Don't want to talk about life or death?** - do not be an estate planning lawyer then

Posts over recent weeks have considered the fact that in the estate planning context, lawyers can owe a duty of care to disgruntled beneficiaries for negligence in acting on estate planning instructions.

The decision in Maestrale v Aspite [2012] NSWSC 1420 provides another example in this regard.

In this case a beneficiary received less than would have been the case had the instructions provided to the lawyer by the deceased seven days before death (at a time when he was terminally ill), been implemented. Somewhat tragically, the lawyer arrived to meet the willmaker to review and sign the will prepared 10 minutes after the willmaker had died.

Relevantly, the court confirmed:

1. By accepting instructions for a will, a lawyer enters upon the task of effecting compliance with the formalities necessary to transfer property from a willmaker on death to an intended beneficiary. It is foreseeable that, if reasonable care is not exercised in performing the task, the intended beneficiary will not take the property. Therefore, a lawyer who fails to exercise reasonable care whereby the formalities are not complied with (and the intended beneficiary thereby loses the property), will be liable in negligence (see Hill trading as R F Hill & Associates v Van Erp (1997) 188 CLR 159).
2. Defects in a lawyer's work, whatever their character may, depending upon the facts and circumstances in a particular case, be just as much a breach of duty to persons foreseeably damaged by them as they are to the willmaker directly.
3. This said, in the absence of indication from the willmaker that they want to sign a proposed will, then there will not be any duty of care owed by a lawyer to a potential beneficiary of the draft will. This is even the case where lawyers have acted in a manner that, in other fact situations, might be held to have been unduly dilatory, so long as the case is one where the lawyer's conduct can be said to be within acceptable limits to indecisive instructions from a difficult client who is stalling (see Queensland Art Gallery Board of Trustees v Henderson Trout (a firm) [2000] QCA 093).
4. In this case then, the breach of duty by the lawyer did not reside as such in an unduly dilatory approach to preparation of the will by allowing the passage of seven days before the will was prepared, but rather in the lawyer's failure to respond to the aggrieved beneficiary's urgent phone calls for advice and attention in the intervening seven day period.
5. This was particularly so given the lawyer had failed to keep proper file notes and had also failed to arrange for an informal or temporary interim will to be created - which would have likely avoided all the subsequent issues that arose.

As usual, please contact me if you would like access to any of the content mentioned in this post.

** for the trainspotters, the title today is riffed from a line in the Waterboys song 'A girl called Johnny'.

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Estate planning lawyer & ignoring claims of potential beneficiaries? Carry on** with care

Last week’s post considered the case of Badenach v Calvert [2016] HCA 18 and the fact that in the estate planning context, lawyers can owe a duty of care to disgruntled beneficiaries.

The decision in McFee v Reilly [2018] NSWCA 322 provides a further example of the issues that can arise in this area.

The factual matrix was relatively complex, not least of which because of a key clause in the will that purported to gift a property that was at the heart of the dispute; but failed (due to a drafting error) to actually state who the property was in fact to pass to.

After the will maker had lost capacity, his wife acting under an enduring power of attorney (EPA) gifted the property, to the will maker's 4 daughters. The court accepted that at the time of drafting the will the will maker had intended that the property should pass to his son.

The son sued the lawyer who had assisted with the transfer implemented relying on the EPA. Although that lawyer who assisted with the transfer did not draft the will, he was aware of its terms.

In confirming (as set out in the Calvert case) that a lawyer does owe a duty of care to potential beneficiaries, here the court held the lawyer liable in negligence to the aggrieved son and stated:

1. Where the 'ultimate client', is incapable of giving instructions, and is represented by an attorney, the lawyer is still bound to protect the interests of the incapacitated client and owes them a duty of care directly.
2. Subsequent alterations to a will, or inter vivos transactions, are ordinarily outside the scope of any duty of care owed by a lawyer to an excluded beneficiary because the then current intentions of a will maker are key, not the former intention to include the beneficiary.
3. However, the position is different when the will maker has become incapable because there can be no current legally effective intention held by the will maker (whether consistent or inconsistent with the previous will) and there will invariably be an attorney who owes fiduciary duties to the incapable person.
4. The incapacity of the will maker essentially strengthens the interest of the beneficiary under the will because the interest of the beneficiary, although still contingent (because, amongst other ordinary contingencies, the beneficiary may predecease the will maker) is no longer liable to being extinguished by the will maker themselves changing their mind.
5. A lawyer acting for a will maker who has lost capacity on instruction from their attorney has an obligation to test that the attorney was properly authorised to give instructions and was not breaching their fiduciary duties owed to the will maker.
6. Here, without much investment, the lawyer could have easily determined the will maker's will was inconsistent with the basis given by the attorney for the new instructions - being an (alleged) informal agreement said by the attorney to have been made with the will maker three years prior to him executing his will.
7. Ultimately, faced with an irreconcilable clash between the source of the agent’s instructions and a client’s actual expression of testamentary intention, a competent lawyer would have advised against proceeding, and ceased to act.
8. The court did note however that the imposition of a duty of care of the kind found here will be rare indeed. In particular, the duty is confined to a lawyer engaged to advise the holder of an enduring power of attorney about estate planning issues where the grantor of the power has become incapable. In advising the grantee of the power as part of the estate planning retainer about an inter vivos transfer of property, the lawyer is obliged to exercise care and skill in giving that advice, taking into account any separate testamentary intentions of their (ultimate) client - that is, the incapable grantor.

As a thought exercise it is interesting to consider what the outcome in this case would have been had the EPA contained a provision expressly authorising the wife (as attorney) to act even if her interests conflicted with those of her husband.

Here, the EPA document deleted the clause which otherwise would have conferred authority “to execute an assurance or other document, or do any other act, whereby a benefit is conferred” on the donees. Thus the court was comfortable to hold that the wife was acting in conflict and used her powers to give effect to her own views, and not for the purpose of advancing her husband's interests.

As usual, please contact me if you would like access to any of the content mentioned in this post.

** For the trainspotters, the title of today's post is riffed from the Bob Evans song 'Friday comes five'.

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Avoiding deep water** - duties owed to beneficiaries

It is well accepted that professionals, particularly lawyers, owe a duty to their client to ensure their objectives are met.

In the estate planning context, this duty has in a number of situations extended to claims by disgruntled beneficiaries.

The case of Calvert v Badenach [2015] TASFC 8 is a specific example.

Broadly the background was as follows:

1. The willmaker made a will leaving 100% of his estate to a named beneficiary, whom he also owned 2 properties with as tenants in common. Previous posts have explored the difference between owning property as joint tenants and tenants in common.
2. The willmaker's daughter challenged the will after his death and was successful in her claim, meaning the nominated beneficiary had his entitlements reduced and also incurred legal expenses.
3. The nominated beneficiary sued the willmaker's lawyer for negligence.

The court held that the lawyer was negligent and owed the nominated beneficiary a duty. The reasons for this included:

1. the law firm had acted in the purchase and registration of the two properties as tenants in common and an earlier will that provided for the daughter.
2. the lawyer should have investigated the situation of the daughter given that she was within a category of people that could potentially claim against the estate and advise accordingly. This advice should have included how to minimise the risks of a claim against the estate.
3. specifically here, the lawyer should have explained the consequences of not owning the properties as joint tenants (which would have seen them pass automatically to the surviving owner, instead of 50% of each property falling into the estate and subjected to the successful challenge).
4. importantly, strategies in relation to protecting against challenges against an estate would also need to factor in the 'notional estate' rules which are applicable for willmakers domiciled in NSW or with assets in NSW. Again, an earlier post explains the notional estate provisions.

While ultimately following appeal to the High Court in this case (namely, Badenach v Calvert [2016] HCA 18) much of the above decision was overturned, the fact that the matter went to the High Court is a warning in itself.

Furthermore, there were a range of competing views of judges at leach level of the process, including in the High Court.

It seems clear that this area will remain litigious, despite the High Court confirming that:

1. a lawyer’s duty is one to be protective of the client and their interests alone;
2. a lawyer will not be answerable in damages to a third party for a failure to advise the client on the consequences of a possible FPA.
3. a lawyer has no duty to a third party for failing to advise a client on strategies to avoid potential FPAs. The position in relation to adjacent areas however, such as failing to ensure a joint tenancy is severed to achieve a client's objectives, were not confirmed.

As usual, please contact me if you would like access to any of the content mentioned in this post.

** for the trainspotters, the title today is riffed from the Paul Kelly song ‘Deeper water’.

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Time** (to be challenging a BDBN)

Previous posts have considered various aspects of BDBN.

The case of Wooster v Morris [2013] VSC 594 provides another example of some of the key issues around the enforceability of a BDBN.

In summary:

1. A husband and wife were the trustees and members of an SMSF;
2. The husband had two adult daughters from a previous relationship;
3. The husband had made what was ultimately accepted to be a valid BDBN to his adult daughters, who were also the executors of his will;
4. The husband's wife, following his death, sought to challenge the BDBN on the basis of a technicality that the trust deed required it to be delivered to her and she claimed that it had not been;
5. Practically, as the wife was the sole surviving trustee and was able to regulate the appointment of the new trustee (ignoring the claims of the daughters as executors of the will), she paid the entire death benefit to herself; and
6. After a drawn out (and expensive) litigation, the wife was required to return all funds and also contribute personally to the costs of the litigation.

While there are obviously many consequences that flow from this decision, perhaps the three most important are:

1. despite many cases to the contrary that require the provisions of a trust instrument to be followed precisely in order to ensure validity, there will be exceptions to that rule;
2. unless otherwise provided for in the trust instrument, the executors of a deceased member's estate will not automatically have any legal entitlement to a role in the control of an SMSF; and
3. who has practical control of an SMSF can be critical, regardless of the strict legal position (or in other words, possession can often equate to 9/10ths of the law).

As usual, please contact me if you would like access to any of the content mentioned in this post.

** for the trainspotters, the title today is riffed from the Culture Club song ‘Time (clock of the heart)’.

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Adding (or bundling of facilitation) fees**

One issue that arises relatively regularly is where advisers looking to facilitate legal solutions have different options for communicating pricing to the end user client.

There is nothing at law that prohibits a 'bundled' price to be given to a client - i.e. one total fee for all work in relation to delivery of a particular solution (for example, estate planning).

However, the licensees for many financial planners and risk advisers do effectively prohibit bundling of fees unless written consent is provided in a particular factual scenario.

The approach of most licensees is to allow one of two alternative approaches, namely:

1. 'mailbox' approach - this alternative effectively sees the adviser act as a mailbox for the client. The adviser receives an invoice addressed to the client from the third party provider and simply on sends the invoice to the client for payment. Generally, this invoice is sent together with the facilitation fee invoice.
2. 'disbursements' approach – under this method the adviser will incur the third party fees directly for the client. The adviser then provides one invoice to the client itemising each discrete cost, and in particular, listing the facilitation fee and the legal fees each as a standalone item.

While to our knowledge there is no mandated approach, our experience is that most advisers seem to adopt the disbursements alternative.

There are a number of reasons we see for this, including:

1. It is administratively simpler for the adviser.
2. Similarly, it is often far simpler for the client, as they have one invoice that relates to all of the work.
3. The approach generally reflects what is happening in a practical sense - i.e. the adviser is responsible for facilitating the entire process.
4. In some instances, there can be indirect benefits to the facilitator - for example, under credit card loyalty programs.

** for the trainspotters, the title today is riffed from the 10,000 Maniacs song ‘Dust bowl’.

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