Themes for today’s class

1. Themes for today’s class • The problem of the “dead hand” • While there are some limits on donor freedom, trusts and estates law generally is designed to promote the intent of the donor • As in other areas of the law, public policies may trump individual autonomy (e.g., protection of spouses and creditors) • Considerations of professional responsibility • Legal duties to intended beneficiaries • Conflicts of interest when writing wills or trusts for both partners in a couple

2. The dead hand (p. 27) The organizing principle of the American law of donative transfers is freedom of disposition. Property owners have the nearly unrestricted right to dispose of their property as they please. American law does not grant courts any general authority to question the wisdom, fairness, or reasonableness of the donor’s decisions … . The main function of the law in this field is to facilitate rather than regulate. The law serves this function by establishing rules under which sufficiently reliable determinations can be made regarding the content of the donor’s intention. Restatement (Third) of Property: Wills and Other Donative Transfers §10.1 cmt. c (2003)

3. The problem of the dead hand • Which purposes of a testator are prohibited or restricted? • Leaving spouses without a share of the estate • Leaving creditors unpaid • Restraints on marriage or provisions promoting separation or divorce (IN case, p.35) • Restraints on the alienation of property received from the estate • Racially-based or other invidious restrictions • Provisions encouraging illegal activity • Maintenance of control far into the future (e.g., rule against perpetuities)

4. Shapira v. Union National Bank Shapira v. Union National Bank,315 N.E.2d 825(Ohio Ct. Common Pleas 1974) David Ruth Daniel Mark

5. What were the facts in Shapira? • David Shapira wrote a will dividing his estate in three equal shares for his three children • The daughter, who already was married, would receive her one-third share automatically, but Daniel would receive his share only if he married a Jewish woman within seven years of Dr. Shapira’s death • A spouse would count as Jewish only if both of her parents were Jewish (even though Judaism always views a child as Jewish if the mother was Jewish, some branches of Judaism view children as Jewish if either parent is Jewish, and Judaism recognizes conversion) • Another son, Mark, faced substantially similar conditions

6. Did the marriage stipulation violate the sons’ constitutional right to marry? • Recall Loving v. Virginia—states may not forbid blacks and whites from choosing to marry each other • Would a court enforcing Dr. Shapira’s will be denying Daniel his constitutional freedom to choose his preferred spouse? • No—upholding the will would not prevent Daniel from marrying a non-Jewish woman; it would only affect his ability to receive his one-third share • But there is a penalty on the exercise of his right

7. Constitutional right to inherit? • At the bottom of p. 29, the court observed that “the right to receive property by will is a creature of law, and is not a . . . right . . . protected by . . . the United States constitution.” What about Hodel v. Irving, decided 13 years later by the U.S. Supreme Court? • That case recognized a right to distribute one’s property, not a right to receive the property of another person

8. Did the marriage stipulation violate the public policy against restraints of marriage? • No—”A partial restraint of marriage which imposes only reasonable restrictions is valid, and not contrary to public policy” (page 30) • When are restrictions not reasonable? • A “restraint unreasonably limits the transferee’s opportunity to marry if a marriage permitted by the restraint is not likely to occur. The likelihood of marriage is a factual question, to be answered from the circumstances of the particular case.” • Restatement (Second) of Property: Donative Transfers §6.2, cmt. a • Note the court’s distinction between a restraint on the religion of the beneficiary’s spouse and a restraint on the religious practice of the beneficiary

9. Which changes in the terms of the stipulation would make it an unreasonable restraint • What if the sons had to marry within three years? • What if Daniel attended Brigham Young University in Provo, Utah? • What if Dr. Shapira had made the gift contingent on his sons marrying only a white woman? • The court cited Dr. Shapira’s reason for the stipulation (pages 32-33) and pointed out that he was trying to use his wealth to preserve the Jewish community, either through his children or through the State of Israel • Promoting marriage within one’s religious or ethnic group (e.g., marry a person of Greek descent) probably still okay • Restatement says no to clauses requiring marriage within a religion, but courts so far have tended to say yes

10. What about the way Joe Lieberman handled his uncle’s marriage stipulation? • Did he do the right thing? • It helped that he could rely on an unsigned draft of a new will • Note the importance of where the money would go if the gift failed • If it would go to the other children, they might sue to enforce the stipulation • But a charity probably would not • Would the State of Israel have sued if the sons had not satisfied Dr. Shapira’s stipulation, but the executor of the will let the sons receive their shares?

11. The problem of the dead hand • We saw earlier purposes of a testator that are prohibited or restricted. Other purposes are allowed (and conditional gifts usually are made through trusts rather than wills) • Education incentives—conditioning distributions on graduation from high school or college or the attainment of a minimum GPA • Moral incentives—conditioning distributions on the satisfaction of drug testing, the making of contributions to a charitable cause or the having of children • Professional incentives—conditioning distributions on the earning of income, the entering of a particular profession or joining the family business

12. Simpson v. Calivas, 650 A.2d 318 (N.H. 1994), p.58 Simpson v. Calivas Robert Sr. Roberta First Wife Robert Jr.

13. Duties to intended beneficiaries:What were the facts in Simpson? • Robert Simpson, Sr., hired Christopher Calivas to draft his will. • The will left all of the real estate to Robert Simpson, Jr., except a life estate in “our homestead,” which was left to Robert, Jr.’s stepmother. • Did “homestead” include just the house and some surrounding land, or did it also include the full 100 acres of surrounding land, with buildings used in the family business? • Despite lawyer Calivas’ notes indicating that Robert, Sr., only intended to leave a life estate in the house, the probate court awarded a life estate in the full property • It cost Robert, Jr., $400,000 to buy out the life estate

14. Simpson v. Calivas, 650 A.2d 318 (N.H. 1994) Simpson v. Calivas Robert Sr. Roberta First Wife “homestead” all other real estate Robert Jr.

15. Could Robert, Jr., sue Calivas?Why was there a problem with a lawsuit in the trial court’s view? • To bring a malpractice suit, you have to show that the defendant owed a duty of care. • Ordinarily, lawyers owe a duty of care to their clients, and Calivas’ client was Robert, Sr., not Robert, Jr. • Could Robert, Jr., overcome the lack of privity of contract between himself and Calivas? • The court invoked the exception to the privity requirement in cases of reasonably foreseeable harm to intended beneficiaries of a contract • Because harm to intended beneficiaries is reasonably foreseeable from a negligently drafted will, it is appropriate to give intended beneficiaries a cause of action

16. Duty to intended beneficiaries:The fall of the privity defense Testator Robert Simpson Sr. Privity of Contract Lawyer Devise by Will Christopher Calivas No Legal Relationship Intended Beneficiary Robert Simpson Jr.

17. But didn’t the probate court conclude that Robert, Sr., intended to leave the entire homestead to the stepmother? • The probate court was not able to consider the same range of evidence about Robert, Sr.’s intent as was the trial court in the malpractice suit. • “Direct declarations of a testator’s intent, however, are generally inadmissible in all probate proceedings” (p. 61) • Moreover, the probate court asked a different question than the trial court—what was the intent of Robert, Sr., as expressed in the language of the will (emphasis added) • Note that there is a trend in trusts and estates law in favor of allowing probate courts more freedom to consider evidence extrinsic to the language of the will

18. Do lawsuits by intended beneficiaries serve the purposes of tort law? • Yes—the harm is suffered by the intended beneficiary, not the testator, and tort law is designed to compensate for injury • From a deterrence perspective as well, it makes sense to give intended beneficiaries a cause of action. If the estate sued, what would its damages be? • Liability to intended beneficiaries represents the majority rule, with about ten states rejecting liability (you may want to practice in Ohio or Texas) • Some states limit liability to cases in which the testamentary intent, as expressed in the will, is frustrated

19. What’s wrong with this picture? Is this the right way to resolve misdrafting of wills by lawyers? • No—the unintended beneficiary receives a windfall • If the court wants to remedy the mistake, why not correct the will and carry out the testator’s intent? • As the notes indicate, trusts and estates law is being reformed to allow for correction of the will in some circumstances (pp.62-63), which we’ll discuss in future classes • But what problems does that approach leave? If we fix the mistake, what haven’t we addressed? • The negligent lawyer escapes liability

20. Conflicts of interest:What were the facts in A. v. B? (p.64) • Husband and wife retained Hill Wallack’s estate planning department to write their wills • The couple waived Hill Wallack’s conflicts of interest from the representation • The couple was warned that information each provided could become known by the partner, but they did not expressly waive confidentiality • The firm misspelled the couple’s last name in its filing system, so conflicts checks didn’t pick up their representation • This became a problem when the husband fathered a child out of wedlock, and the mother retained Hill Wallack’s family law department in a paternity suit

21. A. v. B. A. v. B.,726 A.2d 924 (N.J. 1999) Wife Husband (B.) Marital Issue Child Paternity Plaintiff (A.)

22. Conflicts of interest:What were the facts in A. v. B? • When the Hill Wallack family law attorney notified the husband about the paternity suit, he neglected to advise the attorney of the conflict. He then retained another law firm • Meanwhile, the husband and wife executed their wills, leaving their respective residuary estates to each other • Ultimately, part of the wife’s estate might pass from her husband to the child out of wedlock • The conflict became apparent when the Hill Wallack family law department sought disclosure of the husband’s assets, and the other law firm informed Hill Wallack that its estate planning department already had the information. • Having discovered the conflict, Hill Wallack’s family law department withdrew from its representation

23. May Hill Wallack disclose to the wife that the husband fathered a child with another woman? • On one hand, Hill Wallack had a Model Rule 1.4 duty to inform the wife of material facts relating to its representation of her • But wasn’t she a former client? • On the other hand, the firm had a Model Rule 1.6 duty to protect the confidentiality of the husband (as incorporated by Model Rule 1.9 (c)(2)) • How do we resolve the conflict? • Model Rule 1.6 includes exceptions to confidentiality • Under NJ Rule 1.6(c)(1)[now 1.6(d)(1)], lawyers may disclose information to “rectify the consequences of a client’s . . . fraudulent act in furtherance of which the lawyer’s services have been used” • So maybe Model Rule 1.4 doesn’t really matter

24. Could Hill Wallack have disclosed to the wife under Model Rule 1.6 or Indiana Rule 1.6? • Model Rule and Indiana Rule 1.6 allow a lawyer to reveal confidential information: • “to . . . rectify substantial injury to the financial interests or property of another that is reasonably certain to result . . . from the client's commission of a . . . fraud in furtherance of which the client has used the lawyer's services;” • According to the court (top p.66), the possibility that the husband will pass to the out-of-wedlock child part of the estate he inherits from his wife does not satisfy the requirement that the lawyer reasonably believe that the husband’s fraud “is likely to result in . . . substantial injury to the financial interest or property of” the wife

25. What about the court’s point that the husband had a lessened expectation of confidentiality because the firm did not learn of the child from him (page 67)? • The court seems to have confused confidentiality with attorney-client privilege • Model Rule 1.6 treats as confidential “all information relating to the representation, whatever its source” (Comment [3]) • The attorney-client privilege protects communications between client and attorney that are made in confidence

26. What should Hill Wallack have done to avoid the problems that arose in this case? • When writing wills for both partners in a couple, lawyers should include a “disclosure agreement” in their engagement letter that explains how confidentiality will be treated between the two • ACTEC model letter • Of course, lawyers need not share all confidential information—it may not be material to the partner’s interests • Restatement (Third) of the Law Governing Lawyers § 60 • Further ACTEC guidance when lawyer learns of confidential information from one partner

27. What should Hill Wallack have done to avoid the problems that arose in this case? • Law firms need safeguards to ensure they recognize all conflicts of interest • To pick up misspellings of clients, someone can double check the work of the person entering client names into the computer, and lawyers can audit the system by running a conflicts check on current clients when they work on cases • Conflicts can be missed if important information is not entered at all—Barnes & Thornburg got into trouble when it merged with another firm. • The other firm failed to list an adverse party in its files for a client, and the adverse party was already a client of Barnes & Thornburg. • Because of the omitted listing, Barnes & Thornburg took on the other firm’s client, creating a conflict of interest between concurrent clients

28. (p. 62)