The Court Of Appeals Turns Judicial Precedent On It’s Ear!

Recently, New York’s highest court ruled that estates can sue estate-planning attorneys for malpractice, dramatically overturning decades of judicial precedent.

On June 17th, the New York Court of Appeals unanimously held that privity exists between an estate and its estate-planning attorney, and that the attorney can therefore be sued for damages resulting from” the negligent representation in estate tax planning that causes enhanced tax liability” by a personal representative of the estate. A lack of privity, which is a legal term describing a contractual or near-contractual relationship, had previously shielded negligent attorneys from malpractice suits.

The decision arises from the case of Estate of Saul Schneider v. Finmann. In April 2000, Saul Schneider, now deceased, purchased a $1 million dollar life insurance policy. Over several years, he transferred ownership of that property from himself to an entity of which he was principal owner, then to another entity of which he was principal owner. In 2005, he then transfered the ownership back to himself. In October 2006, at his death, the proceeds of the insurance policy were included as part of his gross taxable estate.This transfer then resulted in an increased amount of estate tax liability. In 2007, Mr. Schneider’s estate commenced a malpractice suit, alleging that hi s estate-planning attorney negligently advised him to transfer the policy. While, the Second Department refused to set aside the state’s “well-established rule” that attorneys cannot be held liable to third parties for malpractice “absent fraud, collusion, malicious acts or other special circumstances”, obviously, the Court of Appeals had other ideas.

Well done, Court of Appeals! Thank you for finally joining the majority of states that recognize privity between estate and attorney! Finally, there is some type of redress for those estates who have been harmed by their negligent estate-planning attorney. For too long have these types of incompetent attorneys been hiding behind an outdated
law! Although this decision could pose some difficulties for attorneys that lack knowledge in tax and estate laws, they should not be the ones handling these types of cases.

What effect does this have on medical malpractice attorneys and their clients? Probably nothing, but it does re-enforce the message that all attorneys, no matter what their practice area is, must treat their clients’ cases with care. I therefore applaud the Court of Appeals’ decision.