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NY: Increased Liability for Estate Planning Attorneys

Estate of Schneider v. Finmann, Court of Appeals of New York, June 17, 2010

Facts: The defendant attorney represented decedent Saul Schneider from April 2000 to his death in October 2006. In April 2000, the decedent purchased a $1 million life insurance policy. Over several years, he transferred ownership of that property from himself to an entity of which he was principal owner, then to another entity of which he was principal owner and then, in 2005, back to himself. At his death in October 2006, the proceeds of the insurance policy were included as part of his gross taxable estate.

The decedent’s estate commenced this malpractice action in 2007, alleging that defendant negligently advised the decedent to transfer, or failed to advise the decedent not to transfer, the policy which resulted in an increased estate tax liability.

The New York Supreme Court granted defendant’s motion to dismiss the complaint for failure to state a cause of action. The Appellate Division affirmed, holding that, in the absence of privity, an estate may not maintain an action for legal malpractice. The estate appealed.

Issue: Whether the estate can hold the decedent’s estate planning attorney liable for damages resulting from negligent representation that causes enhanced estate tax liability?

Ruling: Yes.

Privity, or a relationship sufficiently approaching privity, exists between the personal representative of an estate and the estate planning attorney. We agree with the Texas Supreme Court that the estate essentially stands in the shoes of a decedent and, therefore, has the capacity to maintain the malpractice claim on the estate’s behalf. The personal representative of an estate should not be prevented from raising a negligent estate planning claim against the attorney who caused harm to the estate. The attorney estate planner surely knows that minimizing the tax burden of the estate is one of the central tasks entrusted to the professional.

The Court did note, however, that strict privity remains a bar against beneficiaries’ and other third-party individuals’ estate planning malpractice claims absent fraud or other circumstances, since such claims would lead to "uncertainty and limitless liability".

Lesson: Privity is not a bar to an estate’s legal malpractice lawsuit against the decedent’s purportedly negligent attorney.

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Posted in: New York, Privity, Wills Trusts & Estates