Estate Planning Attorney Malpractice and Unfunded Trusts: When the Lawyer’s Failure Creates the Estate Litigation

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When a revocable living trust fails to accomplish its intended purpose because the estate planning attorney failed to properly fund it, advise about funding, or supervise the funding process, the beneficiaries who suffer the consequences of that failure may have a legal claim against the attorney as well as the estate administration problems they must address. Estate planning attorney malpractice claims arising from unfunded trusts represent a specific and increasingly recognized category of professional liability that can provide compensation to beneficiaries who incur additional costs, delays, and adverse tax consequences because their loved one’s attorney failed to perform the complete services the engagement required. Understanding when estate planning malpractice is viable, what it requires, and how it interacts with the probate proceedings the unfunded trust necessitates gives affected beneficiaries the complete picture of their legal options.

The Estate Planning Attorney’s Funding Duty

California courts have recognized that an estate planning attorney’s duty to their client extends beyond the drafting and execution of trust documents to ensuring that the client understands the need to fund the trust and, in many engagement structures, assisting with or supervising the funding process itself. When an attorney creates an elaborate estate plan featuring a revocable living trust but fails to advise the client that the trust must be funded with specific assets to accomplish its purposes, or fails to assist with the retitling of assets into the trust as part of the engagement, the attorney may have breached the standard of care applicable to estate planning practice in California.

Who Has Standing to Bring the Malpractice Claim

Estate planning malpractice claims in California are complicated by the standing question: the client who was directly harmed by the malpractice is deceased, and the persons who actually suffer the financial consequences of the unfunded trust are the intended trust beneficiaries who were not the attorney’s direct clients. California recognizes the rights of intended beneficiaries to bring malpractice claims against estate planning attorneys when the attorney’s negligence frustrated the client’s intent to benefit those specific beneficiaries, even though the beneficiaries had no direct attorney-client relationship with the negligent attorney. The standing analysis requires establishing that the plaintiff was a specifically identified intended beneficiary of the estate plan, and that the attorney’s negligence caused the plaintiff to receive less than they would have received if the estate plan had been properly implemented.

The Damages Calculation in Unfunded Trust Malpractice Cases

The damages in an unfunded trust malpractice claim are the costs and losses that the beneficiaries would not have incurred if the trust had been properly funded during the settlor’s lifetime. These include the attorney fees and court costs required for the Heggstad petition, Section 850 petition, or probate proceeding necessitated by the attorney’s failure; the estate taxes that were paid because assets passed through the taxable estate rather than through the trust; the delay in distribution caused by the probate process; and any assets lost because they could not be transferred to the trust through post-death proceedings. Establishing these damages requires comparison of the financial outcome that was actually achieved with the outcome that would have been achieved if the trust had been properly funded, which typically requires expert testimony from another estate planning attorney or financial expert.

The California State Bar’s estate planning resources address professional standards applicable to California estate planning attorneys. Working with experienced attorneys who understand the problems unfunded trusts create in estate litigation and who can evaluate malpractice claims alongside the estate administration options gives affected beneficiaries the complete legal analysis their situation requires.

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