Tuesday, March 22, 2022

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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