OCTOBER 14, 1996 VOLUME 4, NUMBER 15
When Ruth Kinney’s husband died in 1986, he left his substantial estate to her in a single trust. The trust gave Ms. Kinney the power to designate who would receive the remaining benefits on her death. Unfortunately, that provision would cause her estate (upon her own, later death) to pay over $300,000 in estate taxes, even though she never exercised the power to desginate beneficiaries, and her and her late husband’s estate all passed to their son.
The poor drafting of Dr. Kinney’s will was the fault of one attorney. But another attorney could have saved the day. After Dr. Kinney’s death, Ms. Kinney took the will to a second attorney, who told her that there was no problem so long as she did not actually excercise the power to name beneficiaries (the attorney was wrong), and referred her to an accountant who compounded the problem by repeating the same faulty advice.
As it happens, Ms. Kinney had an option available to eliminate her estate tax liability. She could have filed a “disclaimer”–a legal document waiving her right to name a beneficiary. Unfortunately, neither her new attorney nor the accountant told her about the procedure.
When Ms. Kinney died, her son paid the $320,000 and then sued the first attorney (who had drafted the faulty will), the second attorney (for failure to tell Ms. Kinney about the possibility of disclaimer) and the accountant (for erroneously advising her that there was no problem. The trial court dismissed all three claims, arguing that none of the defendants owed a duty to Ms. Kinney’s son; whatever duty they owed, said the court, was to Ms. Kinney herself.
The Florida Court of Appeals disagreed, and ordered the claims against two of the defendants to go forward. The claim against the first attorney was dismissed.
According to the Court of Appeals, beneficiaries can only sue attorneys for drafting errors when the will fails to carry out the wishes of the decedent. Since there was no indication that Dr. Kinney was concerned about taxes (which would not be paid until his wife’s death in any event), the first attorney could not be held liable.
The liability of the second attorney and the accountant, however, were a different matter. Since they represented Ms. Kinney in her capacity as personal representative of Dr. Kinney’s estate as well as individually, the Court ruled that they owed a duty to her to provide adequate tax advice. Failure to fulfill that duty could subject them to claims by her heirs, who were actually damaged by the advice. The Court of Appeals did not decide that the attorney and accountant were actually liable to the Kinneys’ son, but only ruled that the son’s claim against them could proceed to trial.Kinney v. Shinholser , Florida Court of Appeals (1996).
Estate Tax: Who Pays?
Most people assume that estate taxes are only an issue for the wealthy. While there is little concern for an Arizona resident of modest means, the number of people whose estates are subjected to tax liability is steadily increasing.
In 1986, Congress raised the level at which estates begin to be taxed to $600,000. That figure has not been adjusted for a decade, and each year a higher percentage of estates are taxed. In 1994, for example, the number of estates subject to taxation increased by 10% (to 80,400) over the previous year.