Other Estate Planning Matters - Fiduciary Duty of Estate Attorney

Baker Botts, L.L.P. v. Cailloux, 224 S.W.3d 723 (Tex. App.—San Antonio 2007, pet. denied).

Husband and Wife hired Law Firm to plan their estate valued at more than $100 million. Husband died before completion of this plan. On the advice of Law Firm, Wife disclaimed her right to her share of Husband’s community property resulting in this property vesting in charities Husband had designed in his will. Over six years later and after Wife had become incapacitated, Son sued Law Firm for breach of fiduciary duty relative to Wife’s execution of the disclaimer claiming that Law Firm and Bank did not fully and fairly disclosure the impact of the disclaimer. The jury found that Law Firm, Bank, and the attorneys had breached their fiduciary duties but that Wife had no damages. Nonetheless, the court created a “equitable trust” for $65.5 million which was to be funded by Law Firm and Bank. Law Firm and Bank appealed.

The appellate court reversed. The court carefully examined the conduct of Law Firm, Bank, and the individual attorneys involved. The court recognized the potential conflicts of interest between the parties (personal representative of Husband’s estate and the beneficiaries) but agreed with Law Firm and Bank that they had adequately notified the parties of the conflicts and that the parties had consented to the joint representation. The court said that there was no evidence that any of the alleged breaches of duty caused Wife’s disclaimer.

The court also held that even if Law Firm and Bank had breached their duties, the trial court abused its discretion in imposing an “equitable trust.” The court treated this remedy as a constructive trust and explained that the requirements of a constructive trust had not been proved. For example, there was no evidence that Law Firm or Bank held legal title to any of the assets that Wife disclaimed. In addition, this trust would have placed Wife in a better position than if Wife had not executed the disclaimer.

Moral: Great care must be taken when representing parties with potential conflicts of interest, such as a personal representative and the beneficiaries. Even when the attorneys involved have the parties sign comprehensive consents, the possibility of litigation, especially by subsequent representatives of the parties, still exists.