The New York Court of Appeals has broken new ground.  It has held that an attorney may be held liable for damages resulting from negligent representation in estate tax planning that causes enhanced estate tax liability.  The court held that a personal representative of an estate may maintain a legal malpractice claim for such pecuniary losses to the estate.  The case is Estate of Saul Schneider, Appellant, v Victor M. Finmann, et al., Respondents, New York Court of Appeals Opinion No. 104 (June 17, 2010), 2010 NY Slip Op 5281.

The case involved a $1 million life insurance policy that was included in the decedent’s estate for estate tax purposes.

Before this case, NY courts have applied a strict privity rule, that lawyers owe no duty of care to non-clients, and only a client may sue a lawyer for legal malpractice.   As the New York Appeals Court Jude pointed out, the application of the privity rule "leaves the estate with no recourse against an attorney who planned the estate negligently."  The opinion stated: "We now hold that privity, or a relationship sufficiently approaching privity, exists between the personal representative of an estate and the estate planning attorney."

Further:  "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," Judge Jones wrote. "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 made it clear, however, that strict privity should remain a bar against malpractice suits launched by estate beneficiaries or other third parties absent fraud claims or other special circumstances.

 I recommend that you read Steve Leimberg’s insightful comments on the case in his newsletter at LISI Estate Planning Newsletter # 1660 (June 19, 2010) at Copyright 2010 Leimberg Information Services, Inc. (LISI).