For your clients who ask this question:

     LITIGATION, n. A machine which you go into as a pig and come out of as a sausage. 
                                                                              Ambrose Bierce, The Devil’s Dictionary

When people you love die, you think you’ll need a long time to get over it. Reading the will may change your mind. If your step-mother gives all of your deceased father’s assets to her kids instead of to you, you may shift from sad to mad in a heartbeat. But they were her assets and it was her choice to make.

Where was the lawyer? He drafted a will for Dad in which Dad gave everything to your stepmother. Didn’t your Dad want to make sure you got something? What did the lawyer do to protect you? Can you sue the lawyer for doing a lousy job?

Usually, only parties to a contract may sue for breach of contract or for negligence. These parties are said to have “privity” and be in such a relationship that obligations and duties are owed to one another. The parties to the contract to draft a will are the lawyer and the testator. The testator engages the lawyer to prepare the will in exchange for payment of the lawyer’s fee. Usually if an error is discovered, the testator is dead; so the testator isn’t around to sue the lawyer when things go wrong. Can the beneficiaires of the will, third parties to the contract, sue the lawyer who drafted the will? Maybe. Surely there must be some redress. Otherwise lawyers would never be responsible for errors made in wills if the lawyer’s only duty is to the deceased.

Third party beneficiary rights were first established in Pennsylvania in an 1897 case, Lawall v. Groman. Mrs. Lawall sold real estate to her brother in return for a promissory note and a lien on the property. The brother’s lawyer wrote the papers. Mrs. Lawall asked for a first lien, and her brothers’ lawyer assured her she would have a first lien. As it turned out, Mrs. Lawall had a third lien which was practically useless. She sued her borthers lawyer and the court was asked to determine if she had standing to sue since the lawyer only had a contract to represent her brother.

She won the lawsuit because the court said that “one who undertakes to perform a service for another, even without reward, is bound to exercise reasonable care and can be held responsible for misfeasance, though not for nonfeasance.” (Misfeasance means doing something poorly. Nonfeasance means not doing it at all.) Lawall requires a specific undertaking on the attorney’s part to perform a specific service for a third party, coupled with the reliance of the third party and the attorney’s knowledge of that reliance in order for the third party to bring suit. In the case of wills, beneficiaries don’t usually have a conversation with the lawyer as Mrs. Lawall had with the brother’s real estate lawyer, and therefore will beneficiaries were not able to sue using the theory of that case. The lawyer escapes liability.

A refinement was added in 1950 in Spires v. Hanover Fire Insurance Co. This case held that for a third party beneficiary to have standing to recover on a contract, both parties (attorney and testator) must express an intention that the third party be a beneficiary to whom the attorney’s obligation runs in the contract itself. In other words, the obligation to the third party must be created, and must affirmatively appear in the contract between the lawyer and the client.

Under the Spires analysis, a beneficiary of a will would be a third party beneficiary with standing only if the testator and the attorney had a written contract to write a will, and the contract indicated the intention of both parties to benefit the legatee. The fact that the beneficiary is named in the will is not relevant to third party status. Thus, it is very unlikely that a beneficiary could ever bring suit under the Spires requirements. The lawyer still escapes liability.

The Spires rule was overturned in 1983 in Guy v Leiderbach and Guy remains the rule today. In Guy, the PA Supreme Court decided to adopt the policy in the Second Restatement of Contracts where intended beneficiaries are given the right to sue. “The beneficiary of a promise is an intended beneficiary if recognition of a right to performance in the beneficiary is appropriate to effectuate the intention of the parties and either (a) the performance of the promise will satisfy an obligation of the promisee to pay money to the beneficiary; or (b) the circumstances indicate that the promisee intends to give the beneficiary the benefit of the promised performance.” (How’s that for legalese?)

The result is that beneficiaries named in the will are given standing to sue the drafting attorney as third party beneficiaires. As for unnamed beneficiaries, it is up to a court to decide if they are intended beneficiaries or not. Unintended beneficiaries may not bring suit. The lawyer may or may not escape liability.

The theory of the court in the Leiderbach case was that justice balances the needs of the individual and of society. On the one hand, beneficiaries who receive less than a fair inheritance due to the actions of the attorney deserve redress. On the other hand, the public needs affordable legal assistance. If a drafting attorney could be sued by anyone and everyone who thinks the testator intended to leave him something in the will, the lawyer’s job becomes almost impossible. The amount of paperwork, contracts, and necessary protections would make getting a will drafted prohibitively expensive. Legal assistance gets to be unaffordable when the ability to sue the lawyer becomes the right of every being on earth for every will ever written.

The court opined that strict privity favors the public too much, while allowing every person on earth to sue the writer of a will favors the individual too much. Limiting the ability to sue the lawyer to those with privity and to intended third party beneficiaries is the court’s latest attempt to balance the scales. Do you think they are balanced?

We usually think of a person’s will as a financial document used to make sure his or her estate is distributed according to his or her wishes. The will can also be used as a constructive tool or a destructive weapon to reach other goals, which often do not involve money.

Eddy M. Elmer, in his article, “The Psychological Motives of the Last Will and Testament” describes the use of wills. Used positively, a will can be used to foster a sense of continuity for the survivors and to preserve family relationships. Used negatively, through imposed conditions, disinheritance, unequal treatment, and attaching “strings,” a will can be used to control from the grave and continue dysfunction in a family.

With the power to make a will comes the right to disinherit. By the common law, anyone may give his estate to a stranger, and thereby disinherit his heir apparent. In the words of Mr. Elmer, “disinheritance is one of the more vengeful goals of will-writing.”

Most states include protections for a surviving spouse so that the spouse cannot be completely disinherited, although in Pennsylvania, the spouse has a right to receive only one-third of the deceased spouse’s estate. In all the states except Louisiana, children can be disinherited.

When it is the intention of the person making the will to disinherit a child or someone who is an heir at law, it is important to make it clear that the omission of the person from the will is not a mistake or oversight. For this reason, sometimes wills provide “I give my son John $1.00.” Leaving someone a dollar is not intended to be a gift to them. It is a formal statement of disinheritance. Similarly, a will could provide “I leave nothing to my son John,” or “I am leaving nothing to my son John, for reasons known to both of us."

Questions can arise about these provisions. If John predeceases the parent who made the will, do John’s children inherit? Is the disinheritance of John to be assumed a disinheritance of his children also? The will must be drafted to make the answer to this question clear.

It is best not to give a reason for the disinheritance. If a reason is given, and it is proven to be a mistake of fact, then there could be a dispute about the validity of the disinheritance. For example, a will could provide “I give nothing to my son John because he is a convicted felon.” If John is not a convicted felon, is he still disinherited?

A writer of a will can also disinherit anyone who challenges the validity of the will in what is called an "in terrorem" clause. "I leave anyone who challenges this will or any part of it one dollar." Sometimes these clauses are called “no contest clauses.”

An in terrorem clause (pronounced (in tehr-roar-em) is from Latin for "in fear." It is any provision in a will which threatens that if anyone challenges the legality of the will or any part of it, then that person will be disinherited or given $1.00, instead of receiving his or her stated bequest in the will.

An in terrorem clause is intended to discourage beneficiaries from legal battles after the testator is deceased. However, if the will is challenged and found to be invalid (perhaps because of lack of capacity or undue influence), then the in terrorem clasue which was part of the failed will fails as well. Whether or not to challenge the will then becomes a calculated risk.

An in terrorem clause is not much help to disinherit a child or other beneficiary entirely. It is most useful when the child or other beneficiary receives something meaningful under the will, but just less than what he or she might feel entitled to. If you completely disinherit someone, and include an in terrorem clause in the will, there is not much of a threat. If the person you are concerned about challenging the will is not a beneficiary, he or she has nothing to forfeit (and nothing to “fear”). So an in terrorem clause would have no effect on him or her. For the clause to work, you have to leave enough to the disfavored beneficiary so that the beneficiary has too much to lose if the challenge fails.

In Pennsylvania, under the 1994 changes to the Probate Estates and Fiduciaries Code, “[a] provision in a will or trust purporting to penalize an interested person for contesting the will or trust or instituting other proceedings relating to the estate or trust is unenforceable if probable cause exists for instituting proceedings.” Probable cause, in general, is when a reasonable person, properly advised, would conclude that there is a substantial likelihood that the will contest will be successful. The policy behind allowing this probable cause exception is to ensure that a person is not intimidated into remaining silent out of fear of losing a bequest where there is a good faith belief that the will is invalid.

An in terrorem clause may be viewed favorably as a means of discouraging frivolous litigation. On the other hand, courts tend to construe the clauses strictly because their enforcement causes a complete forfeiture of the claimant’s interest, a harsh result. There are many court cases on what should be the fair boundaries of the power to condition a gift on not contesting a disposition. The law frowns on a provision which seeks to repress a search for the facts surrounding a disposition in a will. Florida and Indiana have statues that completely void the use of in terrorem clauses.

It is unhealthy for the living as well as the dead if we use our death as an occasion to get even and settle petty accounts — with our own children, no less.

Taxing authorities are increasingly challenging the tax-exempt status of nonprofits. More and more nonprofits look like businsses. They charge fees and sell products and services to raise money. As state and local govenrments face declining tax revenues, exempting these institutions from taxation makes less and less sense.

James D. Miller, an Economics professor from Smith College wrote an article entitled "Massachusetts Should Tax Harvard.” He says:

“Some Massachusetts legislators want to tax rich colleges. Under their proposal, as reported on Inside Higher Ed, Massachusetts colleges would pay a 2.5 percent tax on all assets over $1 billion. (The idea is part of a broader push to question whether some colleges with hefty endowments are inappropriately hoarding wealth while continuing to raise their tuitions sharply.) Nine schools, including Harvard and Smith College (my employer), are wealthy enough to be subject to the tax”. Harvard’s endowment is over $35 billion.

The Senate Finance Committee has been looking at the idea of requiring colleges to pay out a minimum proportion of their endowment funds. The problem is that universities with huge endowments are not doing enough to help students afford college. Instead, they raise tuition at an alarming rate. One proposed solution is to force institutions to pay out at least 5% of the endowment annually, just like private foundations are currently required to do. After all, where is the public benefit in hoarding the money?

Universities, like other charities, are given tax exemptions because they provide a public benefit or reduce the burdens on governemnt. Is growing your endowment year after year while you raise tuition a public benefit?

Two Senators  wrote the presidents of 136 colleges wrote the presidents of 136 colleges in January 2008 asking for data and explanations about their admissions, financial aid and endowment spending policies and practices. “We would appreciate additional information about tuition costs and your institution’s endowment,” which receive “very generous tax breaks under the Internal Revenue Code,” the two senators wrote. “We want to better understand how these tax benefits for higher education endowments are improving education and making undergraduate studies more affordable for low and middle income families today.”

Lynne Munson, a research fellow at the American Enterprise Institute is coming out with a book tentatively titled Scrooge U. Munson says “decades of hoarding” have resulted in a situation whre “it would take a rainy day of biblical proportion to require significant tapping into these stockpiles.” When institutions face budget difficulties, she said, they are “far more likely to cut educational expenditures than to tap into endowments.”

Pressure works. In December, Harvard announced a decision to limit annual tuition and room and board costs to 10% of income for families earning $120,000 to $180,000. This puts a limit of $18,000 on expenses for these families. Below $120,000 the percent of income drops steadily until it reaches zero at $60,000. The full cost of a year at Harvard is $45,600. A number of other universities have jumped on the band wagon – University of Pennsylvania, Yale and Stanford, to name a few. Now that sounds more charitable, doesn’t it?

Vickie Lynn MarshallThanks to Vickie Lynn Marshall your next will contest may be in federal court. You probably know her as Anna Nicole Smith – the 1993 Playmate of the Year and TV reality show star who married oil billionaire J. Howard Marshall when he was 89 and she was 26 (let me help you with the math, that’s 63 years difference in age.)  Marshall died 13 months after his marriage. Then began a lengthy battle over Anna Nicole’s claim for part of her deceased husband’s estate. 
    

Anna Nicole (or Vickie) claimed her husband promised her half his estate if she married him. But Marshall did not include anything in his will for Anna Nicole. The Texas Probate Court where Marshall’s will was probated ruled that Smith had no rights whatsoever to her deceased husband’s estate. (Remind me not to live in Texas.) She took her case to a bankruptcy court in California on the theory that her possible interest in her deceased husband’s estate was an asset in the bankruptcy. She accused J. Howard’s son, E. Pierce Marshall of scheming to deny her the inheritance by fraud, forgery and overreaching. She also filed counterclaims, among them a claim that Pierce had tortiously interfered with a gift she expected from J. Howard.

The bankruptcy court ruled in her favor. On appeal the 9th Circuit overturned the bankruptcy court, saying the case really belonging in Texas Probate Court citing the “probate exception.” The 9th Circuit held that the “probate exception” to federal jurisdiction should be read broadly to exclude from the federal courts’ adjudicatory authority not only direct challenges to a will or trust, but also questions which would ordinarily be decided by a probate court in determining the validity of the decedent’s estate planning instrument, whether those questions involve fraud, undue influence, or tortuous interference with the testator’s intent. The court also held that a State’s vesting of exclusive jurisdiction over probate matters in a special court strips federal courts of jurisdiction to entertain any probate related matter, including claims respecting tax liability, debt, gift, and tort

SCOTUS, in a unanimous opinion written by Justice Ruth Bader Ginsberg, overturned the ruling of the 9th Circuit. Ginsberg wrote that in general, state courts are given the authority to oversee wills and the administration of estates. In this case, however, Ginsberg said that Smith’s accusations against her husband’s son make this more than just a probate matter. See Marshal v, Marshall, 547 U.S. (2006).

Here are some excerpts from Justice Ginsburg’s opinion:

“This Court rejects the Ninth Circuit’s alternate rationale that the Texas Probate Court’s jurisdictional ruling bound the Federal District Court. Texas courts have recognized a state-law tort action for interference with an expected gift or inheritance.”

“ It is clear, under Erie R. Co. v. Tompkins, 304 U. S. 64, that Texas law governs the substantive elements of Vickie’s tortuous interference claim. But it is also clear that Texas may not reserve to its probate courts the exclusive right to adjudicate a transitory tort.”

“At issue here, however, is not the Texas Probate Court’s jurisdiction, but the federal courts’ jurisdiction to entertain Vickie’s tortuous interference claim. Under our federal system, Texas cannot render its probate courts exclusively competent to entertain a claim of that genre.”

Interestingly, the Solicitor General entered an Amicus brief supporting Anna Nicole and supporting expanded federal jurisdiction.