NY Underlying Estate Tax Matter
Facts: Plaintiff corporation was created upon the advice of defendant law firm for the purpose of organizing the financial affairs of Louise Nevelson, a deceased sculptor, and in an attempt to cause her artwork and the income from it to pass outside of her taxable estate. Nevelson’s son, who was also the executor of her estate, owned the corporation. This malpractice action arose after the IRS assessed millions of dollars in estate taxes against Nevelson’s estate and gift taxes against her son. After Nevelson’s death, the IRS determined that the corporation was a sham used to gift the decedent’s income and assets to her son, and that all the assets of the corporation should have been included in the sculptor’s gross estate. The plaintiffs claimed that the law firm never advised them of any risks of potential gift or estate tax liability that could arise based on the level of compensation that the corporation paid Nevelson.
Issue: Did the law firm depart from the requisite standard of care when they failed to adequately advise the plaintiffs that their failure to substantially compensate the decedent could result in adverse tax consequences under the plan that they recommended?
Ruling: Yes. The court found that here the defendants offered only conclusory, self-serving statements with no expert or other evidence that would establish that they did not depart from the requisite standard of care. The defendants had an obligation to do so.
Lesson: The requirement that a plaintiff come forward with expert evidence on the professional’s duty of care may be dispensed with where ordinary experience of the fact finder provides sufficient basis for judging the adequacy of the professional service. Id. at 283; Kulak v. Nationwide Mut. Ins. Co., 40 NY2d 140, 148.