiduciary's Continuing 

Responsibzlty, VM0529 ALI-ABA 229 (2003). 

2. The Comment to UPIA §9 states that "a trustee could not prudently 

agree to an investment management agreement containng an 

exculpation clause that leaves the trust without recourse against 

reckless mismanagement." See also N.Y. Est. Powers & Trusts 

Law § 11-1.7. The comment does not address lesser restrctions on 

the beneficiares' remedies such as arbitration provisions or 

narower exculpatory provisions designed to protect the agent who 

acts in good faith. 

3. Case law 

a. At least one court found a trustee not liable for the bad faith 

acts of its chosen investment advisor even though the 

delegation was improper altogether, the trustee having no 

authority to delegate those duties. Shriners Hosp. v. 

Gardiner, 733 P.2d 1110 (Arz. 1987). The case was 

decided without the benefit of the new statutes allowing 

delegation, but it would seem that liability for bad acts of a 

dele gee would only be less likely when the delegation itself 

is at least allowed. 

b. A New York cour considered the authority of a corporate 

trstee to delegate investment authority to a family 

investment advisor. Estate of Younker, 174 Misc.2d 296 

(N.Y. SUI. 1997). The New York statute mirrors UPIA §9 

and permits delegation ifthe trstee exercises care in 

selection, establishing the scope of authority, monitoring 

performance and costs. Whle the cour found that, as a 

general rule, a corporate trstee would not delegate 

investment authority, it noted the circumstances in this case 

including: 1) the frction between the family and the 

previous trstee regarding investments, 2) the trstees' 

agreement to accept only a custodial fee, and 3) the 

document specifically allowed the trustee to hire an 

investment advisor and delegate certain discretionar 

powers. The court thus found the corporate trustee's 

delegation to be within the "spirit of the act" and the intent 

of the document and thus within the trustee's power. 

II-A-8-MEWS

III. DISTRIBUTIONS 

A. Adjust, Convert, Status Quo or Inertia 

What ifthe trstee adjusts or converts and some beneficiaries are stil 

disappointed? Is the status quo always prudent or might a trstee be liable if the trstee 

fails to exercise the power to adjust or the power to convert to a unitrust? 

1. The UPIA arguably compels trustees to invest for total retu, 

which in general wil require more emphasis on stocks and less on 

equities. Given that portfolio allocation and the relatively low 

dividend and interest rates in recent years, distrbutions to income 

beneficiaries have often decreased. The UP&IA is one counter 

balance to that unitended result of the UPIA. See Richard W. 

Nenno, Planning with Total Return Statutes, SK069 ALI-ABA 223 

(2005). 

2. UP&IA §104 grants a trstee who invests as a prudent investor the 

power to make adjustments between income and principaL. 

UP&IA § 1 03 requires the trustee to act imparially when 

exercising the power to adjust. 

3. Unitrust provisions, while not included in the UP&IA, have been 

adopted by many states. It seems likely that discretionar 

decisions to convert to a untrust will be analyzed and treated 

similarly to decisions to adjust. At least twenty-three states have 

adopted statutes allowing the conversion of a trst to a untrst and 

the unitrst percentage in those statutes generally range from three 

to five percent. See Robert B. Wolf char attached hereto as 

Appendix A. 

4. As with any discretionar decision, PROCESS is paramount - it is 

critical for the trstee to engage in a thought process and make a 

considered decision, even if the result is that the decision is to take 

no action and make no change. UP&IA § 105. See also Richard 

Nenno, Planning with Total Return Statutes, SK069 ALI-ABA 223 

(2005) ("as with any other discretionary decision, a cour wil defer 

to the trstee's judgment as long as it makes ajudgment and does 

not abuse its discretion"); McNeil v. Bennett, 792 A.2d 190,211 

(DeL. Ch. 2001), a!'d in part, rev'd in part, 798 A.2d 503 (Del. 

2002) (trustee's distrbution decisions would have been appropriate 

"had those decisions resulted from a sufciently informed and 

impartial decision-making process") (emphasis in original). As a 

result, a trustee might not be faulted for his inaction or for an 

action that turns out badly, so long as the trustee engaged in a 

process that considered the situation and made an appropriate 

decision that led to the outcome in question. 

II-A-9-MEWS 

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76 

5. The power to adjust may be more useful in the case of a trst in 

which all of the beneficiares have a good relationship with each 

other and the trstee. The trstee will be able to tailor distrbutions 

to maximize the benefit to all ofthe beneficiares. For example, in 

a trst invested largely in growth stocks in which the income 

beneficiary does not need the income and is the parent of the 

remainder beneficiares, the trstee could decide not to exercise the 

power to adjust to increase the income interest. By the same token, 

in the case of a trst with large real estate holdings that yield high 

income, all of the beneficiares may be agreeable to allocating 

some portion ofthe income to principal in order to make cash 

available to be used to improve the real estate and thus preserve the 

value of the property and its income stream. Clearly, the power to 

adjust may be more flexible in different investment climates, such 

as when interest rates increase to the levels seen in the early 

1980's. 

6. However, the power to adjust requires that the trustee review on a 

periodic basis - certainly anually if not more often - the fiduciar 

accounting income of the trst and the varous factors listed in the 

controlling statute. The Comment to UP&IA § 105 provides in par 

that a fiduciar has a duty "to make conscious decisions in good 

faith and with proper motives" about exercising or not exercising a 

discretionar power. The Comment quotes from Restatement 

(Third) of Trusts §50 cmt. b., which states as follows: "(A) cour 

wil intervene where the exercise of a power is left to the judgment 

of a trstee who fails to exercise that judgment. Thus, even where 

a trstee has discretion whether or not to make any payments to a 

parcular beneficiar, the cour wil interpose if the trstee, 

arbitrarly or without knowledge of or inquiry into relevant 

circumstances, fails to exercise the discretion." 

7. In many instances both the income and remainder beneficiaries 

will benefit from the certainty of a untrust, which clearly defines 

the amount the income beneficiar is to receive. 

8. Limitations on the Trustee's Duty and Liability 

a. Many state statutes specifically limit fiduciar duty to act 

or consider acting, as well as limiting damages for a breach. 

For example, the Colorado statute states that "a trstee is 

not liable for not considering whether to make an 

adjustment or for choosing not to make an adjustment. In a 

proceeding. . .(regarding adjustment) . . . , the sole remedy 

is to direct, deny, or revise an adjustment between principal 

and income." Colo. Rev. Stat. §15-1-404. Other states have 

adopted similar language limiting the trstee's liability both 

II-A-IO-MEWS

for not considering the exercise of the power and for not 

exercising the power. See Haw. Rev. Stat. §557A-104(g), 

Ind. Code. §30-2-14-l5(g), Mont. Code An. §72-34- 

424(8), Tenn. Code. Ann. §35-6-104(g), W. Va. Code 

§44B-I-104(g), Wyo. Stat. An. §2-3-804(g). 

b. A few states limit liability for failure to consider an 

adjustment uness the trustee is specifically requested by a 

beneficiary to consider the adjustment and still fails to 

consider it. Idaho Code §68-10-104(g), Wash. Rev. Code 

§ 11.1 04A.020(h). Ilinois limits liabilty for failure to 

consider converting to a untrst unless requested to do so 

by a beneficiary. 760 Il. Compo Stat. 5/5.3(c)(6), amended 

by Il. Legis. 93-991 (2004). 

c. Florida specifies that the trstee has no duty to make an 

adjustment, but does not address the liability of a trustee 

who fails to consider an adjustment. Fla. Stat. § 

738.104(7). 

d. Nebraska limits liability to circumstances where the 

exercise or failure to exercise constitutes an abuse of 

discretion. Common law would seem to reach the same 

conclusion in most states for any discretionary power. 

Neb. Rev. Stat. §30-3119(g). 

e. Pennsylvana limits the remedies for an abuse of discretion 

to reallocating among the beneficiares, rather than 

surcharging the trustee, unless the beneficiares cannot be 

made whole without surcharge. 20 Pa. C.S.A. §81 06. 

f. Ohio limits liability to bad faith and absent bad faith, limits 

damages to a prospective correction of the adjustment. 

Ohio Rev. Code An. §1340.42(G). Ohio also creates a 

safe harbor adjustment of up to 4% anually, the propriety 

of which is "conClusively presumed." 

g. New Jersey creates a safe harbor for a trstee who adjusts 

income to equal between 4% and 6% of the fair market 

value of the trust. N.J. Stat. An. §3B:19B-4(a). 

9. Some state statutes limit a trustee's ability to participate in a 

decision to convert the trst to a unitrst or to exercise the power 

II-A-11-MEWS 

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78 

to adjust if the trstee has an interest in the trst or is not otherwise 

what we might consider an "independent" trustee.2 

a. The Pennsylvana statute prohibits a trstee who is also a 

beneficiary from paricipating in a decision to convert a 

trst to a unitrst or to exercise the power to adjust. 20 

Pa.C.S.A. §8104(c)(7) & §8105(i)(6). A disinterested cotrstee, 

however, may participate in such a decision. 20 

Pa.C.S.A. §8104(d) & §8105G)(1). The statute provides a 

mechanism for the trstee to petition the court to direct a 

conversion to a unitrst when no trustee is empowered to 

make the decision. 20 Pa.C.S.A. §8105G)(2). The statute 

does not contain any authority to petition the cour to 

exercise the power to adjust, presumably because 

adjustment is an ongoing process in which it would be 

impractical to involve the cour, while conversion is a one 

time event which can easily be approved by the cour. 

b. Likewise, the Florida statute prohibits an interested trstee 

from paricipating in the decision to adjust. Fla. Stat. § 

738.104 (3)(f). The statute also prohibits an interested 

trstee from being involved in some of the unitrst 

decisions, such as determining the percentage to be used to 

calculate the untrst amount and determinng the method 

to calculate the fair market value ofthe trst. Fla. Stat. § 

738.1041. However, it authorizes the interested trstee to 

appoint a disinterested trstee (if there is not already one 

serving) to take the actions that the interested trustee cannot 

take on his or her own. 

c. In contrast, the New York statute places no constraints on 

an interested trstee making the unitrst decisions and thus 

far the cours have upheld the right of those trustees to 

make such decisions (other than the usual duty of 

impariality and the prohibition on self-dealing). In Estate 

of Heller, 800 N.Y.S.2d 207 (2005)3, the husband died in 

1984, leaving his 95 year old widow, Bertha, as the 

beneficiary of a martal trust. The martal trust directed 

that Bertha receive the greater of $40,000 a year or the trust 

income for life. Upon Berta's death, the trst is to be paid 

to the decedent's four children from a prior marage. The 

Although the precise definition of "independent trustee" varies among the jurisdictions, it 

generally indicates a trstee who has no beneficial interest in the trst, and is utilized as such for puroses 

of ths material. 

Note that some additional facts are gleaned from the lower cour opinion, Estate of Jacob Heller, 

1/23/2004 N.Y.L.J. 25 (West Chest. Sur. 2004). Both opinons are attached as Appendix B. 

II-A-12-MEWS

trstees are two of those children. The trst primarily held 

interests in income-producing commercial real estate 

(which the step-sons/trstees allege is not appreciating), 

from which Bertha was receiving annual income of about 

$190,000. In early 2003, the trstees elected to convert the 

trst as a unitrst, retroactively to Januar 2002. The 4% 

untrst reduced Berta's anual income to about $70,000. 

Bertha requires around the clock care that is alleged to cost 

$165,000 anually. 

Bertha (via her daughter, who is a child from Bertha's prior 

marage, acting as Berta's agent under her power of 

attorney) filed a motion for sumar judgment with the 

Surogate requesting that the step-sons/trstees be removed 

and that the conversion be set aside based on the trstees' 

financial interest as likely remaindermen of the trst. 

Although the New York statute does not preclude interested 

trstees from paricipating in untrust decisions, Berta 

(through her agent) asked the cour to anul the conversion 

based on the trstees' self interest in the decision. Bertha 

also claimed that the conversion did not accomplish the 

legislative purose of the untrst option, which she noted 

was to enable the trstees to pursue a modern portfolio 

investment approach. She alleged that the trstees did not 

intend to change the investments of the trst, but instead 

would continue to hold the income-producing real estate 

interests. 

The Appeals Cour affirmed the Surogate Cour's denial of 

Bertha's summar judgment motion. The Court held that 

she failed to demonstrate that the election violated the 

statute. The Appeals Court also remanded the case to the 

lower cour to consider the factors enumerated in the statute 

and to determine the propriety of the election. 

Regarding the retroactive application of the statute, the 

lower court ruled against the trustees, but the Appeals 

Cour reversed, concluding that the statute clearly allowed 

for retroactive elections, at least to the date of the statute's 

application. 

10. Case Law Analyzing Decisions Made By Independent Trustees 

a. In Matter of Jane Bradley Uihlein Trust, 417 N.W.2d 908 

(Wis. Ct. App. 1987), the court considered whether the 

trustees abused their discretion by declining to exercise the 

power granted in the document to adjust between principal 

II-A-13-MEWS 

79

80 

and income. The lower court held that the "trustees' 

decisions were the same as those which would have 

resulted from the application of Wisconsin's Principal and 

Income Act." The cour held that "when the trstees' 

discretionary powers permit them to make an equitable 

adjustment and the tral cour finds their decision not to do 

so was reasonable and not a misuse of discretion, the tral 

cour canot make an equitable adjustment." The trstees 

had discussed the adjustment options and reviewed the 

alternatives and chose not to make any adjustment. The 

cour found that the decision, based on good faith and 

proper motives, not a misuse of discretion, or an act of 

dishonesty or impropriety, should not be distubed. 

b. Numerous other cases support the general proposition that 

the trstee's exercise of discretion will not be disturbed 

absent an abuse of discretion. See, e.g., Templeton v. 

Peoples Natl Bank of Washington, 722 P.2d 63, 66 (Wash. 

1986). 

c. Of course, obtaining cour approval of the adjustment or of 

the conversion to a unitrst is probably the best protection 

for a trstee, when cour approval is feasible. See Estate of 

Heller, 800 N.Y.S.2d 207 (2005) (discussed at length in 

section m.A.9 above). Some states specifically allow for 

cour approval ofthe conversion. See, e.g., 20 Pa. C.S.A. 

§8105(g). See also McNeil v. McNeil, 798 A.2d 503 (DeL. 

2002) (conversion to 5% unitrust approved by court and 

affrmed on appeal); In re Ives, 192 Misc.2d 479 (N.Y. 

Sur. 2002) (court approved conversion of trst to unitrust 

to benefit income beneficiar which court found to be 

consistent with testator's intent)4. 

d. In an ongoing litigated case involving a proposed 

adjustment by the trstee, the remaindermen took the 

initiative in an attempt to prevent the adjustment before it 

even happened. The remaindermen filed an Order to Show 

Cause, seeking to restrain the trustee from exercising the 

power to adjust. The trstee responded by fiing a Petition 

for Advice (allowable under New York's version of Section 

105(d) of the Uniform Act), seeking the cour's approval of 

its proposed adjustment. The trstee also objected to the 

procedure employed by the remaindermen. In substance, 

the trustee had made changes to the trst's asset allocation 

as a result of the changes in the market. Recognzing that 

The Ives case provides an excellent step by step analysis of an uncontested trst conversion. 

II-A-14-MEWS

those investment changes would result in less income, the 

trstee planed to adjust by allocating pricipal to income 

so that income would approximate 4% of the trust value. 

Although the remaindermen did not object to the 

reallocation of investments, they did object to the 

adjustment. They argued that 4% actually increased the 

payout to the income beneficiar, rather than simply 

compensating her for the loss of income. In addition they 

argued that the income beneficiary had not demanded 

additional income. The trustee argued that its proposed 

adjustment resulted in a fair sharg of the benefits between 

the income beneficiar and the remaindermen. The case in 

stil pending in the Surogate's Court of the State of New 

York, County of Dutchess, Bessemer Trust Company, 

N.A., File No. 83862. 

B. Notifying the Beneficiaries and Ascertaining Their Needs 

In considering adjusting or converting, how far does the trstee need to go 

to notify or inform the beneficiares of their rights and to ascertain the needs of the 

varous beneficiares? 

1. The UP&IA requires the trstee to consider many factors including 

"the identity and circumstances of the beneficiares." UP&IA 

§104(a)(3). The Pennsylvana statute omits UP&IA §104(a)(3) 

and only requires the trustee to consider the beneficiares' needs as 

follows: 

To the extent reasonably known to the trstee, the needs of 

the beneficiares for present and future distrbutions 

authorized or required by the governng instruent. 

20 Pa. C.S.A.§8104 (b)(8). 

2. The Restatement (Second) of Trusts cites a common law duty to 

provide each beneficiary with any information required to enforce 

the beneficiar's rights under the trust. Restatement (Second) of 

Trusts §l 73. In addition, George G. Bogert, The Law of Trusts 

and Trustees §961 (2d ed. 1983) states that a trustee has a "duty to 

notify the beneficiar of the existence of the trust so that he may 

exercise his rights to secure information about trust matters. . ." 

3. UPIA §2(c)(6) requires a trustee to consider "other resources of the 

beneficiary" when making investment decisions for the trust. 

4. In McNeil v. Bennett, 792 A.2d 190 (DeL. Ch. 2001), aff'd in part, 

rev'd in part, 798 A.2d 503 (DeL. 2002), a decedent left several 

trusts for his wife and descendants. The trust from which the 

II-A-15-MEWS 

81

82 

dispute arose was designated the "Lois trust" for settlor's wife. 

However, the provisions of the trst gave the trstees discretion to 

distrbute principal and income to settlor's descendants, their 

spouses and Lois. Thus, although the settlor's children believed 

that they were only remaindermen of the trst, in fact, they were 

curent sprinkle beneficiaries. One son of the settlor repeatedly 

requested information about the trst but was denied any by the 

corporate trstee. Once he discovered the terms of the trst, the 

son, claiming to have been misled by the trstees, sued the trstees 

to obtain distrbutions, to surcharge the trstees and to remove the 

trustees. Ultimately, the court held: 

A trstee has a duty to fush information to a beneficiary 

upon reasonable request. Furhermore, even in the absence 

of a request for information, a trstee must communcate 

essential facts, such as the existence of the basic terms of 

the trst. That a person is a curent beneficiar of a trst is 

indeed an essential fact. 

The cour affirmed the lower court's order which had required a 

make-up distrbution to the son from the trst, approved the 

division of the trst, approved the adoption of a unitrst policy, 

and removed the corporate trstee. For a complete discussion of 

McNeil, see Andrews DeL. Corp. Law Update, Attorney's Ed., VoL. 

18 NO.4 Del Corp. L. Update Att'y Ed. 14 (July 2002). 

5. In First Union Nat 'I Bank v. Turney, 824 SO.2d 172 (Fla. App. 

2002), a trst beneficiar alleged that the trstee intentionally 

concealed information from the beneficiary, both to conceal the 

trstee's wrong-doing and to allow the statute of limitations to run. 

The cour found that the trustee has a duty to disclose all material 

facts to the trst beneficiary; failure to do so is fraud. The 

beneficiar is entitled to information related to his rights under the 

trust. As a result of the trstee's deliberate and fraudulent refusal 

to provide information, the cour found the attorney-client 

privilege inapplicable to certain cornuncations. 

6. In Rollns v. Branch Banking & Trust Co. of Va., 2001 WL 

34037931 (Va. Cir. Ct. 2002), the beneficiaries brought suit 

against the trustee for his failure to advise them of the drop in 

value of stock held in the trust. However, the trst instrment gave 

the beneficiares, not the trstees, the power to make investment 

decisions. The court recognized that the trstee could not be 

responsible for decisions it was not empowered to make. 

However, the trstee did have a duty to be aware of the 

circumstances of the trst. Citing Restatement (Second) of Trusts 

§ 173, the cour stated that "the trustee has a duty to impar to the 

II-A-16-MEWS

eneficiar any knowledge he may have affecting the beneficiary's 

interest and he canot rid himself of ths 'duty to war'." Thus, 

although the trstee had no duty to act regarding the investment, 

the trstee still had a duty to inform the beneficiaries of relevant or 

material facts so that the beneficiares could protect their interests. 

As a result, the court denied the trustee's demurer to dismiss the 

action against it for breach of fiduciar duty. 

7. In Margesson v. Bank of New York, 738 N.Y.S.2d 41 1 (N. App. 

Div. 2002), amended on reargument 2002 WL 1289474 (on the 

issue of waiver of a jur trial), the income beneficiar of a trst 

sued the trstee after the trstee liquidated large holdings of highly 

appreciated stock, resulting in a substantial income tax liability for 

the beneficiar. The beneficiary had no knowledge ofthe sale 

prior to receiving his tax statement showing the gains. The trst 

offcer's testimony confirmed that she did not discuss the sale or 

the income beneficiar's needs with the investment advisor at any 

time prior to the sales. The court found that the investment offcer 

"had a responsibility to communicate with (the trst officer), 

according to the testimony of (the ban's own expert witness), to 

ensure his understanding of the investment objectives.'" Having 

presented sufficient evidence of a failure to communicate with the 

beneficiary and a failure to ascertain the beneficiar's needs and a 

lack of evidence regarding the objectives ofthe sale, the cour 

denied the trstee's motion for summar judgment and remanded 

for consideration of whether the trstee complied with the prudent 

investor rule. 

8. In In re Scheidmantel, 868 A.2d 464 (Pa. Super. 2004), the trustee 

was surcharged for diversifying the trst's investment holdings 

which had been disproportonately invested in the trustee's parent 

company stock. Diversification was not mandated in this case 

(because the trst became irrevocable prior to the effective date of 

Pennsylvania's Prudent Investor Rule). The new investment 

officer nevertheless diversified the portfolio, without considering 

whether the investments were meeting the needs ofthe income and 

remainder beneficiares, the age and health ofthe income 

beneficiaries or any other factors. The court found that 

diversification canot be the goal in and of itself but that it is only 

a tool to effectuate the goals ofthe trst. Although the trustee's 

conduct was to be judged by its standards of conduct and not by 

the outcome, the trustee was obligated to provide the rationale for 

its decisions. The cour reasoned that the trstee: 

must be able to explain how an investment strategy was 

developed for a specific trst and why that strategy was 

prudent under existing circumstances. 

II-A-17-MEWS 

83

84 

¡d. at 487. Thus, diversifyng without considering the goals of the 

trst was not an exercise of the trstee's discretion - instead it 

constituted a failure by the trstee to make any determination at all. 

The cour thus found gross negligence and a surcharge was 

waranted. 

9. In contrast, in Wil of Dumont, 4 Misc.3d 1003(A), 791 N.Y.S.2d 

868,2004 WL 1468746 (Monroe Co. Sur. Ct. 2004), the cour 

awarded $21 million in damages to a trst after the income 

beneficiary complained that the corporate trstee failed to diversify 

the trust's holdings of Eastman Kodak stock. The cour found the 

trustee negligent for failing to ascertain the needs of the 

beneficiar, failing to properly interpret the document (which 

encouraged retention but did not require it) and completely failing 

to communicate with the beneficiares. The court found that the 

trstee essentially ignored the trust, erroneously concluded that the 

stock could not be sold, and advised the income beneficiar that 

the stock could not be sold. 

10. In Sun Trust Bankv. Merritt, 612 S.E. 2d 818 (Ga. Ct. Ap. 2005), 

the cour held that the trstee had no duty to increase the value of 

the trst for the remaindermen. Thus, although the trustee failed to 

grow the corpus at a rate that even equaled the rate of infation, the 

cour found no breach of duty. The trstee had invested to 

maximize the income to the income beneficiar and that seemed to 

be enough to satisfy the cour. 

11. Decisions in other areas of fiduciar notification may be relevant. 

In an interesting chain of events, a Washington cour ruled that the 

trstees have a duty to "inform the beneficiares fully of all facts 

which would aid them in protecting their interests." Allard v. 

Pacifc Bank, 663 P.2d 104, 110 (Wash. 1983). The Allard 

decision was viewed as too broad and it created uncertainties for 

fiduciares. The legislatue reacted by passing a statute specifically 

superceding the Allard ruling except as specifically codified in the 

new statute. See Wash. Rev. Code §l1.100.l40. The new statute 

limited the situations in which a trustee is required to provide 

notice to the beneficiaries to very specific circumstances, 

paricularly, when a non-open market sale is made or if a sale 

constitutes more than 25% of a corporation's shares. The 

comments to the code section state that "(tJhe section is intended to 

supersede and overrle (AllardJ because of certain uncertainties it 

created, and to provide workable rules for the beneficial principals 

expressed in that case." Wash. Rev. Code 11.100.140. 

12. Despite the passage of Wash. Rev. Code §l 1.100.140, a 

beneficiary attempted to rely on Allard to support his claim that the 

II-A-18-MEWS

trstee had a duty to inform him of specific sales and a duty to 

inform him of facts affecting his interests. See Conran, 89 Wash. 

App. at 1005, 1998 WL at 40659 (1998). The court cited the 

statute as having specifically addressed the issue of notification of 

sales of stock. The cour found that prior to the enactment the 

trstee had a common law duty to "inform the beneficiares fully 

of all facts which would aid them in protecting their interests." 

However, the court denied the beneficiary's claim because it found 

that the common law duty did not require the trustee to keep future 

beneficiares aware of routine transactions. 

13. Whle the trstee may be required to gather information about the 

beneficiaries before deciding on a discretionar distrbution, a 

trustee can demand too much information from the beneficiar. In 

one case the cour found that the trstee's insistence on 

documentation of the beneficiar's income, assets, detailed 

expenses and citizenship before she would entertain the income . 

beneficiar's request for principal support payments was an abuse 

of discretion. In Trust of McCabe v. McCabe, 2002 WL 31757533 

(Iowa Ct. App. 2002), the Iowa Cour of Appeals upheld the lower 

cour's order directing the trstee to pay the nursing home bils and 

other support payments for the discretionary beneficiar ofthe 

trst. 

14. The American College of Trust and Estate Counsel ("ACTEC") 

Commentares on Model Rules of Professional Conduct ("MRCP') 

1.4 (Communication) provide that an attorney representing a 

fiduciary may also have a duty to "make reasonable efforts to see 

that the beneficiares of the fiduciar estate are informed of 

decisions regarding the fiduciar estate that may have a substantial 

effect on them." Thus, the attorney, as well as the fiduciar, may 

have a duty to inform the beneficiary of relevant law changes. 

15. In Pew Trust, 16 Pa. Fid. Rep. 2d 73 (O.c. Mont. 1995), the 

Pennsylvana lower cour declined to hold that an attorney retained 

by a trstee enters into an attorney-client relationship with the trst 

beneficiaries. However, the Montgomery County Orphans' Cour 

held en banc that an attorney for a trustee owes fiduciary duties to 

the beneficiaries of the trst "because of the nature of the 

representation and the relative positions of the lawyer, fiduciaries 

and beneficiares, that is, because the lawyer stands in a fiduciar 

relationship as to the fiduciary, who, in tu, owes fiduciar duties 

to the beneficiaries." Pew Trust, 16 Pa. Fid. Rep. 2d 73, 75-76 

(O.C. Mont. 1995), citing ACTEC Commentares on the Model 

Rules of Professional Conduct. These "derivative" duties to the 

beneficiaries are in addition to the direct duties owed by the 

attorney to the fiduciary, who is the attorney's only client. The 

II-A-19-MEWS 

85

86 

attorneys' "derivative" duties to the beneficiaries are primarly 

restrctive and prohibitive, designed to prevent the attorney from 

taking advantage of his or her position to harm the beneficiares. 

The cour based its conclusion on the following reasoning, citing 

the ACTEC Commentares: 

Support for these 'derivative' duties rests in the fact that the 

fiduciar estate has been created by the settlor for the 

exclusive benefit of the beneficiaries, the fiduciar and the 

lawyer for the fiduciar are compensated by the fiduciar 

estate, and because the fiduciar traditionally stands in a 

superior position relative to the beneficiares, who, in tu, 

'repose trust and confidence in the lawyer.' 

Id. at 75-76. Having analyzed the attorneys' duties to the trst 

beneficiares, the cour refused to dismiss claims brought by the 

beneficiaries against the trstees' counsel for breach of fiduciar 

duties owed by the attorney to the beneficiaries. 

C. Lawyers' Obligations To Inform Their Clients. 

Does a lawyer have an obligation to inform clients of the new unitrst and 

power to adjust options? If the lawyer represents beneficiaries, does the attorney need to 

notify them that these new options might result in more funds for them from the trst, 

whether as income beneficiar or remainderman? In representing a trustee, does the 

lawyer have a duty to advise the trstee of these new options? Should an attorney take 

defensive action to clarfy that a representation does not continue indefinite1y, or even 

formally terminating a client relationship when a project is completed? 

1. When the client is the testator or settlor. Are lawyers obligated to 

review all of their existing trusts to determine if conversion or 

adjustment is appropriate? A scrivener clearly owes a duty to the 

client who hires him or her to draft the document, but does that 

duty end at some point? Does the attorney also owe a duty to the 

beneficiares or to the fiduciares named in the document? 

2. When the client is the beneficiary. Obviously the attorney owes a 

duty to the beneficiary if the attorney represents the beneficiary of 

a trst. Does it matter if the attorney is actively representing the 

client or simply represented the client in the past? Representing a 

beneficiary does not impar any duty to the fiduciary. 

3. When the attorney represents the fiduciary. The attorney clearly 

owes a duty to the trustee if he or she represents the trustee -- but 

does the attorney also owe a duty to the beneficiares ofthe trst? 

Should the attorney advise a beneficiary that the beneficiary might 

II-A-20-MEWS

garner greater benefit from the trst under the new total retu 

statute? 

4. Active or dormant representation. In all events, it may be critical 

to know if the client is an "active" client. A client is clearly active 

when the attorney is in the process of drafting documents, or is 

curently giving advise about a trust issue. What if the attorney 

represented the fiduciary but has not been contacted for advice in 

years? In a "dormant" representation, the duties are diminished 

although not fully extinguished. The ACTEC Commentares on 

MRC 1.4 (Communcation) include a discussion of active and 

dormant representation. 

5. The most likely plaintiff in a malpractice action arsing from estate 

planng or representation of a fiduciary is a beneficiar. When an 

attorney-scrivener is sued by a beneficiar of an estate planng 

client asserting a negligently prepared will or trst, or by a 

beneficiary of a trust where the attorney represents the trstee, the 

beneficiary must establish privity or some other basis in order to 

qualify as a plaintiff in such a matter. Legal tests governng 

whether beneficiaries have the ability to sue the attorney var 

widely among the states. Cours adjudicating the question of 

whether attorneys owe duties to non-client beneficiares have 

utilized several tyes of tests, including balancing tests (see Lucas 

v. Hamm, 364 P.2d 685 (CaL. 1961)), "third par beneficiar" tests 

(see Guy v. Liederbach, 459 A.2d 744 (Pa. 1983)) and hybrids (see 

Trask v. Butler, 872 P.2d 1080 (Wash. 1994)). Other courts have 

limited recovery by beneficiares, and some prohibit recovery in 

situations where no privity exists between a beneficiar and an 

attorney. As with any other engagement, an attorney who prepares 

a document that creates a trst, or counsels a trstee about 

converting a trst to a untrst or exercising the power to adjust, 

must understand to whom the attorney owes a duty, and by whom 

the attorney could be sued. For a detailed analysis of this topic, 

see Charles M. Bennett, A Fiduciary's Lawyer to the Fiduciary 

and its Beneficiaries: A Rhyme and a Reason for Every Season, 

Seminar D, ACTEC Anual Meeting (Mar. 1996), available at the 

ACTEC website (ww.actec.org). 

6. In Stake v. Harlan, 529 SO.2d 1183 (Fla. Dist. Ct. App. 1988), the 

Florida District Cour of Appeals reversed a lower cour's ruling 

that an attorney had no duty to inform his clients of a possible 

change in the law that had bearing on them. The attorney was 

aware of the current state of the law, as set forth in Weiman v. 

McHaffe, 448 SO.2d 1127 (Fla. Dist. Ct. App. 1984), which held 

that due-on-sale clauses were unenforceable. He was also aware of 

the fact that Weiman had been certified to Florida's Supreme Court 

II-A-21-MEWS 

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88 

for review on that issue. Nevertheless he advised his clients to 

purchase property and sign an agreement assuming the seller's 

mortgage and to sign an agreement releasing the sellers and the 

title company from liability in the event the mortgage company 

declared the mortgage due. The Florida Supreme Cour reversed 

Weiman and the mortgage holder demanded payment of the entire 

mortgage, eventually resulting in a foreclosure. In the malpractice 

action, the cour held as follows: 

The basic issue on this appeal is not whether defendant had 

no duty to accurately predict a change in the law, but 

whether he had as a matter of law no duty to inform his 

clients of his awareness of a possible change in the law 

which could have a materially adverse affect upon them. 

The cour remanded the case for determination of the exact duty. 

7. In general, whether or not a lawyer committed malpractice wil be 

based on the rules in place at the time of the representation. For 

example, the Ilinois Appellate Cour considered the conduct of a 

lawyer who failed to name a defendant who later tued out to be 

an indispensable party to the action. DeSano v. Becker, 683 

N.E.2d 159 (Il. App. Ct. 1997). Case law at the time of 

representation clearly stated that the party need not be joined but a 

later reversal by the Ilinois Supreme Cour overrled the earlier 

cases. The cour in DeSano held that, although the procedural rule 

could be changed retroactively, the new rule could not be relied 

upon in prosecuting the malpractice action. The lawyer's conduct 

must be judged according to the facts and the standards of conduct 

as they existed when the lawyer acted for the client. "When the 

rules of action required by a controllng authority change, an 

attorney's conduct is to be viewed according to the state of the law 

durng the period of the disputed representation." 

8. In Vande Kop v. McGil, 528 N.W. 2d 609 (Iowa 1995), an 

attorney prepared a prenuptial agreement that did not address the 

disposition of property upon divorce. When the attorney prepared 

the agreement, Iowa law stated that an antenuptial agreement 

affecting alimony and property division was void and contrar to 

public policy. Fifteen years later, when the couple divorced, the 

wife received a substantial settlement and the husband sued the 

drafting lawyer for malpractice. The cour held that an attorney 

"need not foresee futue changes in the law in order to avoid 

malpractice liability." The attorney did not represent the husband 

in the divorce and the case did not discuss whether the attorney 

would have had an obligation to inform the husband of the change 

in the law when the change occured if the husband had remained 

II-A-22-MEWS

his client. See also, Watkzss & Saperstein v. Wzliams, 931 P.2d 

840 (Utah 1997) (attorney must be shown to have negligently erred 

regarding law in relevant jurisdiction as it existed at the time the 

attorney's services were rendered); Ruchti v. Goldfein, 170 CaL. 

Rptr. 375 (CaL. Ct. App. 1980) (attorney not required to foresee 

shift in law). 

9. In First Union Nat'l Bank v. Turney, 824 So.2d 172 (Fla. Dist. Ct. 

App. 2002), the cour ruled that a beneficiary is entitled to 

information from the trustee and that a failure to supply 

information reasonably necessary for the beneficiar to enforce his 

rights is fraud. The court went further, finding that "(aJ similar 

rule applies to lawyers, who are also fiduciaries". The cour cited 

the Restatement (Third) of Law Governg Lawyers which 

mandates that an attorney disclose material facts giving rise to a 

malpractice clai against the attorney, such as when an attorney 

realizes that the attorney has missed the deadline for filing a suit. 

See Restatement (Third) of Law Governing Lawyers §20 cmt. c 

(1998). 

I O. It is important to note that the question for attorneys in the context 

ofunitrsts and adjustments is likely not to be whether the attorney 

acted in accordance with the standards in place at the time but 

whether the attorney had a continuing obligation to inform and 

advise the attorney's clients. In DeSano, the time in which to join 

the defendant had passed and thus the attorney could not have 

acted to rectify the situation. Furthermore, the attorney was no 

longer representing the client in any capacity and the client had 

retained other counsel. Similarly, in Vande Kop the husband was 

not a client of the attorney when he sought a divorce or when the 

relevant law changed. The representation ended and the duty to 

inform did as welL. In contrast, in Stake where the lawyer-client 

relationship stil existed when the lawyer should have been aware a 

potential change in the law, the attorney did have a duty to inform. 

It seems that the more interesting fact scenaros regarding the 

attorney's duty to inform will arise in situations when an attorney 

continues his representation or at least has a "dormant" 

relationship with the client -- does the attorney then have a duty to 

notify that client of a change in the law? 

11. While attempting to abide by the duty to inform, the attorney must 

also beware of the prohibition on solicitation of business. Some 

have questioned whether or not contacting a former client to 

suggest that the client review his or her estate plan could violate 

ethics rules regarding the solicitation of business. The ABA issued 

an opinion in 1941, making clear that contact with former estate 

planing clients is not inappropriate. ABA Formal Op. 210 

I1-A-23-MEWS 

89

90 

(March 15, 1941). See also, NYCLA Eth. Op. 679 (90-4); OK 

Adv. Op. 209, 1961 WL 15970; Opinion No. 188 (April 28, 1971), 

44 N.Y. St. B.J. 56 (1972). However it also stated that "it is not 

only (the attorney's) right (to contact the former client), but it 

might even be his duty to advise his client of any change of fact or 

law which might defeat the client's testamentary purose . . .". 

This has, of course, created some doubt about attorneys' duties. 

12. At least one aricle has suggested that ABA Formal Opinion 210 

imposes a duty to inform clients oflaw changes. Johnston, Gerald 

P., An Ethical Analysis of Common Estate Planning Practices -- Is 

Good Business Bad Ethics?, 45 Ohio St. L. J. 57 (1984). Even so, 

the duty is not absolute and if the lawyer has completed a 

transaction for the client, then he or she probably has no further 

duty. If the lawyer stated that he would inform the client of 

changes in the law, he may have a duty. See also Barosky, John 

J., Waiver of The Right of Election: Conflicts of Interest and 

Ethical Considerations, 222 PLI/st. 95 (March 24, 1993). 

13. ACTEC Commentares on MRC 1.4 (Communcation) directly 

addresses ths issue. Once the planng documents are complete, 

the attorney's active representation of the client is complete. If the 

relationship is not terminated by either pary, the representation 

becomes dormant. The lawyer remains bound by some duties (e.g. 

confidentiality), and may hold the original wil and send periodic 

communications to the client. However, 

In the absence of an agreement to the contrary, the lawyer 

is not obligated to send a reminder to a client whose 

representation is dormant or to advise the client of the 

effect that changes in the law or the client's circumstances 

might have on the client's legal affairs. 

ACTEC Commentares on MRC 1.8 also provide: 

The retention of the estate plannng documents does not 

itself make the client an "active" client or impose any 

obligation on the lawyer to take steps to remain informed 

regarding the client's management of property and family 

status. Similarly, sending a client periodic letters 

encouraging the client to review the sufficiency ofthe 

client's estate plan or calling the client's attention to 

subsequent legal developments does not increase the 

lawyer's obligations to the client. 

See also Dayton, A. Kimberly et. al, Advising the Elderly Client, 

Ethical Issues Arising Under the Model Rules of Professional 

II-A-24-MEWS

Conduct (July 2004); Koren-EPFP §15:19 (2004); Roth, Randall 

W., Current Ethical Problems in Estate Planning, SF68 ALI-ABA 

275 (Feb. 2001); Manley, Robert. L., The Impact of Ethical Rules 

On Estate Planning, SD36 ALI-ABA 275 (June 10-11, 1999); 

Price, John R., New Guidance on Ethics for Estate Planers, 22 Est. 

Plan. 17, VoL. 22, NO.1 (Janleb 1995) (all citing to the ACTEC 

Commentares). 

14. The Supreme Cour of Kansas ruled that the attorney who drafted a 

trst for the settlor "had a continuing duty to assure that (the 

client's) intent to pass the land to his nephews was realized." Pizel 

v. Zuspann, 795 P.2d 42 (1990). That language was challenged on 

a motion for rehearing and clarfication for which the Kansas Bar 

Association filed an amicus curiae brief. The appellees 

complained that the language suggested a perpetual duty to review 

trsts and to contact trustees and settlers. The attorney had no 

contact with the client for about ten years at which time the client 

hired a new attorney to draft an amendment to the trst. The 

appellees argued that the attorney should be required to perform 

the task in a prudent maner, not to assure their clients' intentions 

in perpetuity. The cour specifically removed the language and 

ruled that the attorney was liable only for his failure to adequately 

advise his client of the steps necessar to effectuate the trust. 

15. The Supreme Cour of Nort Carolina decided that the statute of 

limitations began to run after the attorney representing the testator 

performed the last act required of his representation. Because the 

attorney owed no duty to the clients after the wills were signed, the 

statutory period ran from the time the wills were signed and had 

expired prior to the suit. Hargett v. Holland, 447 S.E. 2d 784 

(1994). 

16. The Supreme Cour of Washington found that an attorney has no 

duty to monitor changes in the testator's assets after the estate 

planng is completed. Thus, even though a real estate transaction 

was completed through another attorney in the scrivener's firm, 

neither the lawyer nor the firm had a duty to inform the client that 

the sale would affect the disposition of his propert in his wil. 

Stangland v. Brock, 747 P.2d 464 (1987). 

17. In one case a law firm failed to inform its client of a change in the 

tax law affecting an investment decision. The law firm's motion to 

dismiss was denied because the firm had allegedly stated that it 

would inform the client of any significant tax changes. The cour 

stated that if such a commitment was made, the law firm could be 

negligent for failing to perform as promised. Lama Holding Co. v. 

Shearman & Sterling, 758 F.Supp. 159 (S.D.N.Y. 1991). 

II-A-25-MEWS 

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92 

18. In another failure to advise case, the cour allowed a beneficiar's 

claim against the attorney/scrivener, finding that the statute of 

limitation had not ru until testator's death. Heyer v. Flaig, 70 

CaL. 2d 223, 449 P.2d 161 (1960) (overrled on other grounds). 

The attorney had allegedly failed to advise the client of the 

consequences of a later marage even though the client indicated 

that she planed to mar after signing the wil. Importantly, the 

cour stated that the attorney "continued this negligent omission 

until the time of (the decedent's) death", thus implying some 

continuing duty after completion of the estate planning documents. 

D. Changing Markets and Changing Circumstances. 

i 

What if the trustee exercises the discretion to convert to a untrst but 

circumstances change? What if the beneficiaries want to reconvert? Wil a thorough 

agreement signed by the beneficiares protect the trstee from disappointed beneficianes? 

1. Unitrst statues are inventions of state legislatues -- there is no 

uniform act on which to base state laws and thus, the statutes var 

signficantly among jursdictions. Generally, the statutes allow a 

permanent revision of the trst so that the "income" beneficiar 

wil receive a fixed percentage ofthe fair market value ofthe trst 

each year. Conversion to a untrust, once accomplished, is a 

permanent change to the trust. It provides predictability for all 

beneficiaries and if conversion is approved by the cour or all of 

the beneficiares (the requirements var among the states) it 

provides protection for the trustee. 

2. The Pennsylvana statute allows a trstee to convert a trst to a 

unitrst with a four percent (4%) payout if that would fulfill the 

intent of the settlor and if notice is provided to the sui juris income 

beneficiaries and presumptive remaindermen. If a beneficiary 

objects or if there is no sui juris beneficiary in a particular class to 

whom notice can be provided, the trstee can petition the cour to 

approve the conversion. In addition, a beneficiar may request the 

trstee to convert and if the trstee refuses, the beneficiar can 

petition 'the cour for approval. 20 Pa. C.S.A. §8105. 

3. Other states provide different percentages typically ranging from 

thee to five percent (3-5%) and some allowing trustees to retain 

flexibility within certain percentages. The Florida statute allows a 

trstee to convert to a unitrst using any percentage between thee 

and five percent, to reconvert a unitrst to an income trust, and to 

change the untrust percentage, all without obtaining court 

approvaL. Fla. Stat. § 738. i 04 i. Complete details of all the state 

untrust statues is beyond the scope of this outline. 

II-A-26-MEWS

4. Once converted, the Pennsylvana statute requires the trstee to 

release the power to adjust granted in the statute so that conversion 

is in place of adjustment not in addition to it. 20 Pa. C.S.A. 

§8105(a). However, the conversion to a untrst does not affect 

the powers provided in the governing instrent such as a trstee's 

power to distrbute principal or the beneficiar's power of 

withdraw. 20 Pa. C.S.A. §8105(h). The trstee must always be 

aware of the powers in the governng instrment and actively 

manage its discretionary powers, even after a conversion to a 

untrst. In addition, while states such as Pennsylvania may 

require the trstee to release the power to adjust when convertng 

to a untrst, the trstee needs to be aware if that power is retained. 

The trstee must monitor distrbutions and exercise or not exercise 

the trstee's discretion accordingly. 

5. Once a trust is converted to a unitrst, it cannot easily be undone. 

Neither the trstee nor the beneficiar can simply change their 

minds and make the untrst go away. However, some states, 

including Pennsylvania, allow a trst to be reconverted but only 

after the trustee or a beneficiar petitions the cour and obtains 

approval. 20 Pa. C.S.A. §8105(g). 

6. Although the impetus for the untrst legislation (and the power to 

adjust legislation) was to increase payments to the "income" 

beneficiaries who have suffered though long periods oflow 

interest rates and dividends, while still providing appreciation for 

remaindermen as well, conversion can also be used as a cap on 

distrbutions to "income" beneficiares (perhaps at the request of 

the remaindermen). Such was the case in Heller, 800 N.Y.S.2d 

207 (2005) (discussed at length in section III.A.9 above) where the 

step-son/trstees attempted to cut their stepmother's income 

distrbutions in half by converting the trust to a untrst. Even if 

the intent of conversion is to increase the income, what if 

circumstances change - interest rates skyrocket and the income 

beneficiar is getting a "mere" 4-5%? 

7. Practitioners wil need to be aware of and conform to the notice 

requirements in their respective states. From the perspective of 

avoiding litigation, trustees and their lawyers may go beyond the 

statute to provide more thorough protection for the trustee. While 

most statues require notice to the beneficiares, the wrtten 

agreement of the beneficiares, including language recognzing the 

possibility of market shifts and stating that the trst canot (or 

canot easily) be reconverted, is preferable. 

8. In a case decided before Pennsylvania adopted its version of the 

UP&IA, which includes a unitrst conversion provision, the trstee 

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94 

iv. TAX EFFECTS 

and income beneficiares sought cour approval to convert an 

income-only exempt generation-skipping trust to a unitrust, 

originally seeking a 5.5% payout. Murphy Trust, 20 Pa. Fid. Rep. 

2d 46 (O.C. Mont. 1999). The facts in Murphy might well be 

considered the poster child for adoption of power to adjust and 

untrst conversion rules, at least so long as there is a bull market. 

The pricipal was originally worth $2,000,000 and grew to around 

$7,000,000 durng the ten years prior to the requested 

modification. Income started at $60,000 and grew to only 

$140,000, in par because the trstee invested mostly in equities 

and in par because ofthe decline in dividend rates. The cour 

appointed a guardian ad litem to represent the unborn 

remaidermen. The guardian challenged the proposed change in 

par based on the trstee's economic projections which suggested 

that the remaindermen would be disadvantaged ifthe projected 

total retu was even modestly less than the trstee's projection of 

10.5%. Whle the cour held that the trustee did not meet its 

burden to demonstrate that the proposed change would "more 

nearly approximate the intention ofthe conveyor. . . ," the 

interesting question is whether had the trustee prevailed, the 

proposed 5.5% payout would have made sense in the ensuing bear 

market where real total retu has been flat or even negative. 

Might a trstee be liable for damages incurred by a beneficiary as a result of the 

tax effects of conversion to a total retu trust? 

A. IRS Regulations 

The IRS has issued very helpful Final Regulations which address many 

issues pertaining to the income, estate, gift and generation-skipping tax consequences of 

state laws giving trstees the power to adjust and/or the power to convert to a unitrst. 

See Treas. Reg. § 1.642( c )-2 et seq. As such, there should be very little likelihood that 

trstees or their counsel will be liable for the tax consequences of exercising the power to 

adjust or converting a trst to a untrst. However, as in many cases under the Internal 

Revenue Code, trustees are given choices; choosing one path over another may give rise 

to litigation. 

1. The par of the Final Regulations which leaves the most discretion 

in trstees, and therefore the area where disputes are most likely to 

arise, pertains to the allocation of capital gain to Distrbutable Net 

Income ("DNI"). Treas. Reg. § i .643(a)-3 sets out in considerable 

detail the circumstances under which a trustee may include a 

curent year's realized gain in DNI; included in those situations are 

trusts in which principal is distributed to income beneficiares 

pursuant to the conversion of a trust to a unitrust (but there is no 

II-A-28-MEWS

eference to a situation in which the trstee exercises the power to 

adjust). In general, unless otherwise required by applicable state 

law or the governng instrument, the trstee has the discretion 

under the Final Regulations to allocate or not to allocate gain to 

DNI. In some states, the applicable power to adjust/unitrst statute 

may direct or authorize the trustee to apply an "ordering rule" 

(similar to the chartable remainder unitrst ordering rule) such 

that a distrbution to the income beneficiar will be treated fist as 

ordinar income, next as short-term capital gain, then as long-term 

capital gain, and finally as principaL. In those circumstances, or if 

the governg instrent requires a specific allocation, the trustee's 

actions would be objectionable only if the trustee fails to comply 

with the statutory direction or the terms of the governng 

instrent. However, under the IRS regulations once a trstee has 

exercised the discretion to convert a trst to a untrust and to 

allocate gain (or not) to DNI, the trstee must do the same thing in 

future years. Therefore, in the case of a trst converted to a 

unitrust, the trustee's decision to allocate or not to allocate gain to 

DNI is a one-time decision that wil dictate the way the trust is 

administered for many years to come. Note that it is not clear that 

this is also the case with respect to a trust over which the trstee is 

exercising the power to adjust (and one can see the arguent either 

way). 

2. Presumably, trstees will make decisions in this regard based on 

the overall best interests of the trst and its beneficiares. In some 

cases, the decision will be obvious and unobjectionable (such as 

allocating gain to a beneficiary with regularly recurrg offsetting 

deductions). In others, the decision wil have a net benefit to one 

class of beneficiares and a net detrment to another. In those 

cases, when a dispute arises (query, when can a remainderman 

raise the issue of paying tax from principal while distrbuting 

principal to an income beneficiar tax free?), the legal standard by 

which the trstee wil be judged should be abuse of discretion and 

the cours will likely apply rules similar to those applicable to 

other cases which involve fiduciaries' discretionar acts. See . 

generally, Restatement (Third) of Trusts §30(l), Restatement 

(Second) of Trusts §187 (and cases cited therein); UP&IA §105 

(and comments thereto). See also UP&IA §103 cmt. 

B. Outside the Regulations 

The Final Regulations contain no rules which give trustees discretion 

regarding the impact of changes to trsts for martal deduction, generation-skipping tax 

or gift tax consequences. They make clear that so long as trustees apply applicable state 

laws permitting power to adjust or unitrst conversion (the latter limited to a unitrust 

between 3 and 5%), and meet other applicable fiduciar requirements, this will not result 

II-A-29-MEWS 

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96 

in disqualifying a martal trst from the martal deduction; it will not "ungrandfather" a 

grandfathered GST trst; it wil not be a capital gain recognition event; and it wil not 

constitute a gift from one class of beneficiares to another. 

v. DEFENSES 

If a beneficiary sues a trstee for breach of fiduciar duty, and claims resulting 

damages, what are the trustee's defenses? What defenses are available to trstee's 

counsel ifthe beneficiaries sue counsel for malpractice? Are the defenses utilized in the 

untrust/power to adjust contexts different from any other trstee surcharge or 

malpractice context? 

the following: 

Without examining the defenses in any detail, consideration should be given to 

A. Standard Of Care; Statutory and Common Law 

In the jurisdiction involved, determine the standard of care under the 

applicable statutory framework and, if relevant, the common law. Thus, for instance, 

what is the trstee's standard of care for investments (largely addressed above), and what 

is the trustee's standard of care under relevant statutory authority for converting a trust or 

exercising power to adjust? As otherwise noted, many statutes specifically limit 

fiduciary duty to act or consider acting, and also limit damages for a breach. Even if the 

statute establishes a standard for conduct, it may be a fairly low standard. 

B. Burdens of Proof 

This plays an important role and relates to how one proves that the trstee 

has met a paricular standard of care. Who has the burden of proving the breach of 

fiduciar duty and the resultant loss? How and when does the burden shift between the 

litigants? What is the standard of proof? Preponderance of the evidence or clear and 

convincing evidence? 

C. Limitations On Trustee Liabilty In The Governing Document-- 

Exclusive Discretion Given To The Trustee 

The trst document may give the trustee broad powers and exclusive 

discretion, exempting the trustee from the normal and otherwise applicable standards of 

care. Depending on the circumstances, the trust terms mayor may not protect the trstee. 

Typically such terms would not protect the trstee from willful acts, bad faith, perhaps 

self-dealing, etc. However, such provisions can usually help protect a trstee from 

liability and maybe even litigation. This raises the issue of how one drafts the trust, and 

what the discussion is between the testator/settlor and the scrivener about the distrbution 

options for trusts. 

II-A-30-MEWS

D. Limitations On Trustee Liabilty In The Governing Document -- 

Exculpatory Provisions 

The circumstances of the preparation of the will/trst, including the 

exculpatory clause (and maybe even the "exclusive discretion" provision) may be 

relevant. An attorney who is a fiduciary who also drafts the trst document might not be 

protected by the exculpatory clause (and, again, maybe even the exclusive discretion 

provision). 

i. The Restatement (Second) of Trusts §222(3) provides that an 

exculpatory provision is ineffective if it is "inserted in the trst 

instrent as the result of an abuse by the trstee of a fiduciar or 

confidential relationship to the settlor". 

2. The trend in the case law is to forbid an attorney scrivener or any 

of his law parners from benefiting from an exculpatory clause in 

the document. A recent Pennsylvana case ilustrates the principaL. 

See Kramer Estate, 23 Pa. Fid. Rep.2d 245 (O.C. Mont. 2003) 

(exculpatory provision in will drafted by law parer of one of the 

executors was not effective as to that executor). 

3. Cours in other states agree with the analysis. Rutanen v. Ballard, 

678 N.E.2d 133 (Mass. 1997) (failure of trstee who drafted 

document to bring clause to settlor's attention and to explain its 

implications was improper and rendered clause ineffective to 

protect him); Petty v. Privette, 818 S.W.2d 743 (Tenn. Ct. App. 

1989) (where one attorney in firm drafted will, cour placed burden 

of proof on drafting attorney to prove that any influence over client 

which might be presumed to have arsen out of relationship was 

neutralized by independent advice given to client or by some other 

means so that there was no overreaching of client and no abuse of 

confidence); Fred Hutchinson Cancer Research Ctr. v. Holman, 

732 P.2d 974 (Wash. 1987) (attorney who drafts wil with 

exculpatory clause is absolutely precluded from relying upon that 

clause when client did not receive independent advice regarding 

provision). But see Marsman v. Nasca, 573 N.E.2d 1025, 1032-33 

(Mass. App. Ct. 1991) (exculpatory clause is effective because 

there was no evidence that it was inserted via an abuse of 

attorney's relationship with settlor at the time it was drafted; fact 

that attorney drew instrent and suggested clause does not render 

it ineffective). 

4. Consistent with case law, the ACTEC Commentares on MRC 

1.8 provide that: 

Under some circumstances and at the client's request, a 

lawyer may properly include an exculpatory provision in a 

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E. Standing and Privity 

document drafted by the lawyer for the client that appoints 

the lawyer to a fiduciar offce. . . . The lawyer ordinarly 

should not include an exculpatory clause without the 

informed consent of an unrelated client. 

Does the complainant have the right to asser his or her claim? Legal tests 

governng privity -- whether a beneficiar has the ability to sue the attorney -- var 

widely among the states and depend upon whom the attorney represented. See discussion 

at II C 4 above for more detaiL. 

Less obvious as a standing issue is whether the beneficiar is as yet 

damaged; without damage the beneficiar may not have standing. One example is a 

situation where those entitled to receive principal at a futue date (e.g., on the passage of 

a number of years or the death of an income beneficiary) object to the consequences to 

the trst of the trstee's decisions (affrmative or negative). The value ofthe portfolio 

declines precipitously as a result of investment decisions; principal is distrbuted to the 

income beneficiar by virte of an exercise ofthe power to adjust or convert to a untrust. 

Do the remaindermen have standing to brig a surcharge action against the trstee before 

they are entitled to the principal? They might die before their interests vest. There may 

later be additional members of the remainder class. Investments that have declined may 

rebound or be replaced with investments that erase the prior loss. Some cours wil not 

permit remaindermen to brig these actions prematurely. What about an income 

beneficiar? Here, the standing defense is less likely to apply because the income 

beneficiary is affected currently by the trustee's investment/distribution actions. 

F. Dead Man's Act 

Not necessarly viewed as a defense, per se, but often having the impact of 

a defènse, consideration should be given to the role ofthe Dead Man's Act, if applicable. 

Can a witness be precluded from testifyig under the Dead Man's Act? Can the plaintiff 

be precluded on ths basis? 

G. Statutes of Limitations 

Has the time elapsed in which the beneficiary can pursue a surcharge 

against the trstee (or counsel to the trustee)? There may be a limitation by statute or by 

the trust/wil provisions. For example Uniform Trust Code § 1005 limits all actions by a 

beneficiary against a trustee, of any sort, to five years after the first to occur of 1) the 

removal, resignation or death of a trstee; 2) the termination of the beneficiary's interest 

in the trust; or 3) the termination of the trust. 

H. Laches 

Typically, this is a difficult defense to assert successfully. However, in 

the conversion/adjustment setting, it might have greater likelihood of application and 

II-A-32-MEWS

success than in other matters. A laches defense requires both delay and prejudice from 

the delay. 

I. Actual Agreement 

In terms of planing ahead, the trstee can seek to have the beneficiaries 

sign an agreement approving the plan to convert or adjust, personally and on behalf of the 

beneficiary's minor children, if applicable. The trstee might even have the beneficiares 

approve an investment plan in conjunction with the conversion or adjustment. If cour 

approval for conversion or even adjustment is available, even ifit is simply to approve 

the agreement of the paries, then obviously that is ideaL. Absent court approval the 

trstee's best protection is a full agreement with a detailed and fulsome statement of the 

facts. It may be that some of the ultimate beneficiares are not adults, are not competent 

or are not yet born. This may affect the quality of protection an agreement confers on the 

trstee, but it is much better than nothing. Consideration should be given to virtal 

representation issues and the possible need for a guardian/trstee ad litem. 

J. Consent or Acquiescence 

When the beneficiares have approved the conversion to a unitrst or 

adoption of the power to adjust, or conversely the decision not to convert or adjust, 

whether in wrting by letter, form or full blown agreement, or by actions or inaction, this 

will be an important defense to the trstee, especially if approval included approval of the 

investment allocation and the investments in general. Ongoing approval is a stronger 

defense, obviously, compared to initial approval only. Ongoing receipt of trst 

statements, periodic meetings, regular "reports" ofthe trstee, etc., all are elements upon 

which to build this defense. If consent is in wrting, again consideration should be given 

to virtal representation issues and the possible need for a guardiantrstee ad litem. 

K. Estoppel 

The beneficiar may be prevented by his or her own acts from claiming a 

surcharge related to the conversion/adjustment. This may be in the form of consent or 

acquiescence, or perhaps requests or demands to the trustee, on which the trstee relied in 

makng the decision to convertadjust and/or to change trst investments. 

L. Terms of TrustlWiI 

Are there other provisions in the trst/wil document that might be utilized 

in defense of a surcharge? Again, this can be a drafting issue. There might be defenses 

hiding in the trst/wil document. 

M. Advice of Counsel 

In certain circumstances a trustee might assert his or her reliance on 

counsel as a defense. What is the trustee's level of sophistication? Was reliance on 

counsel reasonable and appropriate? Was the choice of counsel reasonable and 

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appropriate? What is the natue and complexity of the matter upon which counsel 

advised trstee? Does this result in shifting liabilty onto trstee's counsel? 

VI. REMEDY -- REMOVAL 

Can the trstee be removed if the trstee fails to adjust or convert when the 

beneficiary wants him to or if the investment performance falls below certain standards 

expected after conversion or adjustment? 

An unappy beneficiary might feel that the perfect (and less expensive) cure for 

his or her dissatisfaction with the trstee is to have the trustee removed and, if applicable, 

replaced. In other words, money is not necessarly the only remedy. In fact, in certain 

cases, an agreement by the trstee to resign might be the quid pro quo the beneficiaries 

are looking for in exchange for the trstee's release and the end oflitigation. 

A. Uniform Acts 

Neither the UPIA nor the UP&IA provides for removal of the trstee as a 

remedy; they are silent on this point. The severity of a trstee's actions under the 

applicable circumstances would undoubtedly playa role in whether or not a cour might 

remove a trstee. 

B. Case Law 

1. McNeil v. Bennett, 792 A.2d 190,211 (Del. Ch. 2001), aff'd in 

part, rev'd in part, 798 A.2d 503 (De. 2002), the unhappy 

beneficiary sought removal of the corporate trstee as well as 

monetary and other damages. Although it noted that the court's 

power to remove a trustee should be used sparngly, the Delaware 

Supreme Court affirmed the lower court's removal which was 

based on finding that the corporate trstee had failed in its 

fiduciar duties, including the duty to inform the beneficiaries of 

the nature of their interests. However, the cour reversed the lower 

cour's appointment of a successor trustee because the settlor had 

provided for succession in the document and the lower court could 

not disregard that plan. 

2. In Estate of Heller, 800 N.Y.S.2d 207 (2005) (discussed at lengt 

above in section III.A.9 above), the widow/income beneficiar 

requested that her step-sons/trstees be removed based on their 

alleged self-dealing in converting the trust to a unitrust. The 

widow was not successful in her quest for summary judgment and 

the ultimate result in the Surogate Cour is stil pending. 

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VII. REMEDY -- MONETARY 

A. Remedies for Adjusting or Converting or Not 

What damages are available if a trstee fails to adjust income and 

principal or fails to convert to a unitrust? What if the trstee exercises one of these 

powers, but is faulted by the beneficiar for doing so? Can a beneficiary claim damages 

beyond those provided for by statute, if a statute based on UP&IA applies? 

1. A cour must first determine that a trstee breached the applicable 

standard for conduct (negligence, abuse of discretion, etc.) in 

exercising or not the power to convert or adjust, before 

determining damages. Assumg that a court finds that the trstee 

violated the standard established by statute or otherwise -- abuse of 

discretion, negligence, etc. -- in determining to adjust or not, or 

convert or not, the cour must make a finding of damages as a 

prerequisite to awarding a monetary remedy. See, e.g., In re Estate 

of Friedman, I Pa. Fid. Rep. 2d 60 (O.C. Mont. 1980), aff'd 307 

Pa. Super. 413, 453 A.2d 651 (1982) (the purose of damages in a 

surcharge action is to restore to a trst the actual losses sustained 

as a result of a breach of a fiduciar duty). 

2. Statutory damages 

a. For the most par, the damages for this type of breach are 

governed by statute and many of the statutes enacted by the 

states attempt to limit the trstee's liability in the context of 

adjusting or converting. One view might be that the 

drafters of these statutes were litigation averse and wanted 

to make sure that any litigation would be minimized as a 

result of the damages provisions in the statutes. 

b. UP&IA § 1 05( c) - added in 2000 - limits damages to an 

adjustment between principal and income unless the 

beneficiaries canot be placed in the position they would 

have been absent the abuse of discretion. The statute 

directs that (1) damages for a distrbution that is too small 

should be a cour directed distrbution, (2) damages for a 

distribution that is too large should be the withholding of 

future distributions and (3) the surcharge if the fiduciar 

should only be used if (i) and (2) are insuffcient to restore 

the beneficiary and the trst to the position they would have 

been absent the abuse of discretion. 

c. The theory behind the amendment is that, in most cases, the 

trust has not suffered a net loss. Thus, it may be 

unnecessary to surcharge the trustee and such a surcharge 

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102 

could result in a windfall to the beneficiaries. The 

amendment has been adopted in Pennsylvania and Florida 

as well as other states. See 20 Pa. C.S.A. §8106; Fla. Stat. 

§ 738.105(3). 

d. The Ilinois statute creates a presumption of good faith by 

the trstee and prohibits damages other than reallocation if 

the trstee acts in good faith as follows: 

Remedies. A trstee who reasonably and in good 

faith takes or omits to take any action under ths 

Section is not liable to any person interested in the 

trust. . . (and) the person's exclusive remedy is to 

obtain an order of the cour directing the trstee to 

convert the trst to a total retu trst, to reconvert 

from a total retu trst, to change the distrbution 

percentage, or to order any administrative 

procedures the court determines necessar or 

helpful for the proper functioning of the trst. . . 

760 IlL. Compo Stat. 5/5.3(k), amended by IlL. Legis. 93-991 

(2004). 

3. Beyond statutory damages 

a. When a statutory remedy is limiting but based on a certain 

standard, i.e., "good faith," then certainly beneficiaries will 

take the position that the trstee's actions were not within 

the statutory standard, and wil look for a surcharge 

recovery against the trstee. When a statutory limitation on 

damages is determined not to apply, damages in a matter in 

which the cour finds that the trstee breached its fiduciar 

duty by failing to convert to a untrst or failing to adjust 

between principal and income, should be the easiest to 

establish some level of certainty about the nature of the 

purported damages. If the state statute permits conversion 

to a certain percentage payout, for instance 4%, then a 

plaintiff-income beneficiar might argue that he or she is 

entitled to the difference between the actual net income and 

4% ofthe fair market value of the trst from time to time. 

But what should that trst have been worth from time to 

time? 

b. Damages in a matter in which the trustee breached its 

fiduciary duty by converting the trst to a unitrst, would 

normally arse if interest rates and dividends exceed the 

unitrust payout, for instance 4%. In that case, the plaintiff 

II-A-36-MEWS

can relatively easily show the level of actual income and 

the amount by which it exceeds the fixed untrust payout. 

This assumes that the investment performance is not an 

issue. 

c. The remaindermen of a power to adjust trst and a unitrst, 

as well as the income beneficiary of a power to adjust trust, 

would generally probably have a harder time trng to 

establish the measure of purported damages -- and the 

threshold violation of the applicable standard. The dispute 

in such a case is almost entirely about the standard, and 

thus probably about the trstee's decision makng process. 

4. In McNeil v. Bennett, 792 A.2d 190,211 (Del. Ch. 2001), aff'd in 

part, rev'd in part, 798 A.2d 503 (De. 2002), the Delaware 

Chancery Cour approved a plan to divide the trst into separate 

trusts for each of the settlor's children and then awarded a make-up 

distrbution to the complainig son of7.5% ofthe value of the 

resulting trst for that son. On appeal, the son claimed the 

payment should have come from the trust before division and the 

other siblings claimed the award was excessive. The cour found 

no abuse of discretion and pointed out that the other siblings were 

not affected by the distrbution from the son's trst which was 

essentially a parial distrbution of funds to which the son had a 

claim in previous years. The court also affirmed the surcharge of 

the trstee equal to one-fifth of the fees charged over its nine years 

of administering the trust. The trstee argued that absent a loss to 

the trust, the only remedy is an adjustment of principal and income 

or a distrbution, not a surcharge of the trstee. The cour 

disagreed, finding that the trstee had been derelict of its duty and 

thus "had not 'properly' rendered the service for which 

compensation was given." 

B. Damages For Failure to Invest Prudently 

How wil damages be calculated if the trstee is determined to have 

imprudently invested? Wil the cour calculate the loss, interest or the opportity cost of 

the breach? The UPIA does not contain a limitation on damages, so how wil the 

monetary damages for violations of the fiduciar's duty to invest prudently be measured? 

1. It is important to note that a court must first determine that a 

trustee breached the applicable standard for conduct (prudent 

investor standard, etc.) in investing the trst funds before 

determining damages for investment performance. Unlike 

damages for violations falling under the UP&IA, breaches on 

investment duties under the UPIA are not generally governed by 

statutory remedies. 

II-A-37-MEWS 

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104 

2. The language ofthe Restatement (Second) of Trusts leaves open 

the possibility that lost profits may be used as a measure of 

damages; the trustee is chargeable with any profit which would 

have accrued to the trust estate if the trstee had not committed a 

breach of trst. Restatement (Second) of Trusts § 205(c). 

However, as the comments to the rule explain, this measure of 

damages was limited to those situations where a trstee was 

required to retain or to purchase certain property and yet failed to 

do so. The Restatement (Third) of Trusts §205 cmt. a, however, 

allows the trstee to be surcharged for "the amount necessary to 

fully compensate for the consequences of the breach." 

3. The Reporter's Notes to the Restatement (Third) of Trusts point 

out the differences in approaches of the Second and Third 

Restatements. The approach followed in the Restatement (Second) 

of Trusts and by most cours does not include the profits that could 

have been achieved based on market performance; rather, such 

examples only include interest. See Restatement (Third) of Trusts 

§211, Rpt. Notes, citing Matter of Kellogg's Trust, 230 N.Y.S.2d 

836,847-48 (N.Y. App. Div. 1962). The Notes also point out that 

both III Austin W. Scott and Willam F. Fratcher, The Law of 

Trusts §212A (4th Ed. 1987) and George G. Bogert, The Law of 

Trusts and Trustees §702 (2d ed. 1983) suggest recovery for lost 

appreciation only where the breach involves a failure to retain or 

acquire specific investments required by the trst. The reason 

stated for limiting these damages is the difficulty in determg 

what investment retu could have been achieved when the breach 

is not limited to one paricular investment. 

4. The Restatement (Third) of Trusts, the Prudent Investor Rule, 

expands the "total approach to damages" to include breaches of 

trst related to general investment authority. See Restatement 

(Thrd) of Trusts §21 i, Rpt. Notes. Under the Restatement (Third) 

of Trusts damages can be calculated based on (1) the performance 

of all or a relevant portion of the assets in the trst, (2) the 

performance of all or a part of the portfolios in comparable trsts, 

or (3) the performance of an appropriate securities index. See 

Dominic J. Campisi and Patrck J. Collns, Index Returns As a 

Measure of Damages in Fiduciary Surcharge Cases, Tr. & Est., 

June 2001. 

5. In addition, the Restatement (Third) of Trusts §213 limits the 

situations when a loss can be balanced against profits to those in 

which the loss and the profit arise from the same breach of trust. 

6. Case law regarding damages from breach of investment duties 

II-A-38-MEWS

a. Nickle v. Bank of America, 290 F.3d 1134 (9th Cir. 2002). 

In ths class action suit, the plaintiffs alleged that the 

trstee, a bank, improperly took fees over a period of years 

while administering 2,500 trusts. The plaintiff sought not 

only the reimbursement of the fees, but either the profit 

earned by the ban on the money or the lost benefits to the 

trsts. The cour held that lost benefits "was a matter of 

speculation, too difficult to prove because of the small size 

of many of the trsts, the varety of their terms and 

investment policies, and their different dates of 

termnation." On disgorgement damages, the court ruled 

that tracing was unecessar. Instead the cour looked at 

the ban's annual profits and the share of the ban's capital 

represented by the overcharges to determine the profit 

earned by the ban on the improper fees. Ths case allows 

more than reimbursement of the fees but it does not allow 

lost appreciation. 

b. In an early New York case, the cour of appeals awarded 

damages based on lost appreciation. Matter of Rothko 's 

Estate, 43 N.Y.2d 305 (N.Y. App. Div. 1977). The facts in 

Rothko were quite egregious. The executors sold or agreed 

to consign over seven hundred of the decedent's paintings 

withi three weeks of his death. The agreements were for 

less than fair value and the consignent was through a 

company in which the executors had an interest and, thus, a 

conflict of interest. When the beneficiaries became aware 

of the agreements to sell, they obtained a temporary 

restraining order and an injunction restricting the sale of 

any paintings. Nevertheless, the paintings were sold and 

subsequently appreciated in value. 

The cour characterized the executors' conduct as 

"manifestly wrongful and indeed shocking." The 

beneficiaries sought to surcharge the executors and 

requested darnages to be calculated based on the curent 

value ofthe paintings, i.e., the appreciation they would 

have realized had the paintings been held by the estate.. 

The cour allowed such damages, but limited its reasoning 

to the facts of the case, finding that the executors had 

"violated an integral condition ofthe trust." The cour 

cited Austin W. Scott and William F. Fratcher, The Law of 

Trusts, and the Restatement (Second) of Trusts, both of 

which allow appreciation damages when a fiduciar 

breaches a specific duty to hold property and damages can 

be readily ascertained. The cour reasoned that the same 

rule should apply when executors engage in a sale entailing 

II-A-39-MEWS 

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106 

a serious conflict of interest, as differentiated from merely 

negligently selling for too Iowa price. 

c. In a later N.Y. case, the court differentiated Rothko on its 

facts, holding that lost profits were unavailable unless the 

fiduciar participated in "deliberate self-dealing and 

faithless transfers of trust property." Matter of Estate of 

Janes, 90 N.Y.2d 41 (N.Y. App. Div. 1997). The lower 

cour awarded damages consisting of both the loss suffered 

on the sale ofthe stock as well as the lost profit that could 

have been eared on the proceeds ofthe stock had it been 

sold at "the appropriate time." However, the appellate 

cour reversed that holding, instead ruling that the measure 

of damages is the value of the lost capitaL. It found the 

lower cour's "lost profits" measure of damages to be 

inapplicable in a case where the fiduciar's conduct was 

negligent retention of assets. The lower court based its 

ruling on a case which awarded lost profits but in which the 

fiduciary was guilty of "deliberate self-dealing and faithless 

transfers of trst property." This cour ruled that those 

same damages could not be awarded in this negligence 

case. The court also noted that interest may be awarded but 

that it must be offset against the dividends or other income 

attbutable to the retained assets. 

d. Another New York case cited Janes and calculated 

danages for the improper retention of stock based on the 

actual loss in value plus interest from the time the stock 

should have been sold. Estate of Saxton, 179 Misc.2d 681 

(N.Y. Surr. 1998). 

e. Similarly, in Wiliams v. J.P. Morgan & Co., Inc., 199 F. 

Supp.2d 189 (S.D.N.Y. 2002), the beneficiar of a trst 

sought a surcharge for the trustee's alleged failure to 

properly invest and diversify the trst. The court held that 

the proper measure of damages, jf the trstee was found to 

have committed a breach of trst, was the lost capital not 

lost appreciation or profit. The cour cited Janes and stated 

that New York allows only lost capital damages for 

negligent or imprudent retention of assets. In contrast, 

citing Rothko, the cour concluded that "lost profits may be 

awarded where there is an allegation of self-dealing or bad 

faith." The court found New York law to be settled and 

refused to adopt the Restatement (Third) of Trusts' more 

liberal damages rules because such a change of state law 

could only be accomplished in a New York state cour. 

The court also differentiated the ERISA cases decided in 

II-A-40-MEWS

other states such as Donovan v. Bierwirth, 754 F.2d 1049 

(2d. Circ. 1996), stating that those cases rely too heavily on 

ERISA framework to be of precedential value outside of 

that area. Wiliams, 199 F. Supp.2d at 195-96. See also, 

Litchfield v. Bank of New York, 2000 WL 761887 (D. Me. 

2000) (interpreting New York law to allow appreciation 

damages only when fiduciares are found to have 

knowingly rather than negligently committed breach). 

f. Scalp & Blade, Inc. v. Advest, Inc., 765 N.Y.S.2d 92 (N.Y. 

App. Div. 2003). Ths is a New York case which cites two 

earlier New York cases, Rothko (which allowed lost 

profits) and Janes (which did not). Scalp follows Rothko. 

In this case, the trstee allegedly chured the account for 

his own profit. In allowing the appreciation damages, the 

court distinguished Janes because in Janes the fiduciar 

"merely wrongfuly failed to diversify the portolio", 

whereas in Scalp, like Rothko, the breach of trust extended 

beyond mere negligent retention of stock and included 

deliberate and flagrant self-dealing. Scalp also cites two 

earlier securties cases, Rolfv. Blyth Eastman Dilon & Co., 

Inc., 570 F.2d 38 (2nd Cir. 1978), and Miley v. 

Oppenheimer & Co., Inc., 637 F.2d 318 (5th Cir. 1981), in 

which the plaintiffs' damages were calculated based on 

what they would have earned if not for the defendant 

investors' misfeasance. Ultimately, the defendants were 

responsible for the decline in value only to the extent that 

decline exceeded the average decline over the same period. 

Average decline was measured by the Dow Jones 

Industrials, Standard & Poor's Index or a combination of 

indices. 

g. In a recent New York damages case, the cour awarded $21 

million in damages to a trst after the income beneficiar 

complained that the corporate trustee had failed to diversify 

the trst's holdings of Eastman Kodak stock. Wil of 

Dumont, 4 Misc.3d 1003(A), 791 N.Y.S.2d 868, 2004 WL 

1468746 (Monroe Co. Sur. Ct. 2004). The decedent's will 

provided "(i)t is my desire and hope that (Kodak stock) wil 

be held. . . by my trustee to be distributed to the ultimate 

beneficiaries. . ., (and my) trustee shall (not) dispose of 

such stock for the purpose of diversification (and the 

trustee shall not) be held liable for any diminution in the 

value of such stock." However, the document also stated 

that the provision "shall not prevent ... my trustee from 

disposing of all or part of the stock of Eastman Kodak 

Company in case their shall be some compelling reason 

II-A-41-MEWS 

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108 

other than diversification of investment for doing so." The 

cour found the trstee negligent for failing to ascertain the 

needs of the beneficiar, failing to properly interpret the 

document (which encouraged retention but did not require 

it) and completely failing to communicate with the 

beneficiaries. The cour found that the trstee essentially 

ignored the trst, allowed a trst officer to conclude that the 

stock could not be sold, and advised the income beneficiar 

that the stock could not be sold. The damages reflected the 

difference in value had the trst been diversified at the 

appropriate time. 

h. In Stevens v. Natl City Bank, 544 N.E.2d 612 (Ohio 1989), 

the trstee diversified two large blocks of stock (Dow and 

Union Carbide) over a period of years. When the trstee 

filed an account with the cour, one of the beneficiares 

objected to the trstee's sale of the stock. The court held 

that the trust's retention language ("I request that the 

Trustee retain for the most par the shares (of Dow and 

Union Carbide)") was merely precatory and that liquidation 

of the concentrated portfolio was within the trstee's 

discretion. The court stressed the duties to diversify and to 

make the trst productive, as well as the duty of 

impariality in meeting the needs ofthe income and 

remainder beneficiaries. The cour concluded that regular 

diversification and reinvestment of the portfolio into 

income producing assets was a prudent decision given the 

competing interests of the income and remainder 

beneficiaries. 

1. In In re Estate of Scharlach, 809 A.2d 376 (pa. Super. 

2002), the Pennsylvania Superior Cour found a breach of 

fiduciar duty by the corporate guardian of a minor child 

who invested only in governent obligations, resulting in 

limited growth over the guardian's tenure. The cour order 

appointing the guardian placed a restriction on the 

investment of the fud which was interpreted to forbid 

investment in equities. The guardian neither petitioned the 

cour to remove the restriction nor invested in equities. It 

did however formulate an investment plan for the 

guardianship and internally discussed the need to petition 

the court to remove the investment restrction. 

As a result ofthe guardian's failure to implement an 

appropriate investment scheme, the $800,000 deposited in 

the account grew to only $805,000 in the ten years of the 

guardian's administration. Although the fund suffered no 

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loss (it actually grew $5,000), the cour found damages for 

the profit that should have accrued to be appropriate. 

Citing the Restatement (Second) of Trusts §205, the cour 

found the guardian liable for "any profit which would have 

accrued to the trst estate ifthere had been no breach of 

trust." The cour emphasized that it must first find a breach 

of duty (which it did) and that it would then calculate the 

damages necessary to place the ward in the same position 

he or she would have been in had the appropriate 

investment plan been followed. 

The cour dismissed the ban's arguent that it could not 

be surcharged because there was no loss as a "semantic 

battle on the meang of the term 'loss''', and concluded 

that "(a)bsent (the ban's) breach of its duty, the successor 

guardian of 

the estate would now have in its possession 

assets valued substantially in excess of those received. A 

surcharge is permtted when a fiduciar fails to exercise 

due care, and loss is incurred." 

Scharlach was analyzed in Pennsylvania's Fiduciar 

Review. The author found the case "starling for the 

Court's wilingness to violate the long standing principle of 

'no loss-no surcharge. '" Fiduciar Review 1 (March 

2003). The aricle points out contrary Pennsylvania case 

law such as Pew Estate, 655 A.2d 521 (pa. Super. 1994), 

and In re Mendenhall, 398 A.2d 951 (Pa. 1979). It also 

complains that the cour offered no insight regarding how 

to calculate what the fund should have been worth. 

Furher, it laments the possible results of such a surcharge 

which it suggests might be that trstees wil not wish to 

assume responsibility if they are to be judged in hindsight 

against the Dow Jones or other averages. Of course, the 

aricle's fatalistic argument misses one important element, 

that is that the cour must first find a breach. Scharlach 

does not demand that every trst match the Dow Jones 

average. It does, however, hold that if a fiduciar is first 

found to have committed a breach, damages can be 

measured by determining how much the fud would have 

been (at some later point) had the breach not occurred. 

J. In McCullough Trust, 21 Pa. Fid. Rep.2d 135 (O.C. Allegh. 

2001), the remainder beneficiares alleged that the trustee 

had breached its duty by failing to provide adequate gain 

over the sixty plus years of administration. The 

beneficiaries do not appear to complain of any particular 

investment, but just the general overall performance of the 

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110 

trst was inadequate. Although the trst showed a net gain, 

the overall performance was far below the rate of growt of 

common stocks over the same period and the growth did 

not even keep pace with inflation. The cour held that the 

beneficiaries were "unable to prove a necessar element of 

their surcharge action, i.e., that the. . . trust suffered a loss, 

and, therefore it appears that the trst is entitled to 

sumar judgment on this basis." 

k. A Marland District Court interpreting Pennsylvania law 

distinguished and attempted to limit Scharlach. In Pitts v. 

First Union Nat 'I Bank, 262 F. Supp.2d 593 (D. Md. 2003), 

a beneficiar of two trsts sued the bank based on the 

disparty between the growth ofthe trsts. Both trsts, 

however, did grow. The court cited McCullough and Kiley 

Trust, 29 Pa. Fid. Rep. 437 (O.C. Phila. 1979), for the 

proposition that no surcharge could be imposed because the 

beneficiar suffered no loss. The Marland cour then 

reduced Scharlach to a footnote wherein it noted that the 

Scharlach fiduciar developed a specific investment plan 

but failed to implement it. Finally, the cour pointed out 

that in Pitts, no one had developed any specific plan. That 

distinction may make damages easier to calculate but it 

seems nonsensical that a trstee's failure to develop a plan 

should save the trustee from liability! 

1. The Second Circuit Court of Appeals has held that the 

measure of damages for a breach by trstees of an ERISA 

plan requires a comparson of what was eared on the 

improper investment to what the plan would have eared 

had the funds been used for plan puroses. Donovan v. 

Bierwirth, 754 F.2d 1049, 1056 (2d Cir. 1985). The court 

could presume that the funds would have been invested as 

other fuds were durg the same period. In fact, the court 

went on to conclude that if several investment alternatives 

were equally plausible, the burden was on the trustee to 

show that something less than the most profitable 

investment would have been selected, essentially creating a 

rebuttable presumption that the funds would have been 

invested in the most profitable portfolio investment. The 

court fails to take this reasoning to its logical conclusion, 

however, and continues to compare the performance of the 

investments over the period of time that the challenged 

investment was held. In an ongoing trst, damages could 

be calculated up to the present date because the assets 

would presumably have been invested durng that entire 

period. The Donovan court could only use the present date 

II-A-44-MEWS

when the investment had not yet been sold. When, as in 

Donovan, an investment has already been sold, the cour 

held that the time for comparng investment returns is the 

period durng which the improper investment was held. 

m. The Alabama Supreme Cour based its damage calculation 

on lost opportunity for profit where a trustee failed to 

diversify its investments. First Alabama Bank of 

Huntsvile, NA. v. Spragins, 515 So.2d 962 (Ala. 1987). 

The beneficiares offered expert testimony to show what 

"active, prudent management might have achieved." The 

cour affirmed the lower cour's calculation of damages 

based on "the actual value of the trst principal against 

what the value would have been had it been prudently 

managed." The court compared both the principal value to 

the pricipal value of a prudently managed trust as well as 

the income eared on ths trst to what was eared by 

prudently managed trsts over the same time period. Note 

that because the trstee never sold the stock in question, the 

damages appear to be calculated for the entire period of the 

trst administration. 

n. The Colorado Supreme Cour surcharged a fiduciar for his 

investment ofUTMA accounts in penny stocks. Buder v. 

Sartore, 774 P.2d 1383 (Colo. 1989). The cour awarded 

the penny stocks to the fiduciar in exchange for having 

him replace the original capital of the accounts and adding 

a substantial sum to each account for the loss of 

appreciation of the fuds. Note that because the trstee 

never sold the stock in question, the damages appear to be 

calculated for the entire period of the trust administration. 

o. The Washington State Cour of Appeals compared the 

value of the trst with the value it would have been had the 

investments been properly diversified between tax-exempt 

and equity securties and ruled that the difference could be 

assessed as damages. Baker Boyer National Bank v. 

Garver, 719 P.2d 583 (Wash. App. 1986). 

p. In a more recent opinion, the Washington Appellate Court 

again held that damages could not be calculated based on 

the lost opportunty of investment to the trust. Flohr v. 

Flohr, 111 Wash. App. 1004 (2002) (unpublished), rev. 

denied, 67 P.3d 1096 (Wash. 2003). In that case the cour 

awarded damages to compensate for the excessive 

commissions charged to the trust due to its excessive 

trading scheme. However, it did not award what a balanced 

II-A-45-MEWS 

111

112 

portfolio would have eared on the refuded commissions 

over time. The beneficiar argued, based on Baker Boyer, 

that the cour failed to consider the opportity for 

appreciation that was lost to the remaindermen (by having 

improper commissions charged). The court found Baker 

Boyer inapposite because the fiduciar here had not 

violated his duty to diversify. 

q. The Californa Cour of Appeals considered a case where 

the fiduciar breached its duty by investing to the detriment 

of the remaindermen rather than investig to benefit both 

the income and remainder beneficiares. The appeals cour 

upheld the lower court's calculation of damages based on 

the appreciation experienced by common equity funds used 

by the bank. The court found it undisputed that whatever 

assets the trustee should have invested for long term growt 

would have been invested in the bank's common equity 

trst fud. "It follows that it was appropriate (to calculate) 

damages based on the amount the trsts actually would 

have eared." The cour rejected the remaindermen's 

calculation of damages based on "objective market criteria" 

(presumably higher than the retu on the bank's 

investments) because it did not reflect how the funds would 

have been invested. Noggle v. Bank of America NT & SA, 

82 CaL. Rptr.2d 829 (CaL. Ct. App. i 999). See also Estate 

of Anderson v. Anderson, 196 CaL. Rptr. 782 (CaL. Ct. App. 

1983) (damages for bank's improper sale of trst property 

included appreciation damages). 

r. The Delaware Supreme Court overted the Delaware 

Chancery Cour determination of damages based on how 

the trst could have been invested in Law v. Law, 753 A.2d 

443 (DeL. 2000). The lower court surcharged the trstees 

for investing solely to provide tax-free income for the 

benefit of the income beneficiary. The court heard 

testimony from several experts concernng what the fund 

would have eared had it been properly invested. Several 

experts testified regarding how the fund should have been 

invested. The expert on whom the cour relied suggested a 

50/50 or 60/40 stock to equity ratio and based his 

appreciation calculation on the S&P 500. The cour used 

his model to calculate the damages over the entire period of 

the trust. See Law v. Law, 1999 WL 126997 (DeL. Ch. 

1999). However, on appeal, the Supreme Cour found that 

the trstees had not breached any duty regarding the 

investments. Thus, no damages were due and the Supreme 

Court did not rule on the validity of the damage calculation. 

II-A-46-MEWS

s. A husband who served as executor of his wife's estate 

failed to distrbute assets to a family trst created by his 

wife. The paries stipulated to the value of the assets at the 

wife's death, the value of the assets at the husband's death, 

value of the assets eventually tued over to the trst by the 

husband's executor, the value the assets would have been 

had they been invested in an S&P 500 Index Fund, and the 

value of the assets had they been managed by a prudent 

trstee. Following the Restatement (Third) of Trusts §205, 

the cour found that damages should be calculated either on 

the profit eared by the husband or based on the value of 

the trst estate had it been properly administered. The 

cour thus found the lower cour's use of the S&P 500 

index improper because the paries had agreed that a 

prudent trstee would not have earned as much as the S&P 

500 Index Fund and a prudent trstee is the proper 

standard. By implication, the S&P 500 index might be an 

appropriate measure of damages if a prudent trstee would 

have invested in that type of fund. Estate ofWzlde, 708 

A.2d 273 (Me. 1998). 

1. In Dennis v. Rhode Island Hospital TrustNat'l Bank, 744 

F.2d 893 (1st Cir. 1984), a trstee held interests in three 

buildings the value of which dropped signficantly while 

the trstee held them from 1920-1945, 1970 and 1979 (until 

each of the three buildings was sold). The buildings 

generated signficant income but because of their declining 

value, the trustees should have sold the property to avoid 

favoring the income beneficiaries to the detrment of the 

remaindermen. After finding that the trstee should have 

sold by 1950 and reinvested the proceeds, the court 

calculated damages based on hypothetical 1950 sales of the 

two buildings stil held in 1950. It then assumed that the 

proceeds ofthe sale would have kept pace with inflation 

(3.6%) and that they also would have appreciated at .4% 

annually. On appeal, the court found the calculation to be 

"a plausible reconstrction of what would have occured". 

to the extent that the lower cour assumed the sales in 1950 

and assumed that the proceeds kept pace with inflation. 

However, the court rejected the damages for appreciation 

because it had no information about "the performance of an 

average, or typical, trst", nor any evidence that the trustee 

would have outperformed inflation. 

u. In a Colorado case, the trial court assessed damages against 

a trstee for its breach of fiduciar duty in its renegotiation 

of a coal mining lease for a strp ofland owned by the trust. 

II-A-47-MEWS 

113

114 

Expert testimony calculated damages based on the income 

that would have been eared had the lease not been 

renegotiated compared to the income actually earned under 

the new lease. The appeals cour found the calculation of 

lost profits as damages to be "rationally derived from the 

witness' experience and based upon the facts and 

circumstances surounding the coal mining operation. . . 

(T)he opinions offered were more than merely surmise, 

speculation, and conjecture. . ." The expert's projections 

of the income were admissible testimony because "(a)n 

expert may express an opinon based upon assumptions 

which have a reasonable basis in the evidence so long as 

the information is the type reasonably relied on by experts 

in the paricular field of expertise." Vento v. Colorado 

Natl Bank-Pueblo, 907 P.2d 642 (Colo. Ct. App. 1995). 

v. The Distrct Cour of Minnesota considered the damages in 

a case where it found that the trstee had breached its duty 

by failing to diversify trst assets. In re Wiliams, 2000 

WL 1920038 (Minn. Dist. Ct. 2000). The stock in which 

the trst held a high concentration declined in value, 

resulting in a substantial loss to the trst. Expert testimony 

established how and when the trst should have been 

diversified and what type of securties the proceeds should 

have been invested in. the cour determined that damages 

should be based on what the value of the trust would be ifit 

had been properly administered, specifically, the court 

assumed sales of the stock concentration and reinvestment 

in a balanced portfolio measured by the S&P 500 

Composite Index and the Lehman Brother's Intermediate 

Treasur Bond Index. Expert testimony mapped the net 

effort to the trust, taking into account taxes, fees, as well as 

reinvestment to determe the actual damage to the trust. 

w. In Hayley v. Minn. Min. and Mfg. Co., 284 F.3d 901 (8th 

Cir. 2001), beneficiares of a pension plan brought suit 

alleging that the trstees' had mismanaged the investments 

under the prudent man standard. The trustees argued that 

the plan had suffered no loss because it was stil 

sufficiently fuded to meet its pension obligations. 

Although the court disagreed regarding the existence of 

cognzable harm to the plan, the cour nevertheless found 

that the plaintiffs lacked standing because as individual 

beneficiaries of the plan they had suffered no harm. The 

loss in value of the plan assets was a loss suffered by the 

plan but the plan maintained a surlus and was financially 

II-A-48-MEWS

sound and thus the pension rights of each plan paricipant 

were protected. 

x. In a case decided under the ERISA prudent man standard, 

the cour found that the fiduciares' invested too heavily in 

inverse floaters. CaL. Ironworkers Field Pension Trust v. 

Loomis Sayles & Co., 259 F.3d 1036 (9th Cir. 2001). The 

issue on appeal was whether the damages should be 

calculated only on the impermissible portion ofthe 

investment. The cour cited to the comments to the 

Restatement (Thid) of Trusts §205 cmt. fwhich states that 

the fiduciar is liable for the loss on the excess investment, 

the amount that was beyond the proper level of investment, 

not for the entire loss on the investment. Although the 

Restatement (Third) of Trusts was not binding, the court 

found it provided "sound reasoning" for the calculation of 

damages when the breach involves "the degree rather than 

the mere fact of investment." 

y. In Champagne v. Champagne, 734 A.2d 1048 (Conn. App. 

Ct. 1999), one spouse failed to fud a trust with the cash 

value of her life insurance policy as required by the 

couple's divorce settlement. When the trst was eventually 

funded and the issue of damages for the delay was 

considered, the cour ignored the expert testimony 

regarding the retus the trst could have obtained had it 

been promptly fuded. Instead the cour awarded the 

principal sum plus the growth on the fuds while invested 

in the insurance policy. The awarded damages were based 

on the trstee's testimony that he would have invested the 

fuds in a savings account. The cour found his investment 

plan prudent given the conflcted circumstances of the case 

including the acrimonious relationship between the exspouses. 

VIII. TRUSTEE COMMISSIONS & INVESTMENT FEES 

How will trstee commssion be calculated in a trust where the trustee has 

adjusted income and principal or a trust that has been converted to a untrst? How is 

income defined for purposes of commissions? Wil fees be charged to income or 

principal? 

A. Trustee Commissions After Conversion 

Ifa trustee's commission is based on a certain percentage of income, 

either under the terms of the trst instruent or a fee agreement, and if the trust is 

converted to a unitrust, should the trustee's commission now be based on traditional 

II-A-49-MEWS 

115

116 

fiduciar accounting income, or on the unitrust payout, which might be partly income and 

parly principal? A remainder beneficiar may well argue that the trstee was 

overcompensated in violation of the fee provisions/agreement. An income beneficiary 

may not really care, because the unitrst payout is net of fees, but larger fees wil reduce 

principaL. 

B. Trustee Cominssions Under Power to Adjust 

Ifa trstee's commission is based on a certain percentage of income, 

either under the terms ofthe trst instruent or a fee agreement, and if the trustee is 

admnisterig the trust by exercising the power to adjust, should the trstee's commission 

now be based on traditional fiduciar accounting income of the trust, or on the amount 

from year to year that is distributed to the income beneficiar, which might include some 

principal (and about which the trstee is makng the determination)? One might argue 

that by exercising the power to adjust the trstee is taking on more work and more risk, 

and thus should be compensated on the amount that is the "new" income. One might also 

argue that a deal is a deal and traditional fiduciar accounting income was the basis for 

the percentage fee. 

C. Re-Examine Fee Arrangements 

1. Do you need to re-examine the trustee commission and other fee 

arangements for a trst once it is converted to a untrst, or once 

the trstee stars exercising the power to adjust? Failure to reexamine 

could result in a later surcharge. 

2. In Smith Charitable Trust, 874 A.2d 131 (Pa. Super. 2005), the 

wil under which the 1977 perpetual chartable trst was 

established directed that the individual trustee would serve without 

compensation, and that the corporate trstee's compensation could 

not exceed 5% of anual income. The assets ofthe trst almost 

tripled during the corporate trstee's tenure, but income increased 

by only 20% -- and actually the income yield had gone from 7.5% 

in 1984 to 3.2% in 1998. (This is, of course, the same investment 

environment that spawned total retu legislation to permit trstees 

to have the power to convert a trst to a unitrst and to adjust 

between principal and income.) The corporate trstee sought to 

increase its annual compensation by having its fee computed based 

on total retu, in this case 25 basis points (25/100 of i %) of the 

total asset value. The individual trustee objected to the change in 

compensation; the Attorney General agreed to the request. 

Because this was a charitable trust, the trstee was denied principal 

compensation and it argued that due to the drastic change in 

investment environment, its compensation was inadequate. The 

Orphans' Court found that this "change in investment income is a 

significant change of circumstances that could not have been 

anticipated" and thus allowed the requested increase in 

II-A-50-MEWS

compensation. Smith, Charitable Trut (No.2), 22 Pa. Fid. Rep. 2d 

373 (O.C. Mont. 2002). Nevertheless the Superior Cour reversed 

and held that the corporate trustee's compensation was limited to 

5% of income as established in the wil. The Cour found that the 

corporate trustee had the burden to prove that no other competent 

trstee was wiling to serve under the compensation strctue 

contained in the wil; the corporate trstee by its own admission 

acknowledged that it would continue to serve even if it lost its 

quest for addition fees. 

D. Allocation of Fees Between Principal and Income 

Do you need to re-examine the allocation of trstee commissions and 

investment fees between principal and income if you convert a trst to a untrst, or 

exercise your power to adjust? Arguably allocation no longer matters for a unitrust. 

Does it stil matter if the trstee is instead exercising the power to adjust? 

E. Termination Commissions 

How do these issues get resolved in the context of a trst in which the 

trstee anticipates being compensated from principal at termination? Wil beneficiares 

object to a reconstrction upon termination of the principal distrbutions against which a 

terminating fee would be computed? 

F. Accounting 

Are trustees going to continue to account separately for principal and 

income after a trst has been converted to a unitrust? If not, how does the trustee know 

what to charge as a terminating principal commission? 

G. Commission Reduction 

Trustee commissions might be reduced or eliminated in a surcharge 

action. The effect is punitive even ifnot in the sense of damages being assessed to a 

fiduciar. 

IX. SAMPLE LITIGATION SCENAROS 

Assumptions: Unless otherwise noted, each scenaro involves a trst that 

directs the trustee to pay the net income to the current income beneficiary, and gives the 

trustee the power to distribute principal to the same income beneficiary under an 

ascertainable standard. The trst terminates upon the income beneficiary's death, 

whereupon the principal is distributable to individual remaindermen. The situs of the 

trust is a state with both the power to adjust ("PTA") and the power to convert to a 4% 

total retu trust/unitrust ("TRT"). (Note that Paul Lee and Robert B. Wolf contributed to 

these scenaros.) 

II-A-5 i -MEWS 

117

118 

A. Trustee's Inertia 

Trustee invests the trst principal 50% in stocks and 50% in bonds in 

order to produce a reasonable amount of income for the income beneficiary and some 

growth for the remainder beneficiaries. Due to fallng interest rates and dividend yields, 

the income beneficiar's real income has fallen substantially over the last 10 years. 

Income beneficiar complains but Trustee explains that there is nothing that can be done. 

Trustee is unaware of the change in the law that gave her both the power to convert to a 

4% untrst and the power to adjust between income and principal, and she does not do 

anyting either way. She sends no notices and makes no decisions. Instead, she 

continues to invest and distrbute as before -- "business as usuaL." Five years later, the 

beneficiaries find out about the PTA and TRT options and sue Trustee for breach of 

fiduciar duty and for damages. The damages claimed by the income beneficiar is the 

difference between the 2% she was receiving net after investment fees and the 4% she 

"should" have gotten. The damages claimed by the remaindermen is the difference 

between the curent value of the trst under the "old style" investment regime, versus the 

amount that would have been in the trst had Trustee adjusted the investment allocation 

to an 80% stock and 20% bond portfolio, after converting to a 4% TRT. Trustee who is 

an individual, non-professional trustee, claims that she did not know about the new law 

and therefore canot be surcharged for not makg distrbution and investment changes 

under the PTA or TRT options. 

Is there negligence/abuse of discretion (standard as applicable)? If so, are 

there damages and how do you compute them? What is the remedy? 

What if one of the trstees or the sole trustee is a corporate trstee? What 

if the income beneficiary is a co-trustee? What if a remainderman is a co-trstee? If a 

beneficiary is a co-trustee, does your view change as to liability and damages if the other 

trustee is a corporate trstee versus another ("independent") individual? 

How would your answers change if, in response to the original complaint 

by the income beneficiar, Trustee adjusted the portfolio in the following maner: (a) 

kept the 50% stock /50% bond allocation; (b) invested 20% of the stock allocation in 

preferred U.S. stocks with dividends qualifying for the new qualified dividend rate; (c) 

increased the average matuty of the bonds from mid-term to long-term thereby 

increasing the yield; and (d) moved a portion of the bonds to high yiel~ bonds? 

How would your answers change if: (a) the 50% stock and 50% bond 

portfolio is a "legacy" portfolio originally contributed by the grantor, (b) the trust 

document provides that "the grantor has confdence in the investments contrbuted and 

the trustee can continue to hold the portfolio without diversifying the assets," and (c) the 

stock portfolio is comprised of 30 "blue chip" financial and ban stocks yielding two or 

three times more than the broad market? What if the document specified that the trstee 

had no duty to diversify and "shall not be liable" for any investment decision? 

II-A-52-MEWS

B. Counsel's Inertia 

Same as Example A above except that Trustee is represented by counsel 

and counsel has done nothing to alert Trustee to the new TRT and PTA options, or to 

educate Trustee. Does Trustee have a cause of action against counsel for malpractice? 

Do the beneficiares have a cause of action against counel for malpractice? Is there 

privity? Are the answers to these questions different if there is a corporate trustee? 

C. Conversion to 4% UnitrustlFailure to Adjust Asset Allocation 

Trustee knows about TR T and PTA options for trst. The trst is 

curently invested 50% in stocks and 50% in bonds because of a high curent need for 

income. Afer weighng the options Trustee decides to convert to a 4% unitrust. All 

adult sui juris beneficiaries (life income and remaindermen) consent or get notice and do 

not object. After the conversion, Trustee fails to adjust investment allocation but rather 

keeps the same asset allocation as before. The remaindermen sue Trustee when the life 

beneficiary dies, on the basis that the value of the assets would have been higher if 

Trustee had made the asset allocation adjustment. Maybe the remaindermen even sue the 

Trustee before the life beneficiar dies, but perhaps 10 or 20 years after the conversion. 

As a varation, assume that Trustee adopts a PTA regime and commences 

making periodic distributions of principal to the income beneficiar but similarly fails to 

adjust the asset allocation. 

Is there negligence/abuse of discretion ( as applicable)? If so, are there 

damages and how do you compute them? What is the remedy? Do the remaindermen 

have standing to sue before their interests vest? 

Again, what if one of the trstees or the sole trstee is a corporate trustee? 

What ifthe income beneficiar is a co-trstee? What if a remainderman is a co-trstee? 

If a beneficiary is a co-trustee, does your view change as to liability and damages if the 

other trustee is a corporate trstee versus another ("independent") individual? 

What if Trustee appropriately adjusts the investment allocation initially 

but then does not revisit asset allocation, and the allocation remains as initially 

determined without fuher consideration? What if the remaindermen sue Trustee on the 

basis that the assets would have been wort more if Trustee had revisited the asset 

allocation annually? 

What if Trustee hires outside professional money managers, appropriately 

sets and adjusts the investment allocation initially and revisits the asset allocation and the 

money manager selection each year based upon actual performance of the asset class and 

manager over the previous five years? 

How would your answer change if: (a) the portfolio is comprised of an 

interest in a closely-held family company and publicly-traded securties; and (b) the 

II-A-53-MEWS 

119

120 

company makes minimal distributions but pays significant benefits in the form of salar 

to each of the family members of the grantor who, not by coincidence, are also 

beneficiaries of the trst (or perhaps the income beneficiary and/or the remaindermen or 

some of them)? What if Trustee invests the publicly-traded securties in AA rated 

bonds to "offset" the risk inerent in the family business? What if the publicly-traded 

securties are increasingly becoming a smaller par of the total portfolio because of 

capital calls from the company and because of the payment of the 4% unitrst? 

D. Conversion to 4% Unitrust!arket Shifs to Low Income and Growth 

Varation on Example C above. Trustee knows about TRT and PTA 

options for trst. After weighng the options the Trustee decides to convert to a 4% 

unitrst. All adult sui jurs beneficiares (life income and remaindermen) consent or get 

notice and do not object. However, Trustee adjusts investment allocation for TRT when 

conversion occurs and revisits allocation at least anually. In fact, Trustee is so 

cognizant of all of these issues that Trustee regularly sends to the beneficiaries a "Total 

Return Trust Investment Policy Statement," clearly laying out the plan and the 

justification for the distrbution policy, investment policy and the taxation policy. As 

luck would have it, the market shifts over the next several years, but in this example the 

economy tans and growth and income are both low (imagine that). The 4% payout to 

the life beneficiar is great for her, but the payout actually or arguably causes erosion to 

principaL. The remaindermen sue Trustee for converting and adjusting investment 

allocation for growth, rather than a balanced allocation, and while they are at it, for 

converting in the first place and as a result distributing excessive principal to life 

beneficiary. In the same breath, the remaindermen demand that Trustee lower the 

unitrust from 4% to 3%. 

As a varation, assume that Trustee adopts a PTA regime and commences 

making periodic distrbutions of principal to the income beneficiar but similarly fails to 

adjust the asset allocation. 

Is there negligence/abuse of discretion (as applicable)? If so, are there 

damages and how do you compute them? What is the remedy? Do the remaindermen 

have standing to sue before their interests vest? 

Again, what if one of the trstees or the sole trustee is a corporate trstee? 

What if the income beneficiary is a co-trstee? What if a remainderman is a co-trstee? 

If a beneficiary is a co-trustee, does your view change as to liability and damages ifthe 

other trustee is a corporate trustee versus another ("independent") individual? 

What if the markets do extremely well and, after considering the income 

beneficiary's further requests, and in a jurisdiction that would permit greater than a 4% 

untrust, Trustee adjusts the unitrst percentage to 5% going forward? Or, if this was a 

PTA situation instead, Trustee fuher increases the income beneficiary's distributions to 

5%? 

II-A-54-MEWS

What if the tax law changes (imagine that!) such that the after-tax 

distrbutions to the income beneficiar signficantly drop? Should Trustee adjust the 

distrbution percentage to reflect the change in the law or change the definition ofDNI to 

make up the difference? 

E. Corporate TrusteelNo Corporate Trustee 

Although referenced above in the scenaros, the issues involving the 

identity of the trstees bears some repetition. 

What if Trustee is an individual? What if one of the trstees or the sole 

trstee is a corporate trstee? What if the income beneficiar is a co-trstee? What if a 

remainderman is a co-trstee? What if all the trstees are beneficiares? 

What if Trustee is a corporate fiduciar and 25% of the equity portfolio is 

comprised of a "blue chip" stock like GE despite the fact that in the corporate trstee's 

own "model portfolios," no stock comprises more than 5% of the entire equity portolio? 

What if there is no trustee qualified to act under applicable law either to 

convert to a untrst or to exercise discretion to adjust between principal and income, 

because all the trstees are beneficiares, but some or all of the beneficiares would like to 

do so? What then? 

00138605 

HAVE WE CONVERTED YOU YET? 

HAVE YOU GOTTEN RELIGION ABOUT 

ATTENDING TO THE DEMANDS OF THE 

NEW DISTRIBUTION OPTIONS? 

II-A-55-MEWS 

121

122 

Prepared by: Robert Wolf, Esquire 

Tener, Vanrk, Wolf & Moore, P.C. 

Jurisdictions Having Enacted Uniform Principal and Income Act Section 104 and/or Unitrust Conversion 

Ontion 

UNITRUST Unitrust Conversion 

Jurisdiction Sec 104 Unitrust Notes CITATION URL Citation 

Alabama Yes No 

Effective 9/01/03 

Adapted from P A Alaska Stat. htt://www.legis.state.ak. 

Statute Section uslbasis/get bill text.asp 

wlModifications, 13.38.200 et ?hsid=SB0087Z&session 

Alaska Yes Yes Tax Orderig seq. =23 

Arzona Yes No 

Arkansas Yes No 

Californa Yes Yes 

Effective 1/1/2006 

4% untrst, or with 

agreement or Cour htt://ww.leginfo.ca.go 

Order, 3-5% v/cgi- 

Unitrst, bin/postquery?bill_ numb 

Tax Orderig CaL. Probate ei=sb 754&sess=CUR& 

Tax Updated for Code Section house=B&author=oocm 

Express Unitrsts 16336.4 et seq. gian 

Eff. 5/22/2003 

4 % unitrust, or 

3-5% w/agreement 

or Cour Order http://98.187.128.12/col 

Tax Ordering orado/lpex t.dl I? f=templat 

Strong Trustee Col. Rev. es&fu=fs-main.htm&2.0 

Colorado Yes Yes Protections Stat. 1 5- 1 -402 

Connecticut Yes No 

Eff.6/21/2001 

3-5% Rate at Title 12 http://www.delcode.state. 

Trustee's Option- Delaware Code de. us/title 12/c035/sc02/ 

Tax Ordering Section 3527 & index.h1in#TopOfPage 

Tax Updated for 3527A and 

Delaware Yes Yes Express Unitrusts 6113 

Distrct of 

Columbia Yes No 

Appendix A 

II-A-56-MEWS

I 

htt://ww.leg.state.fl.us 

L 

Statutes/index.cfm? App 

mode=Display Statute 

& 

Search String=&URL= 

Eff. 1/01/03 -Only Ch0738/SEC 1 041.HTM 

available when no & 

Power to Adjust 3- Title=-:: 2005-::Ch073 8- 

5% Rate Option or :: 

1/27520 rate bit Section%20 1 041 #073 8.1 

3%&5%, Tax 0 

Ordering Power, Section 738.101 11 

Updated for et.seq.; Sec. 

Florida Yes Yes Express Unitrsts 738.1041 

Eff. 7/1/2005,4% 

Modeled Afer P A 

Law, GA. Code An. http://ww.legis.state.ga. 

Tax Ordering, 53-12-220 and usllegis/2005 _ 06/search/ 

Georgia Yes Yes Trustee Protection 221 hb406.htm 

Hawaii Yes No 

Idaho Yes No 

http://www.ilga.gov/legis 

lationJilcs/ilcs3 .asp? ActI 

Eff. 8/22/2002 D=2117&ChapAet=760 

4% Default, 3-5% %26nbsp%3BILCS%26n 

w/consent of Benies bsp%3B5%2F &ChapterI 

& Trustees. D=61&ChapterName=T 

Tax Ordering, RUSTS+AND+FIDUCI 

Trustee Protection, 760 Ilinois ARlES&ActN ame=Trust 

Updated for C.S. 5/5.3 et. s+and+ Trustees+ Act%2 

Ilinois No Yes Express Unitrusts seq. E&Prit=True 

Effective 7/1/03- 

5%Default 3-5% 

With Agreement, http://www.in.gov/legisla 

Tax Ordering, tive/ic/ code/title3 0/ aT2/ch 

Indiana Yes Yes Trustee Protection IC 30-2-14-15 I5.pdf 

tt://nxtsearch.legis.state. 

ia. us/NT / gateway.dll/m 

oved%20code/2005%20I 

owa%20Code/l/23055/2 

4253/25022?f=emplates 

$:f=defaultURQueryLi 

Eff. 4/5/2002-4%, nk.htm$q=( field %20folio 

3-5% By Court 15 Iowa Code -destination- 

Order, Tax Section 637- name:'ch 637'1$x=Adva 

i Iowa No Yes Ordering, 601 et seq. need 

II-A-57-MEWS 

- 

123

124 

I 

Kansas Yes No 

Effective 1/1/05. 

No separate untrst 

statute. Unitrst 

method of 

exercising power to 

adjust if3-5%. 

Power to adjust 

allowed only with htt://ww.lrc.state.ky.u 

Kentucky Yes Yes Cour Approval KRS 386.454 s/KS/386-00/454.PDF 

Just Section 104not 

the rest of 

Louisiana Yes No UPAl 

Eff. 3/22/02 

4% Default- very 

similar to P A Chap. 544 Sec. htt://janus.state.me.us/le 

Statute 118-AMRSA gis/statutes/ 18-a/title 18- 

Maine Yes Yes Tax Orderig Sec. 7-705 Asec7-705.html 

Eff. 10/1/02,4% 

Unitrst, tax Chapter 478 htt://198.l87.128. 12/ma 

Maryland Yes Yes Ordering Section 15- ryland/lpext.dll?f=templa 

Power, Some 502.1 et seq. tes&fn=fs-main.htm 

Trustee Protection 

2pub501 %2D5501/pub 

Massachusetts Passed No HB740/SB962 501 %2D550%2D43.htm 

Act No. 159, 

Public Acts of 

2004, eff. 

Michigan Yes No 9/1/04 

Minnesota http://www.revisor.leg.st 

Statutes Section ate.mn.us/stats/501 B/705 

Minnesota Yes No 501B.705 .html 

Mississippi No No 

Eff.8/28/2001 

Revised 1 1/8/2004 

3-5% http://www.moga.state.m 

No Tax Ordering, Chapter o. us/ statutes/ c400- 

Missouri Yes Yes Tax Updated 469.411 et seq. 499/4690000411.htm 

Montana Yes No 

Eff Sept.4,2005, 4% Nebraska http://srv.unicam.st 

i Nebraska Yes Yes Default, 3-5% Revised ate.ne. us/Statutes2005 .ht 

II-A-58-MEWS

I 

w/consent of Statutes 30- ml 

Trustees and Ben, 3119.01 

Tax Orderig, 

Trustee Protection 

http://ww.leg.state.nv.u 

s/ 

72nd/ils/SB/SB 196.ht 

Nevada Yes No ml 

Eff 1/1/2003 

5% Rate-Patterned Chapter 544A htt://ww.gencourt.stat 

after P A Statute RSA Section e.nh. us/rsaltmll VI/564 

New Hampshire No Yes Tax Orderig 564-A:3-c -N564-A-3-c.htm 

Adjustment up to 

Unitrust 4% or down to 6% 

Safe presumed http://www.njlawnet.com 

New Jersey Yes Harbors reasonable /njstatutes.html 

New Mexico Yes No 

4% Default Rate, 

Conversion for old Aricle 11 htt://public.eginfo.state 

trsts expires Section 11-2.1 .ny. us/menu getf. cgi ?CO 

New York Yes Yes 12/31/2005 et seq. MMONQUERY=LAWS 

Eff. 1/1/2004 http://www.ncga.state.nc. 

Delaware Style us/ gascripts/S tatutes/S tat 

Unitrst Statute (3- utesS earch. asp ?searchSc 

5%),Tax Ordering N.C. Gen. Stat. ope= All&searchCriteria= 

Power, Trustee Sec. 37A-1-101 unitmst&returType=Sec 

Nort Carolina Yes Yes Protection et seq. 60n 

Adopted the 

Uniform Act 

North Dakota No No without Section 104 

Eff. 1/1/ 2003- 

4% Adjustment Up to http://onlinedocs.anderso 

Unitrst 4% Conclusively npub lishing.com/ oh/lpEx 

Safe Presumed To Be t.dll ?f=teinplates&fn=ina 

Ohio Yes Harbor Proper RC 1340.42 in-h.htin&cp=PORC 

Oklahoma Yes No 

Eff. 1/1/2004,4% 

Unitrust patterned 

after P A Statute, htt://wv,¡w.leg.state.or.u 

Oregon Yes Yes Tax Ordering Rule ORS 129.225 s/ cgi -binI searchMeas.p 1 

Eff. 7/15/02,4% http://www.Iegis.state.pa. 

Default Rate-Tax us/2001 %5FO/sb1014p14 

Ordering, Tax 20 Pa.C.S.A. lL 

Pennsylvania Yes Yes Updating Proposed Section 8105 him 

Rhode Island No No 

~outh Carolina Yes No 

II-A-59-MEWS 

125

126 

r 

htt:/ /legis.state. sd. us/ 

Eff. 7/1/2002 statutes/Index .cfin ?Fuse 

3% Rate-Tax 15 SD Codified Action= Display 

Ordering-Trustee Laws Sec. 55- Statute&FindType= 

South Dakota No Yes Protection 15-1 et seq. Statute&txtStatute=55- 15 

Tennessee Yes No 

Tax Updated 

Definition of http://ww.capitol.state.t 

No (but Income for Express Tex. Prop. x. us/ statutes/docsfPRJcon 

TRU Inc. Unitrst, Code An. Sec. tent/htmpr.009.00.00011 

Texas Yes def.) Tax Ordering 116.001 et seq. 6.00.hhn#116.007.00 

Utah No No 

Vermont No No 

Eff.. 7/1/2004 

3-5% Unitrust Rate, 

Tax Ordering 

Power, Trustee http://leg1.state. va. us/ c gi 

Protection, Does 

- 

not Prohibit Power Va. Code Sec. bin/legp504.exe?000+co 

Virginia Yes Yes to Adjust 55-277.4:1 d+55-277.4C1 

htt:/ /ww.leg.wa.gov/ 

4% Default- RCW /index .cfi?fuseactI 

Patterned after P A on 

Bil, Tax Ordering RCW11.104A.0 =chapterdigest&chaptei= 

Washington Yes Yes Provisions 40 11. 1 04 

West Virginia Yes No 

Eff. 5/17/2005 

3-5% Unitrst 

chosen by Trustee 

or Cour, Wisc. R. 

unanmous consent Statutes htt://ww.legis.state.wi. 

of Ben required 701.20(4),(4)(g) us/rsb/S tatutes.html 

Wisconsin Yes Yes unless by Court 

Wyoming 

Total In Force 

Yes No 

w/Section 104 41 + D.C. 

+OH&NJ 

Have 

Total 

Unitrust 

Unitrust 

Safe 

23 Harbors Total Both 19 

Total Pending 1 

Total Pending In Bil Pending Pending Unitrst Pending Both Pending 104 Safe Harbor 

States Form 104 Only Only 

0 0 0 0 0 

II-A-60-MEWS

c Briefs and Other Related Documents 

Supreme Cour, Appellate Division, Second 

Departent, New York. 

In the Matter of Jacob HELLER, deceased. 

Sandra Davis, etc., appellant-respondent; 

Herbert M. Heller, et aI., respondents-appellants. 

Aug. 15,2005. 

Background: Proceeding was intiated to revoke 

letters of trsteeship and to anul and set aside 

purorted untrst election. The Surogate's Cour 

Westchester County, Anthony A. Scarino, Jr., S., 

denied petitioner's motion for sumary judgment 

annulling the election, but granted her sumar 

judgment annullig retroactive application of the 

election. Trustees appealed. 

Holdings: The Supreme Cour, Appellate Division, 

Spolzino, J., held that: 

il potential benefit to trstees as remaindermen did 

not preclude election; 

il fact questions precluded summry judgment 

invalidatig election; and 

il untrst election may be made retroactively. 

Affired in part and reversed in part. 

West Headnotes 

II Trusts ~231(1) 

390k23l() Most Cited Cases 

Potential benefit to trstees, who were also 

remaindermen, of electing untrst status for 

testamentary trst, which would reduce amount 

payable to income beneficiary to four percent of 

value of trst pricipal, regardless of income that 

trst had actually earned, did not preclude such 

election; statute imposed no impediment to election 

by interested trstee and to permt such election 

would not be inconsistent, per se, with applicable 

common-law limitations on conduct of fiduciares. 

McKinney's EPTL 11-2.4. 

il Trusts ~179 

390kl79 Most Cited Cases 

Trustee is fiduciary, and therefore is held to 

somethng strcter than morals of the marketplace. 

Restatement (Second) of Trusts § 2. 

il Trusts ~272.1 

390k272. I Most Cited Cases 

Appendix B 

II-A-61-MEWS 

Where income beneficiar and holder of remainder 

interest are different individuals, trstee owes equal 

duty of fidelity to each. Restatement (Second) of 

Trusts S 232. 


390k159 Most Cited Cases 

Part holding beneficial interest in trst is not 

disqualified merely by that status from serving as 

trstee; in fact, practice of appointig interested part 

as trstee is common. 

il Judgment ~181(34) 

228k18H34) Most Cited Cases 

Fact questions as to whether settlor wished his issue 

to be priry beneficiaries of pricipal of 

testamentary trst or wanted his widow to benefit 

fully from income of trst durig her lifetime and as 

to value of trst pricipal and whether it was 

appreciatig asset, precluded sumar judgment 

invalidatig trstees' untrst election which reduced 

amount payable to income beneficiary to four percent 

of value of trt pricipaL. McKinney's EPTL 11- 

2.4(e)(5)(AXi, iv). 



Unitrst election may be made retroactively; 

governing statute authories trstees who have made 

election to specify its effective date. McKinney's 

EPTL 11-2.4(d)(i). 

.I Statutes ~190 


Where relevant statutory language is unambiguous, 

cour's role in resolvig such dispute is limited to 

giving effect to language of statute. 

*208 Greenfeld Stein & Senior, LLP, New York, 

N.Y. (Gary B. Friedman and Jeffrey H. Sheetz of 

counsel), for appellant-respondent. 

Greenberg Traurg, LLP, New York, N.Y. (Linda B. 

Hirschon of counsel), and Thacher Profftt & Wood, 

LLP, Whte Plains, N.Y. (Kevin 1. Plunett and 

Darius P. ChaflZadeh of counsel), for respondentsappellants. 

THOMAS A. ADAMS, J.P., FRED T. SANTUCCI, 

WILLIAM F. MASTRO, and ROBERT A. 

SPOLZINO, 11. 

SPOLZINO, J. 

This appeal presents two novel issues with respect to 

the unitrst provisions of the Estates Powers and 

127

128 

800 N.Y.S.2d 207 

800 N.Y.S.2d 207, 2005 N.Y. Slip Op. 06428 

(Cite as: 800 N.Y.S.2d 207) 

Trusts Law (see EPTL 11-2.4), which became 

effective on January 1, 2002. These changes to New 

York trst law, which have been characteried by one 

leared commentator as "sweeping" (Turano, Practice 

Commentaries, McKiney's Cons. Laws of N.Y., 

Book 17B, EPTL 1 1 -2.4, 2005 Supp. Pamph. at 39), 

permt a trstee, upon electing untrst status, to pay 

to the income beneficiar each year an amount equal 

to four percent of the value of the trst pricipal, 

regardless of the income that the trst has actually 

eared. The first issue presented is whether a trstee 

who is also a remaindermn, and, therefore, stands to 

benefit in his or her personal capacity from the choice 

to pay a fixed percentage of trt assets to the income 

beneficiary, may elect unitrst status. The second 

issue is *209 whether the election may be made 

retroactively. 

Because the statute imposes no imediment to an 

election by an interested trstee and to permt such an 

election would not be inconsistent, per se, with the 

applicable common-law limtations on the conduct of 

fiduciaries, we affirm the order of the Surogate's 

Cour insofar as it denied that branch of the 

petitioner's motion which was for sumary judgment 

anulling the election. We disagree with the 

Surogate's determnation, however, that the election 

may not be made retroactively. 

These issues arise in connection with a testamentary 

trst created by Jacob Heller (hereinafter Jacob) in 

1984. The trstees of the trst are Jacob's two sons, 

Herbert M. Heller and Alan J. Heller (hereinafter the 

trtees). The trtees each hold a 20% interest in the 

remainder of the trst. The balance of the remainder 

interest is held in equal shares by their sisters, 

Suzanne Heller and Faith Willinger. The income 

beneficiary of the trst is their stepmother, Berta 

Heller (hereinafter Berta), who is the mother of the 

petitioner, her attorney-in-fact. 

In February 2003 th trstees elected to treat the 

trst as a unitrst, retroactively to January 1, 2002. 

As a result of the trstees' election, Berta wil no 

longer receive any porton of the annual trst income 

in excess of four percent of the value of the trst's 

pricipaL. Before the election, the trst had been 

paying Berta its actual annual income, in the amount 

of approximately $190,000. After the election, the 

income she received was reduced to approximately 

$70,000 per year. 

il In light of the undisputed relationship between 

trst income and principal value before the election 

here, simple arithmetic suggests that the trstees will 

II-A-62-MEWS 

Page 62 

likely benefit personally, in their capacity as 

remaindermen, from the election that they have made 

in their fiduciar capacity. On ths basis, the 

petitioner contends that the election should be set 

aside because the trstees are precluded by their 

concurent status as remaindermen from making the 

election. For several reasons, however, we conclude 

that the potential benefit to the trstees personally is 

not, in itself, suffcient to preclude the election. 

The untrst was created by statute (see EPTL i 1- 

2.4). The statute does not preclude an interested 

trstee from electig untrt status. While in many 

cases the absence of language in a statute does not 

provide a fi basis for gauging legislative intent 

(see e.g. People v, Hernandez, 82 N.Y.2d 309, 316. 

604 N.YS.2d 524,624 N.E.2d 661; People v, Bvme. 

77 N.Y.2d 460, 468.568 N.Y.S.2d 717, 570 N,E.2d 

1066), the legislative silence here is significant. In 

the same chapter of the laws of 2001 which created 

the untrst, the Legislatue explicitly prohibited an 

interested trstee from makig an adjustment in 

distrbutions between pricipal and income that a 

disinterested trstee is permtted to make (see EPTL 

11-2.3(birSirci rvii)). In light of this, the 

Legislatue's failure to include a simlar prohibition in 

the provision creatig the untrst is a clear indication 

that it did not intend to impose such a ban with 

respect to the untrst election. Moreover, although it 

is common for a beneficiary of a trt to be appointed 

as its trstee (see 13 Warren's Heaton, Surogates' 

Cours § 209.02(1) (6th ed.) ), the Legislatue 

established unitrst status as the preferred option for 

trst admstration by creatig a rebuttble 

presrnption in its favor (see EPTL 11-2.4re)(5JfB) ). 

The Legislatue's intent that there be no per se ban 

on the election of unitrst status by an interested 

trstee is confied by the framework that the 

Legislatue *210 erected withi which to determne 

the propriety of a untrst election (see EPTL 11- 

2.4reJrS)(A)). The factors the cour must consider, 

including the natue, purose, and expected duration 

of the trst, the intent of the creator of the trst, the 

identity and circumstances of the beneficiaries, the 

need for liquidity, regularity of payment, and 

preservation and appreciation of capital (see EPTL 

Il-2.4re)(S)(A) ), while broad enough to allow the 

cour to consider the status of the trstee in makig 

the election, do not require that an election by an 

interested trstee be set aside. The Legislatue's 

failure to include within this framework the absolute 

prohibition that the petitioner suggests is a clear 

indication that its intent was otheiwise (see 

Preshvterian Hasp, zii Cit!' of' No Y. v. Man;lwid Cas,

800 N.Y.S.2d 207 

800 N.Y.S.2d 207,2005 N.Y. Slip Gp. 06428 

(Cite as: 800 N.Y.S.2d 207) 

CO., 90 N.Y.2d 274, 285. 660 N.Y.S.2d 536, 683 

N.E.2d 1: Pajak \" Pajak. 56 N.Y2d 394. 397, 452 

N.Y.S.2d 381. 437 N.E.2d 1138). 

The petitioner here does not argue that the cour 

improperly denied sumary judgment vacating the 

election on the basis of the statutory factors. Rather, 

the petitioner contends that the election of untrst 

status by a trstee who is also a remaindermn is a 

per se violation of the trstee's fiduciar duty. In the 

absence of a statutory ban, however, the petitioner 

can prevail on ths claim only by demonstrating that 

the authority of such a trstee to make such an 

election is incompatible with the fiduciary obligation 

under which the trstee operates. We conclude that it 

is not. 

(2)(3)(4) There is no doubt that, as the petitioner 

assert, a trstee is a fiduciar (see Berardino v. 

DeMan. 2 A.D.3d 556. 557, 770 N.Y.S.2d 75; 

Restatement (Second) of Trusts § 2), and therefore is 

"held to something strcter than the morals of the 

marketplace" (Meinhard v. Salmon. 249 N.Y. 458, 

464, 164 N.B. 545). The trstee thus owes to the 

beneficiares of the trst a duty to act with prudence 

in the manner in which he or she manages the assets 

of the trt (see EPTL 11-2.2; Matter of Jaiies, 90 

N.Y.2d 41, 49-50, 659 N.YS.2d 165, 681 N.E.2d 

332: Matter of Clark, 257 N.Y. 132, 136, 177 N.E. 

397: King v. Talbot. 40 N.Y. 76, 84-85). Where the 

income beneficiary and the holder of the remainder 

interest are different individuals, however, the trstee 

owes an equal duty of fidelity to each (see Matter of 

Woodin's Estate. 118 N.Y.S.2d 465, 469; 

Restatement (Second) of Trusts § 232). In such 

circumtances, there is thus an unavoidable conflict 

in the trstee's fiduciary obligation. Despite this 

inerent confict, however, a par holding a 

beneficial interest in a trst is not disqualified merely 

by that status from serving as trstee (see Weeks v, 

Frankel, 197 N.Y. 304, 312, 90 N.E. 969: 

Uioodwar'd v. James, i 15 N.Y. 346. 357, 22 N.B. 

150). In fact, as noted above, the practice of 

appointig an interested part as trstee is conuon 

(see 13 Waren's Heaton, Surogates' Cours § 

209.02(1) (6th ed.), supra). There is nothng 

inerent in the unitrst election at issue here that 

requies the application of a different principle. 

Admittedly, as this case illustrates, the unitrst 

election can inure to the financial benefit of the 

trstee in his or her capacity as remainderman. But 

that is not always the case. The state of financial 

facts which may have given rise to the election will 

not necessarily endure for the life of the trst. 

II-A-63-MEWS 

Page 63 

Markets change and with them the respective benefits 

of the election to the income and remainder interests. 

Thus, an election that may intially have appeared to 

be to the trstee's advantage may not ultitely be 

so. Having elected unitrst status, however, the 

trstee is without authority to elect otherwse without 

*211 the approval of the cour (see EPTL 11- 

2.4(eJ(2) (A) ). 

To conclude that an interested trstee is not 

precluded by that status alone from exercising a 

untrst election, however, is not to say that an 

interested trstee has unbridled authority to do so. 

As the Surogate correctly identified, the remedy for 

an inappropriate election is found in the supervisory 

power of the cour. The statute specifically provides, 

in this regard, that the cour may "(a)t any tie" 

direct that the untrst election be discontinued 

(EPTL 11-2.4(e)(2J(BJ ). The instat proceedig 

seeks just such a result. 

il Thus, although the interest of the trstees as 

remaindermen does not, by itself, invalidate the 

untrst election, the validity of the election is 

nonetheless an issue that, as the Surogate correctly 

held, must be adjudicated in accordance with the 

standards established in the statute. Here, however, 

these issues present questions of fact that preclude 

the grantig of sumar judgment. To begin with, 

there is a dispute with respect to the decedents 

purose in creatig the trst. Specifically, the 

trstees claim that Jacob wished his issue to be the 

priry beneficiaries of the pricipal, while the 

petitioner, not surrisingly, asserts that he wanted 

Berta to benefit fully from the income of the trst 

durg her lifetie (see EPTL 11-2.4(el(5HAJ (i) ). 

There are also issues of fact to be resolved with 

respect to the actual value of the trst pricipal and 

whether it is an appreciatig asset (see EPTL 11- 

2.4(eJ(5J(AJ(ivJ ), both of which must be considered 

in determng whether unitrst status is appropriate 

for this trst. 

As a result, the petitioner failed to demonstrate 

pri facie entitlement to judgment as a matter of 

law, as she must do in order to prevail on her motion 

for sum judgment (see Alvarez v. Prospect 

Hosp.. 68 N.Y.2eI 320, 508 N.YS.2d 923, 501 

N.E.2eI 572; Zuckennan)1, Ciiv of New York. 49 

N.Y.2d 557, 427 N.V.S.ld 595. 404 N,E.2d 718). 

The Surogate, therefore, properly denied the 

petitioner's motion for sumary judgment annullig 

the election, leaving the issue of its propriety to be 

determed after consideration of the factors 

enumerated in the statute. 

129

130 

800 N.YS.2d 207 

800 N.Y.S.2d 207,2005 N.Y. Slip Op. 06428 

(Cite as: 800 N.Y.S.2d 207) 

The second issue, whether the unitrst election may 

be made retroactively, presents a more discrete 

problem. Since the unitrst status at issue here is a 

pure creatue of statute, the issue of its retroactive 

application must be determed by reference to the 

statute by which it was brought into being, EPTL 1 1- 

2.4. It is well-established that statutory interpretation 

begins with the language of the statute (see Leader v. 

Maronev. Poniini & Spencer, 97 N.Y.2d 95, 104, 

736 N.Y.S.2d 191, 761 N.E.2d 1018; Majewski v. 

Broadalbin-Perth Cent, School Dist., 91 N.Y.2d 577. 

583. 673 N.V.S.ld 966, 696 N.E.2d 978). "As the 

clearest indicator of legislative intent is the statutory 

text, the startg point in any case of interpretation 

must always be the language itself, giving effect to 

the plain meang thereof' (id. at 583, 673 N.Y.S.ld 

966. 696 N.E.2d 978). 

il In ths case, the relevant statutory language is 

found in EPTL ! l-l.4(d)(i), which provides that the 

interest of the beneficiary in the untrst amount 

commences on either "the date specified in the 

governing instrment," or "the date specified in an 

election to have this section apply," or "the date 

specified by the cour" or, where none of those 

specifications have been made, on "the date assets 

fist became subject to the trst." Here, the 

governing instrment, having been executed before 

the enactment of EPTL 11-2.4, makes no reference to 

untrst status and there has been no date set by the 

cour. There is, however, a date set by *212 the 

election. Since the statute thus authories the trstees 

who have made the election to specify its effective 

date (see EPTL 1 !-1.4fdlfl1 ), the date they have 

specified must control. 

That the statutory language thus permts the trstees 

to elect retroactive application is confed by the 

additional language in the statute providing for a 

financial adjustment between the income beneficiary 

and remaindermen in the event that the election is so 

applied. The statute specifically provides that where, 

in the event of a untrst election, the curent 

beneficiary is underpaid or overpaid, the trstee is 

authoried either to payout to or to recover from the 

beneficiary the amount due or owed (see EPTL 1 1- 

2.4(b1 (61). The petitioner failed to suggest any 

purose for ths provision other than to provide for 

the proper disposition of funds in the event of the 

retroactive application of the unitrst election. 

The language of EPTL ! !-2.4(e)(4)(A), upon which 

the petitioner relies, does not compel a contrary 

result. It is apparent from both the caption of that 

II-A-64-MEWS 

Page 64 

section ("Truts to which section applies") and its 

text, that the section defines not the date on which the 

election commences, but the universe of trsts to 

which the untrst provision may be applied. To the 

extent that ths section can be read to refer to the 

issue of retroactive application of the election, it 

specifically states that the unitrst status, however 

brought about, wil be effective "as of the first year of 

the trst in which assets first become subject to the 

. trst," "uness," with respect to an election by the 

trstee, the election is made "as of the frrst day of the 

fist year of the trst commencing after the election is 

made." Ths language leaves the effective date of the 

election to the discretion of the trstee, providing 

only that in the event the trstee fails to specify an 

effective date, the election will be effective, like any 

other determation of untrst status, "as of the fist 

year of the trst in which assets frrst became subject 

to the trst." Here, since the trstees exercised their 

power to specif the date of the election, the statute 

requires that their determation be honored. 

The Surogate's reliance upon a report prepared by 

the EPTL-SCP A Legislative Advisory Commttee in 

support of a proposed amendment to EPTL 11-2.4 

(see 14 Warren's Heaton, Surogates' Cour, 

Appendix 5.04 (6th ed.) ), while admably 

attemptig to shed additional light on statutory 

language that is, admttedly, difficult to constre, 

caused the Surogate to reach a result that is 

inconsistent with the curent statutory language. 

With all due respect to the distiguished authors of 

the memorandum, and even assumg that the 

proposed amendment reflects wise public policy and 

may ultiately be adopted by the Legislatue, the fact 

remains that the Legislatue has not yet acted upon 

the proposaL. Unti it does so, we must determne the 

effective date of the election strctly in accordance 

with the language that has been enacted into law. 

il Where the relevant statutory language is 

unambiguous, our role in resolving such a dispute is 

limited to giving effect to the language of the statute 

(see Matter of Washington Post Co, v. New York 

State ins. Dept.. 61 N.Y.2d 557, 565. 475 N.Y.S.2d 

263. 463 N.E.2d 604). Since the language of the 

relevant statute here unambiguously permts the 

trstees to determe that the election wil apply 

retroactively, if the election is sustained, it shall be 

permtted to apply on the date selected by the 

trstees, subject, of course, to the fact, as the trstees 

recogne, that the statute did not come into effect 

until Januar 1,2002. 

*213 Accordingly, the order is affirmed insofar as

800 NYS.2d 207 

800 N.Y.S.2d 207, 2005 N.Y. Slip Op. 06428 

(Cite as: 800 N.Y.S.2d 207) 

appealed from, and reversed inofar as crossappealed 

from. Those branches of the petitioner's 

motion which were for summar judgment anulling 

the retroactive application of the untrst election to 

January 1, 2002, and directig Herbert M. Heller and 

Alan 1. Heller to pay to the beneficiary the income 

that otherwse would have been paid to her but for 

the retroactive application of the untrst election are 

denied. 

ORDERED that the order is affied insofar as 

appealed from, without costs or disbursements; and 

it is fuer, 

ORDERED that the order is reversed insofar as 

cross-appealed from, on the law, without costs or 

disbursements, those branches of the petitioner's 

motion which were for sunar judgment annulling 

the retroactive application of the untrst election to 

January i, 2002, and diectig Herbert M. Heller and 

Alan J. Heller to pay to the beneficiary the income 

that otherwse would have been paid to her but for 

the retroactive application of the untrst election are 

denied. 

ADAMS, J.P., SANTUCCI, and MASTRO, n., 

concur. 

800 N.Y.S.2d 207, 2005 NY Slip Op. 06428 

Briefs and Other Related Documents (Back to top) 

. (Appellate Brief) Reply Brief for Respondents- 

Respondents-Appellants (JuI. 23, 2004)Original 

Image ofthis Document (PDF) 

. (Appellate Brief) Reply and Answerig Brief of 

Petitioner-Appellant/Cross-Respondent (JuI. 13, 

2004)Original Image of ths Document (PDF) 

(Appellate Brief) Brief for Respondents- 

Respondents-Appellants (Jun. 11, 2004)Original 

Image of this Document (PDF) 

. 2004 WL 3116647 (Appellate Brief) Brief of 

Petitioner-Appellant/Cross-Respondent (May. 06, 

2004) 

END OF DOCUMENT 

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132 

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Surrogate Scarpino 

New York Law Journal 

Volume 231 

Copyright 2004 ALM Properties, Inc. All rights reserved 

Friday, January 23, 2004 

Decisions 

SUROGATE'S COURT DECISION 

Westchester County Surrogate's Court 

ESTATE OF JACOB HELLER, deceased In this proceeding to revoke letters of 

trusteeship and for other relief, the petitioner seeks summary judgment granting 

her application to: (i) annul and set aside the Trustees' decision to elect 

unitrust status pursuant to EPTL 11-2.4; (ii) determine that the election cannot 

be made retroactive to January i. 2002; (iii) revoke the letters of trusteeship 

issued to Herbert M. Heller and Alan J. Heller; (i v) deny the trustees commissions 

for 2002 and 2003, and (v) preclude the trustees from charging to, or paying from 

the trust, any expenses incurred in connection with the unitrust election or this 

proceeding. 

The motion is granted as to that part of the petition which challenges the 

trustees' retroactive application of their unitrust election, and is denied in all 

other respects. 

The decedent died on December 20, 1984, survived by his second spouse of 27 

years, Bertha. The decedent' s will dated August 7, 1984, was admitted to probate 

on February 6, 1987. By paragraph Third of the will, the decedent bequeathed his 

entire residuary estate to his wife, in trust for life. By the terms of the 

instrument, Bertha is to receive annually in quarterly installments, the greater 

of $40,000.00 or the entire income of the trust, with any shortfall to be paid 

from principal. Upon Bertha's death, "the principal then remaining, if any" is 

bequeathed to the decedent' s four children from a prior marriage. The decedent's 

two sons are co-trustees. They each receive 20 percent of the remainder on 

Bertha's death. 

From the time of decedent's death to January l, 2002, Bertha received the total 

income generated by the trust. In recent years, the income was substantial, 

averaging approximately $190,000.00. On March l, 2003, the trustees filed a notice 

with this court elect ing to invoke the opt ional unitrust provisions of EPTL 11- 2.4 

and to apply that election retroactive to January 1, 2002. By virtue of that 

election, Bertha's income was reduced to less than 70,000.00 per year. On March 

28, 2003, this proceeding was filed by Bertha' s daughter, as her attorney- in- fact, 

Copyright ~ 2005 The New York Law Pub. Co. 

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to annul the trustees' election and for other relief. 

The petitioner contends that the election should be annulled as a self-interested 

act that directly benefitted the trustees to the detriment and expense of the 

income beneficiary. According to petitioner, Bertha is 95 years old with living 

expenses, including the cost of 24 hour home-health aids, of approximately 

$160,000.00 per year. The immediate effect of the trustee's action was to reduce 

Bertha's income by $90,000.00 retroactive for 15 months and to confer the 

corresponding benefit upon themselves and their sisters as presumptive 

remaindermn. Petitioner also claims the election is inimical to the legislative 

purpose underlying the unit rust option which is to facilitate compliance with the 

Prudent Investor Act by enabling trustees to pursue a moern portfolio theory of 

investing for total return. It is alleged that the trustees have no intention of 

diversifying the trust. s portfolio which is predominately funded with income 

producing real estate interests that were acquired from the decedent. Finally, the 

petitioner contends that the trustees' election, valid or invalid, cannot be made 

retroactive to January 1, 2002. 

The trustees deny they abused or exceeded their discretion or breached a 

fiduciary duty by electing into the unitrust regime, notwithstanding their status 

as 40 percent remainder beneficiaries _ They also contend that the unitrust regime 

is applicable to trusts owning non-appreciating real estate interests generating 

income significantly in excess of current market yields. Finally, the trustees 

defend their decision to apply their unitrust election retroactive to January I, 

2002, as being in accordance with the provisions of current EPTL 11-2.4. 

EPTL 11-2.4 is intended to facilitate compliance with the Prudent Investor Act ( 

EPTL 11-2.3) by enabling trustees to pursue an investment strategy of total 

return. As such, the unitrust option is not per se inapplicable to trusts invested 

in non-appreciating assets generating income above market yields. Indeed, in 

proceedings to determine whether the Principal and Income Act (EPTL article il-A) 

or EPTL 11 - 2.4 shou ld apply, there is a rebuttable presumpt ion in favor of the 

unitrust option (EPTL 11-2.4(eJ Is) (B)). 

EPTL 11-2.4 (e) (5) (A) sets forth factors which the court should consider when 

determining whether EPTL article il-A or the unitrust option shall apply to a 

trust. These include: 

(i) the nature, purpose, and expected duration of the trust; 

(iil the intent of the creator of the trust 

(iii) the identity and circumstances of the beneficiaries; 

(iv) the needs for liquidity, regularity of payment. and the preservation and 

appreciation of capital; 

(v) the assets held in the trust; the extent to which they consist of financial 

assets, interests in closely held enterprises, tangible and intangible personal 

property, or real property; the extent to which an asset is used by a benef iciary; 

and whether an asset was purchased by the trustee or received from the creator of 


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the trust. 

As applied to this proceeding, these factors raise questions of fact which 

preclude a summary determinat ion of that issue _ Chief among these facts is the 

valuation of the trust's real estate interests_ Although the trustees now seek to 

distance themselves from the valuation issue, it is clear that their decision to 

elect unitrust status was predicated primarily upon their contention that the 

trust.s real estate interests are non-appreciating assets. Stated another way, 

they claim that the trust' s total return from its real estate investments is the 

ordinary income that it receives from its interests in various real estate 

ventures. 

The petitioner disputes this contention and has submitted an affidavit by a 

professional real estate appraiser and Assessor for the City of White Plains which 

suggests that the trust' s interests in the underlying properties is considerably 

greater than the values ascribed by the trustees. A current valuation of the 

trust's real estate investments. including a current market value appraisal of the 

underlying properties, is essential to determining the propriety of the unitrust 

election as well as determining the unitrust amount should the unitrust election 

be validated by the court. The petitioner has failed to carry her burden of 

establishing that no material issues of fact remain, and that she is entitled to 

summary judgment as a matter of law, so the motion must be denied as to this issue 

(see Matter of Itta, 225 AD2d 548, 549)_ 

Aside from determining whether the unitrust option ought or ought not to apply to 

this trust, the court must also determine whether the trustees are per se 

disqualified from exercising the discretion accorded to them under the statute by 

virtue of their interest as presumptive remainderman. 

Admittedly, the discretion to elect the optional Unitrust provisions of EPTL 

11-2.4 is not limited to independent trustees. (see, EPTL 11-2.4(eJ (lJ (BI). 

However, the absence of such limitation does not abrogate the prohibitions against 

self- interested conduct, nor does the presumption favoring the unitrust regime 

exempt the fiduciary from such proscriptions. Indeed, similar presumptions are 

negated when action is taken in the context of a confidential or fiduciary 

relationship and the acting party personally benefits from the transaction (see 

Matter of Anrig, 73 AD2d 947, regarding Banking Law §675). 

The better act of discretion when the trustee is self-interested in the unitrust 

election is to seek the consent of the parties or obtain court approval. Such are 

the limitations upon interested trustees who exercise the adjustment powers of 

EPTL 11-2.3(5). Nevertheless, given the preferential status accorded the unit rust 

option, it cannot be said that the trustees were precluded as a matter of law from 

exercising the discretion afforded them under the statute to opt into the unitrust 

regime. Whether they abused that discretion is an issue of fact to be decided by 

the court_ 

Finally, the court annuls the trustees' election to apply the unitrust option 

retroactive to January i, 2002. 

The trustees contend that when a pre-2002 trust is subject to the unitrust regime 


II-A-68-MEWS

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1/23/2004 N.Y.L.J. 25. (col. 5) 

as a result of the trustee's election. EPTL 11-2.4(d) (1) permits the trustee to 

apply the election retroactive to the effective date of the statute. That clause 

provides: 

The interest of a current beneficiary or class of beneficiaries in the unitrust 

amount begins on the date specified in the governing instrument. on the date 

specified in an election to have this section apply pursuant to clause (e) (1) (B), 

on the date specified by the court pursuant to clause (e) (2) (B) or. if no date is 

specified, on the date assets first become subject to the trust 

Read in its literal sense. this section merely authorizes the trustees to select 

a date upon which the unitrust election may commence. It does not define the 

universe of dates or options available to the trustee. For this. the trustees 

invoke their own interpretation of the default provision of EPTL 11-2.4 (d) (1) . 

Reasoning that the unitrust amount could have appl ied as of 1990, the date when 

this Trust was first funded, the trustees val idate their choice of the statute' s 

effective date. that is, January 1. 2002. as being an appropriate starting date 

under the circumstances. However, EPTL 11-2.4 (e) (4) (A) also prescribes the 

effective date of a unitrust election. That section provides: 

This section shall apply to a trust with respect to which there is a direction in 

the governing instrument in accordance with clause (e) (1) (A). an election in 

accordance with clause (e) (1) (B) or a court decision rendered in accordance with 

clause (e) (2) (B) as of the first year of the trust in which assets first become 

subject to the trust. unless the governing instrument or the court in its decision 

provides otherwise, or unless the election in accordance with clause (e) (1) (B) is 

expressly made effective as of the first day of the first year of the trust 

commencing after the election is made. 

Pursuant to this section. the trustee's discretion is limited to making a 

prospective election effective on the first day of the year commencing after the 

election is made, or in this case, January 1. 2004. Any other construction would 

require reading terms into this statute that neither exist nor are apparent from 

the legislative history. ~McKinney' s Cons Laws of NY, Book 1. Statutes §§76, 92) 

It is possible to harmonize these two clauses by reading the explicit provisions 

of EPTL ll-2.4(e) (4) (A) as a limitation on the general authority referenced in 

EPTL 11-2.4 (d) (1). However. the court need not resort to linguistic gymastics to 

understand the origins of this apparent anomaly. A technical corrections bill 

introduced before the Senate Judiciary Committee as Senate Bill S04704 addresses 

this issue, and the memorandum submitted by the EPTL-SCPA Legislative Advisory 

Committee (the "committee') explains the root of the confusion: 

5. Prospectiveness of the unitrust system. 

. .. The 1999 study bill called for a unitrust regime that would apply to 

decedent's estates as well as to trusts, and that would be the default system 

applying unless a trust/estate is instead opted into application of the new 

principal and income act and trustee adjustment power. In the final give and take 

leading up to passage of the legislation in 2001, the Advisory Committee found it 

necessary to remove application of the unitrust to estates, and to reverse the 


II-A-69-MEWS 

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1/23/2004 N.Y.L_J. 25, (coL. 5) 

default so that the unitrust rules would apply only if required by an election, 

direction or decree. It has become apparent that some features of the unitrust 

statute that were necessary or appropriate to a default unitrust, arising 

immediately on passage and applying to decedent's estates as well as trusts, have 

presented problems of interpretation and application for trusts that are instead 

not unitrust until some point after their creation and funding. In several places 

the statute refers to the first funding of the trust as a default starting point 

for some or all unitrust functions. This has led to several unintended 

interpretations or effects. 

(14 Warren's Heaton on Surrogate's Courts, App. 5.04, at App. 5-196, (6th ed. 

rev.!) . 

Reference to "the first year of the trust in which assets first become subject to 

the trust" as the default date for conuencement of the unitrust election was not 

contained in section 11-2.4(e) (5) of the original study bill. It was added later 

to renumbered section EPTL 11-2.4(e) (4) to address what was to become the estate 

period of "exclusion" to ensure that the unitrust regime would not apply to "... 

assets while held in a testator's estate" (EPTL 11- 2.4(c)(6)(C)). The terms of 

this provision are clear and unambiguous and only make sense if applied to 

unit rusts resulting from a direction in the instrument, or for which an election 

is made pursuant to EPTL 11- 2.4 (e) (1) (B), prior to the funding of the trust. No 

other application or construction of this provision would be feasible without 

adding words of limitation. 

The court. s freedom to construe a statute is not freedom to amend it (Sexauer & 

Lemke v_ Burke & Sons Co., 228 NY 341). "Where words of a statute are free from 

ambiguity and express plainly, clearly and distinctly the legislative intent, 

resort may not be had to other means of interpretation" (McKinney's Cons Laws of 

NY, Bookl, Statutes §76). Viewed in this light, it is clear that the "date of 

funding" provision was not intended to apply to preexisting trusts that had been 

funded prior to the effective date of the statute. Accordingly, the trustees' 

reliance on this provision as authority for their decision to make the unitrust 

election retroactive to January 1, 2002, was misplaced. The proper and intended 

application of the unitrust election as it relates to preexisting trusts is 

prospective as provided in current EPTL 11-2.4(el (4) (A) ('as of the first day of 

the first year of the trust commencing after the election is made') . 

The proposed amendment to EPTL 11-2.4 (e) (4) (A) is consistent with this 

conclusion. It provides that an election pursuant to EPTL 11-2.4 (e) (1) (B) shall 

apply, 

. as of the date specif ied in the election, which may be any day within the year 

in which the election is made or the last (sic) (first) day of the year commencing 

after the election is made; 

As noted by the committee, the latter "will give full flexibility to select a 

date that will coincide with a convenient valuation date, give the current 

beneficiaries a full year of unitrust participation regardless of any delays in 

actual filing of the election, or put implementation ahead enough to get ready for 

the process" (14 Warren's Heaton Surrogate's Courts, App. 5.04, supra, at App. 


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5-197, (6th ed. rev. J) . 

Accordingly, that part of the motion which seeks to annul the trustees' 

retroactive application of their unitrust election is granted, and the election 

shall be deemed to apply as of January 1, 2004, that being the first day of the 

year commencing after the election was made. The trustees shall pay to the income 

beneficiary the income that would have been otherwise paid to her but for the 

retroactive application of the unitrust election within 20 days of the date of the 

Order to be made herein. 

Except as otherwise provided, the motion is denied in all other respects. The 

matter is adjourned to the calendar of January 21. 2004 at which time the 

attorneys for the parties are directed to appear for a discovery conference. The 

discovery order shall direct the commission of an appraisal of the trust. s 

interest in each of its real estate ventures which shall include separate 

appraisals of each of the underlying properties held by those entities. The 

valuation shall be prepared by an independent appraiser selected by the parties, 

or by the court if the parties are unable to agree upon a suitable individual or 

firm. 

Settle Order. 

1/23/2004 NYLJ 25, (coL. 5) 

EN OF DOCUNT 


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