Opinion ID: 2834542
Heading Depth: 1
Heading Rank: 3

Heading: A Bypass Suit for Every Bypass Trust?

Text: Because of the conflicts of interest inherent in expecting an attorney to safeguard the interests of clients and beneficiaries alike, claims by disappointed beneficiaries would discourage attorneys from focusing solely on the client’s best interests, the essential teaching of Barcelo . I see no special significance to the fact that the beneficiaries here were beneficiaries to a trust that was not created by Denney’s will. Barcelo also concerned a separate trust that allegedly was not properly funded. [11] Regardless, the critical similarity with Barcelo is that the interests of the beneficiaries whose claims led to the malpractice suit were not necessarily aligned with the interests of the deceased client, and the mere risk of divided loyalties compelled us to maintain a bright-line privity barrier that precluded legal malpractice suits filed by third parties. I would not read Belt to apply whenever third parties manage to bring suit against the estate instead of the attorneys or the client directly. Again, the trust beneficiaries here could have brought suit against Denney or his attorneys but declined to do so. In Barcelo , the disappointed trust beneficiaries apparently could have pursued litigation against the executor of the client’s estate, but instead settled with the estate “for what they contend[ ed ] was a substantially smaller share of the estate than what they would have received pursuant to a valid trust.” [12] Bypass trusts and other trusts are extremely common estate planning devices for couples wishing to minimize taxes or serve other estate planning goals. [13] As happened here, the beneficiaries to the trust created by the will of the first spouse to die may have to wait until the surviving spouse dies, since the surviving spouse typically receives income from the trust until death, and the corpus of the trust then goes to the beneficiaries. If Barcelo can be circumvented in three simple steps—(1) beneficiaries sue the estate to resolve an objection to how the trust was funded or created; (2) executor settles with the beneficiaries; (3) executor then recoups the settlement by suing the attorneys who long-ago advised one or both spouses— Barcelo ’s privity bar will prove porous indeed. I would limit Belt to cases where the court can safely assume that the interests of the client, the executor, and the disappointed heir or trust beneficiary are plainly and truly aligned, a situation we manifestly do not see here. Further, if the only prerequisite to suit against a deceased client’s attorney is that it must be brought by the executor, an endless variety of claims could be brought on the theory that the attorney’s advice resulted in a smaller estate or trust. Every lawyer who advised a client to plead guilty or not, file for bankruptcy or not, settle a dispute or not, incorporate a business or not, and so on, would be fair game. I suspect that many experienced estate-planning attorneys have encountered a client who plans to “breathe his last breath and spend his last dollar,” and who wishes not to be bothered with the paperwork, expense, meetings, or loss of control over assets involved in maximizing his estate. Today’s decision arguably places a duty on attorneys to dissuade such a client from his carefree inclinations, and to steer him instead to altruism, a task, in my view, better left to those with divinity degrees instead of law degrees. The distinction between this case and Belt is best captured with this question: would the client be rooting for the executor and the beneficiaries? In Belt we assumed the answer was “yes” so long as the client wanted his estate-tax liability minimized, thus leaving more to the chosen heirs. As the interests of the client-testator, estate, executor, and heirs were perfectly aligned, extending privity from the client to the executor made perfect sense. In today’s case, a “yes” answer is less clear. To put it mildly, the record does not suggest that Denney would be rooting for the trust beneficiaries, his six children, whom he wanted to inherit only nominal sums from himself and Des Cygne , with the bulk of his estate going to charity. [14] The California suit by the children directly precipitated the Texas legal malpractice suit. Barcelo endeavored to bar legal-malpractice suits by beneficiaries with a bright-line rule because conflicts might arise due to “concomitant questions as to the true intentions of the testator.” [15] Belt distinguished cases “when disappointed heirs seek to dispute the size of their bequest,” [16] and where the attorneys are being “second-guessed by the client’s disappointed heirs,” [17] the situation here. Cox & Smith advised Denney regarding Des Cygne’s trust and her estate-tax filing. In the course of this advice the Cox & Smith attorneys advised Denney that the Automation Industries stock might, depending on choice-of-law questions, be deemed community property despite Denney’s written representation to the attorneys that “ DesCygne and I had a firm understanding that she had no interest in my stock in [Automation Industries].” Cox & Smith recommended that Denney seek a declaratory judgment regarding the proper characterization of the stock, but he refused, and instead “made a decision that it . . . was his separate property,” according to the testimony of Cox & Smith attorney Jack Guenther. Denney always believed that the Automation Industries stock was his separate property, as he started the company in the 1940s, long before he married Des Cygne . Throughout his lifetime—through Des Cygne’s death, three divorces, and a stock sale while married to his fifth wife—Denney insisted the stock was his alone. O’Donnell’s testimony confirms Denney’s consistent position for thirty years was “that he, not any of his wives, owned all the Automation Industries stock.” At bottom, the legal-malpractice claim is that Cox & Smith should have persuaded Denney to do something he believed was wrong and did not want to do. Denney’s lawyers should not be subject to suit, decades after their representation, for implementing their client’s express wishes to live out his life as a wealthier man, based on a then-defensible position that the stock was indeed his separate property and did not belong in Des Cygne’s trust. The privity rule serves to tell lawyers in this situation to fight for Denney, not against him, and try to assure that he gets to keep his stock. This case presents a conflict between client and trust beneficiary (Denney and his children) and also requires a presumption, against all record evidence, that Denney would cheer his estate’s decision to settle with the children (who wanted the millions that Denney instead gave to charity) and then sue Cox & Smith for having carried out his wishes. Unlike the facts in Belt , what most benefits the living client who received the legal advice (treating the stock as separate property) and what the executor thought was in the estate’s best interest (paying millions to settle claims that the stock was community property) are contradictory. These conflicting, misaligned interests were not present in Belt .