Who are Intended Beneficiaries of a Trust?
This issue was the subject of the recent decision in Grossman v. Wakeman.
Attorney John Peter Wakeman, Jr. (Wakeman), and Wakeman Law Group, Inc., appealed the legal malpractice judgments entered against them following a jury trial.
The judgments were in favor of respondents Jeffrey G. Grossman (Jeffrey), Alexis Grossman (Alexis), and Nicholas Grossman (Nicholas).
The appellate court reversed the judgments.
Respondents were not appellants’ clients. Appellants’ client was Dr. A. Richard Grossman (Richard), the father of Jeffrey and Peter Grossman (Peter).
Peter is the father of Alexis and Nicholas, hereafter “the grandchildren.” During the trial, Richard was described as “a huge name in the . . . burn surgery community” who “had started the Grossman Burn Centers.”
Peter is the husband of recently convicted Rebecca Grossman for the death of two children in a traffic collision who was sentenced to 25 years to life.
Richard died in March 2014 at the age of 81. His estate was valued at $18 million.
Richard’s 2012 estate planning documents, prepared by appellants, disinherited respondents and Peter.
Richard’s entire estate was left to his fourth wife, Elizabeth Grossman (Elizabeth), even though she was independently wealthy. Richard married Elizabeth in 2000, and they remained married until his death.
Although Richard’s 2012 estate planning documents disinherited respondents, in a special verdict the jury expressly found that respondents were “the intended beneficiaries of” the documents.
The jury further found that appellants had “breach[ed] the standard of care in the preparation” of the documents and that respondents had been damaged by appellants’ negligence. The jury awarded damages totaling $9.5 million: $4.75 million to Jeffrey and $4.75 million to the grandchildren.
Appellants alleged that they “owed no duty to [respondents].” They “owed a duty only to the decedent, Richard Grossman.” Appellants contended, “[T]he absence of . . . a duty to [respondents] establishes that [they] cannot be liable to [respondents], since duty is an essential element of a malpractice claim.”
The appellate court concluded the evidence was insufficient to show that appellants owed a duty of care to respondents because there is no “clear, certain and undisputed evidence of [Richard’s] intent” to benefit respondents by leaving his estate to them.
A 2003 restatement of Richard’s revocable trust (the ARG Trust) equally divided the residue of his estate into two shares: one share for each of his two sons, Jeffrey and Peter. Elizabeth would receive only Richard’s personal property.
In September 2011 Richard met with Wakeman.
Richard told Wakeman that he wanted half of his estate to go to Jeffrey and the other half to go to the grandchildren, i.e., Peter’s children. Richard said he did not want Peter to inherit a portion of his estate because “Peter had already been well provided for and he didn't really trust Peter to take care of his own kids.”
On December 1, 2011, Wakeman met with Richard and Elizabeth. Wakeman testified that at the meeting Richard had said “he wanted to leave everything to Elizabeth and let her decide what to do with it.”
“‘All [Richard] said is, “I want it all to go to Elizabeth, and she can decide who gets what” . . . [in her] [c]omplete discretion.’” Wakeman advised Richard “‘that he was essentially disinheriting his grandchildren and his . . . son.’”
Richard told Wakeman “that Peter was likely to sue when he found out what Richard had done, so [Wakeman] advised Richard that it would be best for him to have a neurological exam to have contemporaneous documentation in his file as to his mental capacity.” Richard did so.
In a letter dated March 20, 2012, Dr. Peter Miao wrote: “[Richard] has been under my care for the past many years. He has had neurological exam recently and has had a complete neurological work up. I find him in sound mind & body and is capable of making competent financial and estate planning decisions.”
On December 21, 2011, Wakeman sent Richard estate planning documents that, according to Wakeman, carried out Richard’s instructions at the December 1, 2011 meeting. The documents included an irrevocable trust for Jeffrey and an irrevocable trust for the grandchildren. An inventory of Richard’s property shows that, at the time of his death, Brookfield Farms constituted the bulk of his estate’s value.
Wakeman also sent Richard an amendment and restatement of his revocable trust, the ARG Trust. Richard was named as the trustee of the trust, and Elizabeth was named as the successor trustee.
The restatement provided that, upon Richard’s death, the trustee shall make a gift of $25,000 to each of three named beneficiaries. Neither respondents nor Peter would receive a gift.
The restatement continued, “[T]he Trustee shall distribute the rest, residue and remainder of the Trust Estate outright and free of trust to the Settlor's spouse, Elizabeth Rice Grossman.” Wakeman testified, “[I]f Elizabeth predeceased Richard, then [the residue] was going to go 50-50, half to Jeff’s trust and half to the grandkids’ trust.”
On appeal, Respondents argued: “It is undisputed that there is not one iota of evidence suggesting that Richard ever had a falling out with his three intended beneficiaries [Jeffrey and the grandhildren]. Indeed, . . . there is a virtually unbroken solid wall of testimony from multiple friends, colleagues, family members, and percipient witnesses that Richard truly loved these close family members and fully wanted to provide for them.”
“The massive weight of the evidence is that Richard always intended to bequeath his estate to his sole Grandchildren and his special needs son Jeffrey.”
Respondents claimed that Elizabeth “had legally forsworn” any right to Richard’s estate because “Elizabeth and Richard had signed a prenuptial agreement which provided that neither would inherit anything from the other and that all their money and assets would go to their respective heirs. Nothing in the trial record suggested that that prenuptial contract had ever been formally abrogated.”
But the 2000 prenuptial agreement permitted either party to bequeath property to the other party: “Nothing contained in this Agreement shall affect the right of either party hereto to transfer, convey, devise or bequeath any property to the other or to receive any legacy or devise or any other benefit expressly given by any will, codicil, trust or other instrument of the other executed after the date of this Agreement.”
A nonclient third party can maintain a malpractice action only if there is clear, certain and undisputed evidence of the client’s intent to benefit the third party, or to benefit the third party in the way the third party claims.
The third party must show that the client’s attorney knew or reasonably should have known of this evidence when the alleged malpractice occurred. Attorneys are not clairvoyants capable of ascertaining the unexpressed intent of their clients.
Because the evidence of Richard’s alleged intent to leave his estate to respondents instead of Elizabeth is not clear, certain, and undisputed, as a matter of law the evidence is insufficient to show that appellants owed a duty of care to respondents in preparing the 2012 restatement of the ARG Trust.
Wakeman’s testimony, together with the supporting testimony of Elizabeth, Laurel Luby, and Meredith Rattay, shows that the evidence of Richard’s alleged intent was disputed.
If Richard had intended to leave his estate to respondents, there would have been no need for him to have obtained the letter from Dr. Miao attesting to his capability of “making competent financial and estate planning decisions.”
Wakeman advised Richard to obtain the letter because Richard said he wanted to disinherit his children and grandchildren and leave his entire estate to his independently wealthy fourth wife.
The imposition of malpractice liability in these circumstances would not only be unjust, it would also place an intolerable burden on the legal profession.
LESSONS:
1. A living trust is an essential part of any estate plan.
2. Although not required like probating a will, a trust can be challenged in probate court.
3. If applicable, obtain a neurological exam to have contemporaneous documentation as to the mental capacity of the Settlor/Trustor.
4. A nonclient third party can maintain a malpractice action only if there is clear, certain and undisputed evidence of the client’s intent to benefit the third party, or to benefit the third party in the way the third party claims.
5. The third party must show that the client’s attorney knew or reasonably should have known of this evidence when the alleged malpractice occurred. Attorneys are not clairvoyants capable of ascertaining the unexpressed intent of their clients.
6. Filing a legal malpractice case waives the attorney-client privilege..