What happens if estate planning advice fails to identify estate litigation risk?
One of the risks of asking someone other than a estate planning specialist for advice is that they may fail to identify potential estate litigation risk. This means that your estate may be open to court proceedings, even though you’ve been told otherwise. Commonly, you may ask a finance professional such as an accountant or a financial to provide estate planning advice to you. Why not? It’s a way of killing two birds with one stone, and you may think it’ll save you money. But in the long term, you may find it’s a disastrous decision.Although such professionals may received some training and have a good understanding of estate planning principles, there are several serious pitfalls that may result in a damage to their business, money or reputation – and sometimes, all three – and leaves your estate open to estate litigation.
Failure to Identify Potential Estate Litigation Risk
When considering a your estate planning needs, a major pitfall is a failure to identify the risk of potential estate litigation.
A REAL-LIFE CASE STUDY
A Gold Coast widow sued a law firm for $800,000, claiming that their solicitor gave negligent advice which stopped her husband cutting his estranged son out of his will.
Anita Nicholas lodged a statement of claim in the Southport District Court against Adam Mark Sambrook, trading as Sambrook Grant Lawyers in 2016.
In her claim, Ms. Nicholas says that a solicitor gave negligent estate planning advice to her husband, Geoffrey Winston and herself in 2006, prior to his death.
Ms. Nicholas had been in a de facto relationship with Mr. Nicholas since 1987 and they were married in 2011. Mr. Nicholas was previously married and had one surviving son — Timothy Nicholas.
His first wife died in 1986.
The solicitor was asked to draw wills for the couple to protect their estate from Mr. Nicholas’s estranged son making a claim on the estate after his father’s death.
Ms. Nicholas says that they were advised to implement a “contractual will arrangement” that would protect their assets from claims by Timothy Nicholas after his father’s death. The arrangement would leave all assets to a trust.
“If you were sued by a claimant after entering into a contractual will arrangement the trust would be able to prevent the claimant from accessing your assets,” the pair allege they were advised by the solicitor.
“The reasons for this is that the rights of the trust as secured creditor against your estate … under the contractual will arrangement would be stronger than that of an unsecured claimant such as Tim.”
In March 2006, the solicitor advised the couple to set up a “discretionary bloodline trust” with Mr. Nicholas as trustee and his wife and specified families members as beneficiaries. Following this advice, Mr. Nicholas revoked an enduring power of attorney held by Timothy Nicholas and granted it to his wife.
In 2011, Mr. Nicholas sought more advice from the solicitor and amended his will to provide a $20,000 “legacy” to his son. He also forgave a loan of $304,000 which was owed to him by Timothy Nicholas.
He arranged for his principal place of residence at Broadbeach Waters, the residual of his cash after paying the $20,000 to his son, all shares in publicly listed companies and his life insurance to pass to Ms. Nicholas following his death.
The remainder was to be given to trustees of the Geoffrey Nicholas Fortress Trust.
Following his father’s death, Timothy Nicholas applied to the Queensland Supreme Court to have provision paid out from his father’s estate. This is called a Family Provision Claim, and may only be sought by a limited number of people including the will-maker’s spouse and children, (those who can sue depends on the relevant state).
In 2015, Ms. Nicholas was advised the contractual will arrangement was ineffective in “resisting Mr. Nicholas’ application for provision” and they agreed to settle.
Court documents state Timothy Nicholas was paid $790,000 on August 2015.
Ms. Nicholas claims the firm breached their contractual duty and gave negligent advice which caused Ms. Nicolas’s benefit under the estate to be reduced by $790,000.
She also claims he failed to advise granting a joint tenancy in the property would have stopped Timothy Nicholas making a claim or reduce his interest (but note this strategy would not work in New South Wales).
“But for the defendant’s negligence and breach of its contractual duty to Mr. Nicholas and the plaintiff, Mr. Nicholas would have, (if) properly advised by the defendant, taken steps to reduce or extinguish his estate during his lifetime …,” the claim states.
What Can We Learn From This Case?
It’s important to note that the person being sued in this real-life example is a solicitor, and it’s likely that if he’s found to have given negligent advice, that his professional indemnity insurance may cover the claim.
But if the person providing the advice is not a solicitor, their professional indemnity insurance will most likely not cover giving negligent estate planning advice. Could they afford to lose $790,000 out of their business or pocket?
The second important point is that a solicitor, even with legal training, failed to identify the appropriate estate litigation risk. The risk is far greater for anyone without legal training, compounded by the risk of not having professional indemnity insurance to protect them.
This is also true if you are planning to see a solicitor for estate planning. As evidenced by this example, general legal practitioners may not have the necessary knowledge to provide the estate planning advice you need – even if, at face value, your needs seem simple.
Always look for an Accredited Specialist, which indicates a high level of expertise. Further, if that Accredited Specialist would also be a member of STEP, the Society of Trust and Estate Practitioners, a worldwide organization that identifies experts and promotes ongoing education in this specialized field, that can give you further comfort your client is in safe hands.
If you really want the best possible estate planning advice, lways look for an Accredited Specialist in Wills & Estates (or in Queensland the phrase Succession Law is used) to give estate planning advice.
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