The wills, trusts and estates practice area frequently involves complex issues requiring specialized legal experience and training, as well as matters that may entail high-stakes disputes among family members.
According to CNA data, claims involving the wills, trusts and estates practice area surged during the economic downturn of 2008. However, claims frequency continues to remain elevated above historic levels.
To help protect your reputation and your practice, minimize the exposure you face in wills, trusts and estate practice.
Wills, Trusts and Estates Practice Area at a Glance
This practice area includes legal services dealing with all aspects of wills, trusts and estates, such as:
- Analysis and planning for conservation and disposition
- Estate taxes
- Gift taxes
- Preparation of legal instruments
- Estate planning
- Estate administration
- Trust planning
Consequently, this area of practice presents a higher level of risk for lawyers and has become the number one area of claims by count. Consider the following statistics gathered from CNA claims data between 2006 and 2014:
- An average of 500 wills, trusts and estates claims were reported each year.
- An average of 220 of those claims were paid each year.
- The average cost per claim was $100,000.
- The average yearly cost of all wills, trusts and estate claims was $23 million.
Top Causes of Claims
Of the claims made, the most frequently alleged cause was improper document drafting or recording, accounting for nearly 25 percent of all claims. Improper handling or disbursement of funds was a distant second, accounting for more than 10 percent of claims. Other key causes of claims included:
- Failure to know or properly apply the law
- Failure to follow a client’s instruction
- Conflict of interest
- Failure to file or record a document
- Inadequate representation
- Inadequate discovery or investigation
- Failure to understand or anticipate taxes
- Fee disputes
- Planning error-procedure choice
- Failure to obtain consent or inform a client
Erosion of the Privity Defense
One factor contributing to the rise in claims is the erosion of the privity requirement in several states. While many states generally require privity, legislatures have carved out several exceptions to this rule.
One common privity exception enables a third party to bring a claim if they can prove they were the intended beneficiary of a transaction. Another exception is narrower, requiring a third party to show a client’s intent has been frustrated by the attorney’s conduct, while some other states permit a personal representative of the client to bring a claim on behalf of the estate.
Risk Management Tips
To minimize the risk to yourself and your practice, lawyers should avoid dabbling in the wills, trusts and estates area of practice unless you have the necessary legal experience and training. If you do have the necessary skills to practice in this area, remember the following:
- Avoid representing family or friends in trust or estate matters, exercising due diligence and caution where necessary.
- Ensure you limit the scope of the engagement in writing for areas in which you do not have adequate experience.
- Understand that serving as a trustee, executor or administrator could place you in the center of a bitter family dispute, so proceed with caution.
- Consider making video or audio recordings of a decedent’s intentions to help defend against claims of testamentary capacity or frustrated intent.
- Remember that conflicts of interest could arise where a lawyer represents multiple generations of a family. Make use of engagement letters and conflict of interest waivers to identify and define parties and help minimize your risk.
If your expertise includes wills, trusts and estate practice, make sure you know the risks and exercise due diligence and caution to help protect yourself and your practice.