In a decision filed April 17, 2008, the Pennsylvania Superior Court turned what we know about wills and joint property on its head.  In In re Estate of Amelia J. Piet, the court ruled that joint accounts did not pass to the surviving joint owner because the accounts were made joint after the execution of a will that would have provided a different disposition.

The concept of a ‘convenience account’ has long been part of the law of the Commonwealth.  20 Pa.C.S.A. §6304 of the Multiple Party Accounts Act provides:

"(a) Joint Account. – Any sum remaining on deposit at the death of a party to a joint account belongs to the surviving party or parties as against the estate of the decedent unless there is clear and convincing evidence of a different intent at the time the account is created."

The Allegheny County Orphan’s Court, after hearing, found that for the accounts in question, there was no evidence to overcome the statute’s presumption and that the accounts passed to the surviving joint owner.

The Superior Court said they would not "blindly adhere" to the section 6304(a) ownership presumption, because  the testamentary intent of the testator would be frustrated.    (In other words, they are  not going to follow the statute.)  The court held that the previously executed will "trumps" the joint registration of the bank accounts.   Have you ever heard of anything like that?

The court cited In re Estate of Novosielski (a troubling case in its own right – see an excellent discussion of Novosielski and of the Piet case by Attorney Thomas K. Johnson II in Dechert LLP’s newsletter) to support its holding even though that case can be readily distinguished on its facts as pointed out in the dissenting opinion.

In a lone dissent, Judge Maureen Lally-Green says "It has been the law for centuries in the Commonwealth that regardless of what is devised in a will and to whom it is devised, a testator can gift away any or all assets during his or her lifetime as long as donative intent and delivery are present.  The gifting can occur in many forms from an outright inter vivos gift to a gift that occurs in a joint tenancy with rights of survivorship by the death of one joint tenant and the passing of the gift to the survivor.  All such gifts take effect outside of the estate that passes by will."

Further:  "I do not believe that the creation of a joint account with a right of survivorship alters the testamentary scheme.  Rather, such an account alters the amount of the estate,  The execution of a will does not prevent the testator from subsequently altering the amount in the estate as he or she sees fit. such as by the creation of a joint account or through inter vivos gifting."

What do we do now?

Does this mean that whenever we administer an estate we must determine when joint property is created and if it is after the last Will, we must seek to recover it for the estate?  Does the same thing apply to beneficiary designations? 

Here is the advice of Attorney Thomas K. Johnson II: 

"It seems likely that the Pennsylvania Supreme Court or the Legislature will have to address this issue in the near future.  For now, however, attorneys, financial institutions and joint account holders need to be aware that they may need to change their current practice to carefully document the creation of any joint account as consistent with a prior will or to anticipate the issue when drafting wills and address the issue of after-created joint accounts by expressly stating that such accounts may be created and are not inconsistent with the testator’s wishes."

 Thank you to Lancaster Attorney Will Campbell for pointing out this very troubling decision.

 

 

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?