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In In re Lohausen, NYLJ, July 20, 2012 at 38 (Sur.Ct. Queens County), the Surrogate Court considered a petition by the decedent’s daughter, the sole distributee and executrix of the estate, to fix and determine the fees of her attorney. The petitioner had signed a retainer agreement whereby the attorney was retained to “probate the estate” and the fee for services was set at 5% of the value of the gross taxable estate. Pursuant to the retainer agreement, counsel billed the client approximately $103,000.00 for legal services performed.

In her petition, the petitioner argued that the fees were unreasonable and that the reasonable value of the services was not more than $10,000.00. Counsel moved to dismiss the petition alleging that (1) the estate had been fully probated and the fees already paid, thus the court no longer had jurisdiction over the matter, (2) because petitioner had executed the retainer agreement in her individual capacity, the matter was a contractual dispute between living persons which the Surrogate Court had no power to address, (3) because petitioner had executed the retainer agreement individually and had already paid Counsel, she was bound by the retainer and the court could not modify its terms.

The Surrogate Court disagreed with counsel, holding that it had the authority to determine issues concerning attorney’s fees pursuant to the provisions of SCPA 2110, finding that there was no time limitation on their jurisdiction. The Surrogate Court further held that where a retainer prescribes the legal fee to be paid, an attorney bears the burden of establishing that its terms were fairly presented and understood by the client, and that the fee is fair and reasonable. The Surrogate Court ruled that it does have the power to review retainer agreements, even after the retainer fees have been paid and the estate closed, even when fees are based on a percentage, and said fees may be disallowed if the amount of the fee is so large as to become out of proportion to the value of the professional services rendered.

The Surrogate Court denied counsel’s motion to dismiss the petitioner’s petition and concluded that an evidentiary trial was necessary.

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Yesterday, Congress passed, and the President is poised to sign, legislation to avert the “fiscal cliff”.   As part of the compromise bill, Congress included an extension of the federal estate tax exemption amount of $5.12 million for individuals, and up to $10.24 million for married couples (the concept of “portability”).  Congress also increased the top rate from 35% in 2012 to 40% in 2013.    Forbes Magazine has an excellent article explaining the estate tax and the impact of the 2013 ‘fiscal cliff’ legislation which you can find here:  After the Fiscal Cliff Deal:  Estate and Gift Tax Explained

As the U.S. House of Representatives takes up debate today on legislation to avert the “fiscal cliff”, most major news agencies are reporting that the deal being struck includes an extension of the federal estate tax exemption amount of $5 million for individuals, and $10 million for married couples, with the top rate going from 35% in 2012 to 40% in 2013.  Check back here for updates.

In the wake of the Court of Appeals 2010 decision in Estate of Schneider v. Finman, 15 N.Y.3d 306 (2010), The Committee on Professional Ethics issued Opinion 865; Estate Planner Serving as Attorney for Executor; Conflict of Interest; Legal Malpractice.  The Opinion discusses the application of Rules 1.7 , 1.10(a) and 1.16 of the Rules of Professional Conduct and their affect on a practicioner in light of the Court’s decision in Schneider.

The Committee on Professional Ethics concluded that “In light of Estate of Schneider v. Finman, a lawyer who prepared an estate plan for a client may agree to act as counsel to the executor after the client’s death as long as the lawyer does not perceive a colorable claim for legal malpractice before or during the representation of the executor.  However, if the lawyer does perceive a colorable claim for legal malpractice before or during representation,  then the client is nonconsentable and the lawyer (and all other lawyers associated with his firm) must decline or withdraw from representation and the lawyer must inform the executor of the facts giving rise to the claim.”

Visit NYSBA by clicking here to read Ethics Opinion 865.

The New York Court of Appeals in Schneider v. Finmann, 15 NY3d 306 (June 17, 2010) has at best relaxed and at worst uprooted the long standing precedent that an estate planning attorney could not be sued for legal malpractice after the death of the client by the personal representative, beneficiaries or any other person.  This precedent has long been based on the principle that there was no privity between a decedent’s Estate and the estate planning attorney, such privity only existed between the decedent and the attorney.  Based on this precedent, a personal representative has not had standing to bring a malpractice suit against an allegedly negligent estate planning attorney.  The Court’s ruling opens the door to possible negligence actions against estate planning attorneys and highlights the need for attorneys to exercise great care if practicing in this area.

In Schneider, the personal representative for the estate asserted a claim against the estate planning attorney for negligently advising the decedent regarding the transfer of a life insurance policy, or in the alternative, not advising him at all.  The decedent had transferred a life insurance policy several times during life and had failed to name a beneficiary upon the last transfer before his death, thus the death benefit came into the estate and was included in his taxable estate.  The personal representative filed suit for the alleged negligent legal advice.  The lower court dismissed and the Appellate Division affirmed the trial court’s decision.

The Court of Appeals however, being careful not to comment on the merits of the claim itself, held that “privity, or a relationship sufficiently approaching privity, exists between the personal representative of an estate and the es  tate planning attorney.”  In doing so, the Court has created a level of privity that has never existed before in New York State.  The Court was careful to point out however that no such privity exists between beneficiaries of an estate or third parties and the estate planning attorney. 

The Court of Appeals relied heavily on a Texas Supreme Court opinion, Belt v. Oppenheimer, 192 S.W.3d 780 (Texas 2006), wherein the Texas Court reasoned that given that the negligent legal advice would have occurred during the decedent’s lifetime, the fact that the damages did not occur until after death should not bar suit.  The Court ruled that in effect, the decedent’s Estate stands in the shoes of the decedent after death and the suit that could have been brought during the decedent’s lifetime survives his death. 

While it is too soon to know the practical affect that Schneider will have in New York, it is clear that the estate planning practitioner needs to exercise great care when working with a client.  It also remains to be seen what affect this decision and the decisions that come down following its precedent will have on malpractice insurance policies and rates as it pertains to estate planning.  This decision is also sure to cause the casual estate planning practitioner pause as the days of “dabbling” in estate planning or writing a will here and there are fading away.  The casual estate planner will take a hard look at their practice in light of this new privity which creates one more avenue for bringing a malpractice claim.

Practicioners who have dealt with the New Statutory Short Form Power of Attorney and accompanying Statutory Major Gifts Rider (SMGR) are well versed in the many issues and problems they come with.  However, there is hope on the horizon, as New York State Bar Association (NYSBA) President Michael E. Getnik has established a Working Group on the Power of Attorney Form to address these many issues.

The Working Group is in the process of drafting revisions to the POA Form which include:

  1. Elimination of the presumption of revocation
  2. Excluding most business, commercial and real estate transactions
  3. Elimination of the Statutory Major Gifts Rider (SMGR)

Currently, nine sections of the New York Bar have representatives on the Working Group and we are hopeful that the legislature will work with the Working Group to modify the POA Forms.

ATTORNEY’S FEES – Burden on Attorney to prove reasonableness of fees other than simply tying fees to executor’s commission

Attorney submitted to Surrogate Court of Monroe County accounting showing attorney’s fees of $18,750.00 for legal services.  The Court reiterated that the question of attorney’s fees in estates is one of reasonableness, and the burden is on the attorney to prove that the fees sought are reasonable.  In this case, the Court found that the attorney had submitted no proof of reasonableness for his fees other than to state that their calculation was equivalent to one executor’s commission.  The attorney had offered no proof of hours worked and in fact kept no time records whatsoever. 

The Court noted that while time spent is “one of the least emphasized factors in setting attorney’s fees” in this area, the keeping of records does serve as one form of proof of work performed and results achieved.  The Court went on to hold that while an “executor’s commission is a rough guideline for the reasonableness of fees, it is not exclusively determinative of reasonableness'”.  The Court then awarded him fees in quantum meruit of $8,000.00 based upon 40 hours at $200.00 an hour.  In re Duffy, 885 N.Y.S.2d 401 (Surr. Monroe Co. 2009).

PRECATORY REQUEST – Letter to Executor not binding contract or sound basis for constructive trust 

Decedent’s will left his entire estate to his surviving spouse and decedent left her a letter expressing his “wish” that upon her death or remarriage, certain commercial properties would be conveyed to their three children.  The letter was signed by both the decedent and surviving spouse.  Surviving spouse later wrote a new will completely disinheriting one of their  children.  Surviving spouse and two of the children brought a proceeding to declare the decedent’s letter unenforceable.  The Appellate Division, Third Department agreed, declared the letter a precatory request and dismissed the disinherited child’s request that a constructive trust be established.   The Third Department held that the language of the letter did not create a clear and unambiguous promise by the surviving spouse and did not meet the requirements of EPTL 13-2.1 for establishing a contract to make a testamentary provision.  Aaron v. Aaron, 64 A.D.3d 1103 (3rd Dept. 2009).

This case highlights the need for careful drafting of estate planning documents and for practicioners to ensure that language in any will or other testamentary device is crafted in accordance with the statutes and applicable caselaw to ensure that the client’s last wishes come to fruition.   It also highlights the need for clients to contact their attorneys before self-crafting any sort of estate planning document.

UNDUE INFLUENCE – Error in Jury Charge Regarding Confidential Relationship

The Appellate Division, Fourth Department reversed a Surrogate Court decision out of Oneida County where the Surrogate instructed the jury that the respondent had a confidential relationship with the decedent as a matter of law.  The Fourth Department stated that  when the issue of undue influence based on a confidential relationship is raised, “the initial burden is on the objectant” to make the threshold showing that a confidential relationship existed.  If that relationship is established, the burden then shifts to the beneficiary of the transaction to show that the transaction was fair and free from undue influence.  In this case, the Fourth Department found that there was conflicting evidence as to the existence of a confidential relationship and therefore it was error to instruct the jury to find that relationship as a matter of law.   Prievo v. Urbaniak, 64 A.D.3d 1240 (4th Dept. 2009).