Archive for ‘Lawyers and Practice of Law’
In Thorsen v. Richmond Society for the Prevention of Cruelty to Animals, the Virginia Supreme Court established that attorneys who draft wills are liable to the intended beneficiaries of their services. The opinion is available here. This case is notable for two reasons: (i) it marks a change in what some, or perhaps many, attorneys believed to be the law on the rights of third-party beneficiaries of the attorney-client relationship in Virginia, and (ii) at least some attorneys are thinking about how to adapt.
Ms. Dumville hired Mr. Thorsen, an attorney, to draft a will. Ms. Dumville intended her assets to go to her mother, if her mother survived her. If her mother predeceased her, Ms. Dumville intended her assets to go to the Richmond Society for the Prevention of Cruelty to Animals, a charity. Mr. Thorsen understood Ms. Dumville’s wishes and prepared the will. Ms. Dumville signed it.
Ms. Dumville’s mother predeceased Ms. Dumville.
Due to a scrivener’s error, the will left only some of Ms. Dumville’s property (Ms. Dumville’s personal property, which was significantly less than all of her property) to the RSPCA. The rest ended up in the hands of Ms. Dumville’s heirs-at-law.
Mr. Thorsen fell on his sword and tried to correct the error. He was unsuccessful.
The RSPCA sued Mr. Thorsen in the Circuit Court for the City of Richmond. Mr. Thorsen lost. He appealed to the Virginia Supreme Court. He lost in a 6-1 decision. Justice McClanahan dissented.
Two of the issues the court considered are particularly interesting.
Some Injured Third-Party Beneficiaries Can Sue Attorneys
The majority answers the question of whether a third-party beneficiary has a cause of action for breach of contract against an attorney in the affirmative. The opinion acknowledges the general common law rule in Virginia that strangers to a contract do not have rights under the contract. However, the majority also notes an exception to the rule allows third party beneficiaries to enforce certain contracts. An injured third-party beneficiary may enforce the contract that creates (or should create) the beneficiary’s interest if the beneficiary was “clearly and definitely” the intended beneficiary of the contract. The majority applies this exception to reach a contract between an attorney and a client to draw a will for the benefit of a particular beneficiary.
The majority seems to be extending the third-party beneficiary doctrine to this case for public policy reasons. Without this extension of the third-party beneficiary exception, the innocent beneficiary bears the burden of the attorney’s error.
As to the legal basis for this extension of the third-party beneficiary doctrine, the majority looks to the law of other states and the court’s decision in Copenhaver v. Rogers. 238 Va. 361. The extent to which the court’s decision in Copenhaver grounds the Thorsen decision is a point of disagreement between the majority and the dissent.
The majority opinion addresses the important issue of when a beneficiary is “clearly and definitely” an intended beneficiary of the contract between the lawyer and the client. The determination seems to be about the client’s intent and the attorney’s assent to the representation.
Drawing from Copenhaver, the majority gives the following examples: (1) where a client who tells his lawyer “he really does not care what happens to his money except that he wants the government to get as little of it as possible,” the beneficiaries will not be beneficiaries of the contract between the lawyer and the client; (2) where a client tells his lawyer “that his one overriding intent is to ensure that each of his grandchildren receive one million dollars at his death and that unless the lawyer agrees to take all steps necessary to ensure that each grandchild receives the specified amount, the client will take his legal business elsewhere” the grandchildren may be intended beneficiaries of the contract between the lawyer and the client, as long as the lawyer agrees to comply with the client’s directives. (P. 9)
What does the majority actually consider in upholding the determination that the RSPCA was “clearly and definitely” an intended beneficiary of the contract between Ms. Dumville and Mr. Thorsen? The key considerations seem to be the client’s intent and whether the attorney assented to draft the document. The opinion considers Ms. Dumville’s intent and Mr. Thorsen’s separately. As to Ms. Dumville, an overriding purpose of the contract was to benefit the RSPCA was key. However, as to Mr. Thorsen, the majority said, “the agreement to comply with specific directives is implied when the client contracts with the attorney to perform a specific service which the attorney then undertakes to perform. We cannot separate the obligations of the client’s intent from the agreement because, without the intent and the assent to take on those specific directives, there would be no retention agreement.” (P. 24)
The majority gives us the following additional examples where a third party may be a “clearly and definitely” intended beneficiary:
- A woman retains an attorney to create a will for the benefit of her biological son, leaves a specific bequest to her new husband of her wedding ring, and bequeaths the residue of her estate to her son. About this hypothetical, the majority says, “although there may have been multiple purposes to the will, the son was a ‘clearly and definitely intended beneficiary’ of the contract and not an incidental beneficiary.” (PP. 14-15)
- A couple with a new baby retains an attorney to draft their wills. Each spouse names the other as the primary beneficiary of his/her will, and the child (or a trust for him/her) is the contingent beneficiary. As to this set of facts, the majority says, “[a]n overriding purpose in entering into the contract with the attorney to draft such a will at this time is generally to account for the possibility that both parents might perish, perhaps in a common accident, and to provide for the child’s long-term care. Although the surviving spouse remains the primary beneficiary of the will, and the child takes only as a contingent beneficiary, this does not alter the fact that the child is a ‘clearly and definitely intended beneficiary’ of the contract to draft the will.” (P. 16)
A residuary or contingent beneficiary can be a “clearly and definitely” intended beneficiary. The class of the beneficiary is a factor to be considered, but whether a residuary or contingent beneficiary is “clearly and definitely” an intended beneficiary is a fact-intensive inquiry. (PP. 14-17)
The examples in the opinion and the majority’s analysis of the Thorsen case suggest to me that third-party beneficiaries will exist in almost all estate planning engagements. The only example the majority gives of a case where a beneficiary is not “clearly and definitely” and intended beneficiary is where the client does not care who receives his money, as long as the government gets as little as possible. In order for me to prepare an estate plan for a client, the client has to select some beneficiaries (as I am not in the business of selecting beneficiaries for my clients). Once the client selects some beneficiaries, it is difficult to see which of those beneficiaries will not be “clearly and definitely” intended beneficiaries under Thorsen. Perhaps there is something that makes only some chosen beneficiaries “clearly and definitely” intended beneficiaries in the statement that “one of the primary purposes for the establishment of the attorney-client relationship [must be] to benefit the nonclient;” however, I am not sure where to draw the line and am inclined toward caution. (P. 12)
The Third-Party Beneficiary May Sue Many Years After the Will is Signed
The majority determined that the statute of limitations on the third-party beneficiary’s right of action begins to run when the beneficiary is injured (i.e., at or after the testator’s death). This is a departure from the general rule that such limitations periods begin to run at the time of the breach. The rationale underlying the rule in this case seems to be in that the RSPCA “was unable to bring suit in the years following the execution of the will: lacking a vested interest and possessing only a bare expectancy, it had no standing to sue. Not even slight harm or damage accrued to the RSPCA until the testator’s death.” (P. 20) Query whether death will always be the time at which the limitations period begins as to third party beneficiaries in cases like Thorsen or whether “vesting” is really significant.
Thorsen changes who can make a claim against the estate planning attorney for breach of the attorney-client contract and when. In changing those things, Thorsen may affect the frequency of particular types of claims against estate planning attorneys. For example, post-Thorsen, we might see more claims that the estate planning attorney’s error caused a beneficiary to get less than he or she otherwise would have. In Thorsen, a beneficiary received less due to a scrivener’s error. Errors that alter beneficial interests are not always so straightforward. Misunderstandings of default rules (like the rule against perpetuities, elective share, or tax apportionment), inappropriate tax planning, failures to include special needs trust provisions, improper execution, and unreasonable delays could also result in different beneficiaries taking or different allocations among beneficiaries.
The implications of Thorsen may not be limited to estate planning. As Justice McClanahan notes in her dissent, the court may intend to abolish the requirement of privity in all legal malpractice actions. (P. 32, FN 6) It is easy to imagine facts similar to those in Thorsen in estate administration, family law, and other contexts.
Implications for the Attorney-Client Relationship
The majority acknowledges the need for the injured beneficiary to have recourse against a negligent attorney, and Justice McClanahan points out countervailing public policies, chief among which is preserving the sanctity of the attorney-client relationship. (P. 28) While I agree with the majority that the injured beneficiary should have recourse (and am quite comfortable being liable for any negligent acts I might commit), I think Justice McClanahan makes important points about the effects the majority’s decision may have on the attorney-client relationship. The idea that it is not only the client who matters does not fit well into how I have previously thought of my client relationships. The prospect, reasonable or not, of being a defendant in many dissatisfied beneficiaries’ lawsuits—because I am here rather than because I was actually negligent—also concerns me.
Attorneys in other states are already dealing with potential liability to third-party beneficiaries, and perhaps we should not expect major changes in the estate planning field in Virginia in response to Thorsen. However, I think we may see some changes. In particular, we may see Virginia attorneys attempt to limit their liability or reduce their potential negligence.
Some attorneys may seek to limit their liability to third party beneficiaries in their engagement or other agreements with clients. It is an open question whether this will be effective in Virginia.
As to minimizing potential negligence, we might see attorneys practice more defensively. Attorneys may write more warning and confirmatory letters, have another attorney in the office review their estate planning documents, have an another attorney or a paralegal attend some client meetings, include estate tax planning provisions in more documents (increasing length and complexity), expend the resources necessary to be able to produce documents more quickly, implement more extensive practice management solutions, insist more strongly on clients signing documents in their offices, ask (and require answers to) more questions, and similar. These measures would very likely raise the costs of estate planning services, though the measures may ultimately be beneficial for clients.
In their efforts to minimize potential negligence, attorneys may also become more reluctant to take on or continue in cases they perceive as more likely to result in a claim by an intended third-party beneficiary. That perceived likelihood might result from the atypical nature or complexity of a client’s wishes, the litigious nature of a beneficiary, the client’s lack of comprehension of the limitations on the feasibility of his or her estate planning objectives, or other concerns.
Thorsen may not be the final word on attorney liability to third party beneficiaries. Virginia courts will continue to define the contours of these rules, and we may see a response from the legislature. As long as Thorsen is the law, however, I think we will see estate planning attorneys (and possibly other attorneys) thinking more about—and altering—how they practice.
Our estate planning process is a collaboration between us and our clients. The process itself is something we work with each client to define, so it varies from client to client. The time it takes to get from contacting us to a complete estate plan also varies from client-to client. Some clients wish to have their estate plans signed within a few weeks of contacting us, and we work to accommodate those clients. Many clients prefer to go through the process at a more leisurely pace.
All of that said, our estate planning process typically consists of the following phases: (1) information sharing, (2) designing the plan, (3) reviewing and revising the documents, and (4) signing and follow-up.
(1) Information Sharing
Let’s say you call or email one of our attorneys and say something like, “Hi, I think I need an estate plan. Can you help me?” The attorney would typically ask you if you have a few minutes to talk by phone about estate planning and whether we’re the right law firm to help you with your estate plan. If, at the end of that phone call, it seems like we would work well together, we’d schedule a meeting to talk about the details of your estate plan. If we’re planning the estates of you and your spouse, we would need both of you to participate in this meeting. We would also send a questionnaire for you to fill out and send back or bring to the meeting. The questionnaire asks you to fill in information about yourself, your family, and your assets. The questionnaire is extensive, but we ask that you just fill in just the information you have readily available. For someone who is unfamiliar with estate planning, we might also send some optional reading material.
(2) Designing the Plan
During our meeting, we would discuss how, exactly, your estate plan will work. We’d talk about things like who should manage your finances if you’re unable to do so yourself, whether you’d ever want anyone to “pull the plug” if you’re ill, who should receive your property when you pass away, how those people receive the property, and more. This meeting typically lasts between 45 minutes and 2 hours. Additional meetings, phone calls, and emails may be necessary, depending on your goals.
(3) Reviewing and Revising the Drafts
Once we’re all on the same page about how your estate plan should work, we would draft your estate planning documents. We’d send the draft documents to you (and your spouse, if we’re working with both of you) by mail and/or email to review at your convenience. We’d be available to discuss questions and changes as you go through the documents.
(4) Signing and Follow-Up
Once the documents are acceptable to you, we would arrange for you to sign them. We prefer to have our clients sign estate planning documents in our office, as we like to ensure the documents are executed correctly and to serve as the witnesses. Proper execution and credible, locatable witnesses can be helpful if any questions or challenges arise over your estate plan. We typically keep electronic copies of our clients’ estate planning documents and send the originals to the client.
Depending on the type of estate plan you signed and the nature of your assets, we may recommend some follow-up work. For example, if your estate plan included a revocable trust, the trust would need to be funded. We assist clients with as much or as little of the process of funding their trusts as they wish.
As time passes, laws, wishes, and circumstances change. These changes sometimes necessitate changes in estate plans. We suggest our clients assess their estate plans after significant life changes (births, deaths, marriages, divorces, significant changes in wealth, etc.) and at least every few years. We can assist with the assessment and any necessary updates.
If you would like to speak to us about estate planning, please feel free to contact one of our attorneys.
You might think that any lawyer with law degree (a J.D.), a license to practice law, and no disciplinary complaints can make you a good estate plan or advise you well regarding an estate or trust. Those things are important, but they might not be enough.