Strict privity of contract used to be the rule in estate planning cases. In other words, only the client could claim that the estate planning attorney had been negligent in planning their estate. Obviously, this severely limited malpractice actions against estate planning attorneys.
Over the years, the number of states adhering to the doctrine of strict privity of contract has been on the decline. Now, an ever-shrinking minority of states, allows estate planning attorneys to be insulated from malpractice claims brought by their clients’ Personal Representatives and beneficiaries after the client’s death.
In a recent case, Schneider v. Finmann, the New York Court of Appeals, the state’s highest court, held that strict privity of contract is no longer required in malpractice claims in estate planning cases in that state.
In Schneider, the New York court found that the Personal Representative stands in the shoes of the client and has privity of contract. The court specifically did not repeal the requirement of privity altogether. Thus, beneficiaries continue to be barred by the doctrine.
In Schneider, the Personal Representative alleged that the attorney was negligent in not recommending that the decedent’s life insurance policy be transferred to an Irrevocable Life Insurance Trust (“ILIT”). The lawsuit alleges that this negligence resulted in the decedent’s estate incurring estate taxes that would not otherwise have been incurred. ILITs, GRATs, FLPs, SCINs, and QPRTs are common ways attorneys practicing in estate planning reduce their clients’ estate tax liabilities.
The court found that it would be unfair for a decedent’s right to pursue a malpractice action to die with the decedent. Thus, it found that the Personal Representative was no longer barred by the privity doctrine. The court did not look at the underlying merits of the particular malpractice action.
The ever-shrinking doctrine of privity is yet another reason that attorneys should not dabble in estate planning.
Stephen C. Hartnett, J.D., LL.M.
Associate Director of Education
American Academy of Estate Planning Attorneys, Inc.