Seventeen Steps Estate Planners Can Take to Avoid Malpractice Claims
Originally published in wealthmanagement.com.
Defensive practices and planning ahead is key.
Troubling statistics, based on a Profile of Legal Malpractice Claims study published by the ABA’s Standing Committee on Lawyers’ Professional Liability, reveal that trusts and estates malpractice claims have steadily increased since 1985: In 1985, 6.97% of all malpractice claims were trust and estate claims; in 2015 that number was up to 12.05%.
This troubling trend underscores the need for estate-planning attorneys (as well as all allied professionals) to engage in protective practices.
Because there’s an endless array of issues that might lead to a claim, it’s impossible to protect against all of them. That doesn’t mean that it isn’t prudent to see if there are protective steps that you might incorporate into your practice in the hopes of avoiding a claim or at least providing better defenses in the event of a claim.
The use of a collaborative team of advisors may reduce some of the risks to the estate-planning attorney. However, unlike CPAs, appraisers and other advisors, attorneys don’t have the ability to limit their liability to fees earned.
Here are 17 defensive practices that might be implemented at each stage of the estate-planning engagement to consider:
1. Firm Policies and Procedures
Consider administrative defensive steps that might occur even before engagement. Review firm marketing materials and evaluate the statements made. There may be a tendency, especially if your marketing personnel prepares the materials, to use terminology like “provide optimal estate tax savings,” “help you find the best technique for your family business” or “provide maximum tax reduction.” Try to avoid loaded words like “optimal,” “maximum” or “best.”
Foster a defensive practice environment. If you conduct periodic firm or department meetings, make defensive practice steps, not merely tax updates, part of the agenda. Review firm forms like organizers and sample cover letters. Consider the potential benefit of having safer practices permeating the firm’s internal documentation.
Defensive practices can start as soon as a prospective client makes an inquiry. Use of a consistent practice of initial due diligence on every prospect can help to deflect a challenge by a prospect who claims they were for some, perhaps inappropriate reason, singled out.
3. Retainer Agreements
Be certain to include in your firm’s templates for engagement letters provisions designed to protect the firm. Be careful not to make promises in retainer agreements (or other communications) to clients that may not be achievable.
4. Forms for New Clients
Your firm’s organizer, questionnaire and other initial preengagement documentation can help to identify potential problem clients so that the engagement can be evaluated. Either tailor the engagement for safety or reject the prospect.
5. Initial Communication
In many cases, before a client is willing to proceed, some type of preliminary communication is necessary. Whether it occurs via a phone call, web meeting or physical meeting, be careful to avoid any ambiguity as to the status of representation. If free consultations are offered, the parameters for the consultation should be clear. If the preliminary discussion is general in nature without provision of legal advice, and if no attorney-client relationship is to be established, make that clear.
6. Accepting the Engagement
As you evaluate the scope of the engagement, honestly assess if the requested work is within your firm’s scope of competency. If the answer isn’t certain, can you reasonably obtain the competency in a time frame that’s appropriate for the engagement? If not, can you recommend co-counsel to fill any skill gaps? Is staff available to properly handle the engagement?
7. Rejecting the Engagement
If you don’t accept an engagement, consider sending a communication that confirms that you weren’t engaged. Save these communications so that they can later be retrieved if a prospect ever asserts a claim—for example, that you missed a deadline. Keep a list of prospective clients whose representation was rejected or from whom you received information that might result in a conflict under a future engagement.
8. Initial Consultations
The initial consultation is not only the beginning of the engagement but also often the first significant contact with the new client. While the focus may be on impressing the client, understanding the engagement and gathering information, it’s also an opportunity to continue to vet the client. Be alert to issues—for example any conflicts of interest—in these initial discussions.
Consider whether to follow up a meeting with a letter and/or memorandum confirming the discussions, decisions and risks that the client was advised of, and so forth. Fairly routine and basic estate planning may involve a unique circumstance or issue for a particular client, a nettlesome family matter, tax consideration or other nuance. Even what you consider as basic planning may be complex or confusing to the client.
10. Updated Retainer Agreement
While you may be able to identify and clearly define the scope of an engagement with certainty, for example, “Drafting a pour over will, revocable trust, power of attorney, living will and health care proxy” for many practices, it may initially be difficult to determine the specific scope of work that evolves as meetings and planning unfold. After the initial engagement, the use of a written follow-up communication that better defines the scope of work can be extremely helpful. If the scope of work changes, document it.
11. Interim Billing
In most instances, billing will occur during the course of the engagement. Evaluate firm billing practices. Some practitioners prefer to bill when a matter is completed. Others generally bill monthly. Consider the possible benefits of billing every client every month. Billing can be an important means of confirming the status of the work for the client and the amount of any retainer used. If a dispute later arises, a series of bills clearly informing the client of the progress (or lack thereof) on the engagement may be protective.
12. Draft Documents
Send draft documents to the clients in advance of any signing and save proof (for example, PDF cover letter or a copy of the email) that the drafts were sent. It’s more difficult for a client to claim they didn’t understand the contents of a document if you sent that document to the client a reasonable time in advance of the signing so that they had time to review the document and ask questions if they wished to do so.
13. Review of Documentation
If you change documents following a review by the client, save notes reflecting the concerns or changes the client desired. Keep a copy of the draft document and any additional drafts provided to the client, together with a copy of the final estate-planning documents.
14. Final Documentation/Signing
If changes were requested or needed, email or mail the client copies of the final documents in advance of the signing. Again, the goal is to give the client the opportunity to confirm that the revisions comport with their wishes.
15. Returning Signed Documents
When documents are signed, the next steps will depend on whether you retain the originals or return them. If originals are maintained, it may be helpful to keep a log of documents held, and if they represent the only original of a document, protect it in a fireproof and locked cabinet. If the originals are returned to the client following the signing, consider having the client sign a written acknowledgment that they received the original documents.
16. Closing Communication
When the final documents and copies or PDFs are provided to the client, consider using a standard cover letter that’s tailored to the specific client as necessary. Caution the client as to the need to revisit the documents if there are changes in circumstances and that it’s the client’s responsibility to inform you of any such changes.
17. Final Billing
When the final bill for the matter involved is sent, if the billing system permits, close that matter so that any new matter will be under a new billing code. Consider also including some indication in the final bill that the work requested has been completed.
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