Maryland uses the “strict privity” theory in malpractice suits by beneficiaries against the attorney-drafter. This generally precludes beneficiaries from being able to hold the attorney liable for apparent drafting errors.
In Noble v. Bruce and Fauntleroy v. Blizzard, consolidated in 349 Md. 730 (1998), the Court of Appeals considered two cases on the scope of the attorney-drafter liability. Noble v. Bruce involved mirror-image wills for a husband and wife that failed to use credit shelter trusts although the combined assets of the couple exceeded the unified credit amount. The heirs complained that the failure to use the federal tax credit upon the first death cost the estate and the heirs an unnecessary federal estate tax. In the second case, Fauntleroy v. Blizzard, a surviving spouse made a specific bequest of closely held stock to her brother-in-law’s children (the stock representing part ownership in a company held by her late husband’s family) and bequeathed the residuary estate to her primary heirs. There was correspondence from the decedent’s attorney explaining that the specific bequest would trigger a large federal and state tax as the value of the stock was approximately $1.4 million. From this correspondence it appeared that the will was meant to contain a tax clause directing the burden of the taxes generated by the stock to the stock. In fact, the will did the opposite – it shifted the tax generated by the specific bequest to the residuary estate. Thus, the share of the residuary legatees carried the tax for the specific bequest. Given the intention of the decedent not to have this result, the residuary beneficiaries sued the drafting lawyer.
The court reviewed three theories applied by various courts in attorney malpractice cases arising out of will drafting or estate planning: (i) the strict privity theory; (ii) the balancing of factors theory; (iii) the third-party beneficiary theory.
Citing Jacques v. First Nat’l Bank, 307 Md. 527 (1986), the court examined the concept of duty where a plaintiff’s injury is purely economic. In the rule of that line of cases, no tort duty will be shown absent a showing of privity “or its equivalent.” Strict privity in will drafting or estate planning cases, the court noted, is justified on several public policy grounds. The rule protects the attorney’s duty of loyalty to the client. If the lawyer must look over his or her shoulder to worry about liability to the client’s beneficiary, the duty of unfettered loyalty to the client may be compromised. Additionally, the elimination of a rule requiring strict privity could expose the lawyer to limitless liability. This, in turn, would place an undue burden on the attorney-client relationship.
The court examined and rejected the balancing of factors theory of liability. California developed a balancing of factors theory to address malpractice actions in will drafting and estate planning cases. The factors to be balanced include: (i) the extent to which the transaction was to benefit the plaintiff; (ii) the foreseeability of the harm to the plaintiff; (iii) the closeness of the connection between the conduct and the injury; (iv) the policy of preventing future harm. The Maryland Court of Appeals rejected the balancing of factors theory, finding it overly broad and unworkable in application. The court noted that use of this standard has led to ad hoc determinations and inconsistent results.
Maryland recognizes the third-party beneficiary theory of contract recovery in limited circumstances: a third-party beneficiary may recover if the third party is shown to be the person meant to be directly benefited by the transaction. The intent of the client to benefit the non-client must be shown as the direct purpose of the transaction. In the context of a testamentary instrument, “intent” is as expressed in the instrument. Thus, no liability will be found when a will is valid and the testamentary intent as expressed in the will is carried out. Extrinsic evidence is not permitted to refute such expressed intent.
Under this narrow view of the third-party beneficiary theory, the plaintiffs could not prevail in either of the consolidated cases. The court held that in cases involving wills, the beneficiary of the will is not necessarily the beneficiary of the attorney-client relationship. The purpose of the will may not be to benefit a named beneficiary but simply to avoid the intestate distributions of assets.
The court supported its decision to deny relief by reciting several policy reasons to uphold the strict privity theory. First, it protects the integrity and solemnity of the will. The strict privity rule also protects the attorney-client relationship. The court points out that the use of a credit shelter trust necessarily gives a spouse less control over the assets than an outright distribution to a surviving spouse. Because of the unlimited marital deduction, the tax planning not used in Noble would only benefit the secondary heirs, not the surviving spouse.[1]
In Ferguson v. Cramer, 349 Md. 760 (1998), the court examined the duty of the attorney representing the estate during administration to the beneficiaries of the estate. In that case, the plaintiffs claimed that the personal representative hired the lawyer with the specific intent to benefit the beneficiaries as heirs of the estate. The court disagreed, holding that the personal representative has other obligations beyond simply benefiting the distributees of the estate such as obligations to creditors and all other beneficiaries and obligations to implement the terms of the will as indented by the decedent. Under the strict privity rule, the personal representative has redress against the lawyer for the estate.
[1] Given that a surviving spouse may be appointed sole trustee and given a testamentary power of appointment, one might question the genuine substantiality of conflict of interests alleged.
