Estate Planning Issues for Plaintiffs: Seven Key Questions to Avoid Trouble
Somers Tamblyn PLLC
Several years ago, I was litigating a difficult case concerning a doctor’s failure to timely diagnose cancer. I sheepishly asked the client about his estate plan, knowing he had just received terrible news about a PET scan. I can still hear his response: “Oh, I don’t need a Will.” He explained that he wanted everything to pass to his wife when he died, which would happen even without a Will. “It’s as simple as that,” he told me. At the time, his words made sense and I did not push the issue—why should anyone pay for estate planning if they have very little, and want their spouse to have it all, anyway?
I learned the answer the hard way. When our client died, the oldest son from his first marriage turned up looking for answers about who was in charge of the case, which was now a wrongful death claim deep into discovery and racing toward trial. Even though we had been assured that this son got along well with the plaintiff’s (second) wife, we saw then that this had been, at best, wishful thinking. We also heard for the first time about promises our client had allegedly made to his children concerning what should happen with the payout if the lawsuit was successful, including very specific gifts he wanted to make to his grandchildren. The son, who was not our client, wanted to be appointed the Personal Representative of his father’s estate. Grieving and under pressure, the deceased plaintiff’s wife asked us what we should do to be sure we kept the case on track and honored her husband’s wishes.
The best answer, unfortunately, was, “go back in time and make sure he gets all of his estate planning in order.”
Without adequate and up-to-date estate planning, your client’s assets and benefits—even the case itself—are at risk. The purpose of this article is to help attorneys ask the right questions to facilitate discussion and anticipate problems related to faulty or absent estate planning in the context of a lawsuit. When you identify holes in the client’s planning, do not ignore them; follow up and make appropriate referrals. Even simple planning can avoid tremendous stress and significant expense at a time when your clients can least afford either.
#1- “Do you have a Power of Attorney?”
Sometimes a plaintiff loses capacity to make decisions about the lawsuit before it is resolved. This can be clear (as in the case of a coma) or it can be more difficult to determine (as in the case of brain injury or mental illness). Ignoring the issue will not make it go away, and trouble can develop quickly in a case when a client cannot make decisions or is making decisions that seem unreasonable to those around her.
Always ask if your client has a Power of Attorney, and find out who it appoints as the client’s agent. Is the power springing (effective only when the individual is incapacitated), or did it become immediately upon signing? Who are the back-up agents? Does it include the power to represent the 2 person in legal proceedings? Most clients are happy to tell you, and this conversation will help you understand who you will be dealing with if there are unexpected changes in your client’s condition.
When a client’s capacity is lost but there is no Power of Attorney, a guardianship and conservatorship proceeding may be necessary. This will typically cause confusion, delay, and expense. In many situations, a good Power of Attorney document is sufficient to preclude the need for guardianship and conservatorship, and gives the litigator clarity about who may make decisions about the lawsuit when the client is not able to do so.
#2- “Do you have a Will? Is your Will up to date?”
As previously noted, nothing shakes up a case like having a plaintiff die unexpectedly before the end of the lawsuit. In these situations, there is already enough for plaintiff’s counsel to do without needing to also get involved with the specialized world of probate, guardianship and conservatorship of minors, heir searches, etc. Ask up front if your client has a Will, if it is up to date, and who it appoints as personal representative. Confirm that someone other than your client knows where the original Will is located.
Whenever possible, clients need, at the very least, a basic Will to appoint a Personal Representative and direct the distribution of her estate’s assets. This is true even if s the plaintiff has very little aside from the unresolved lawsuit. Referring out for estate planning can save the trial lawyer from entanglements if unrepresented family members later challenge the documents. With the consent of the client, plaintiff’s counsel can discuss the case with the estate planning attorney in advance, to make sure issues and questions impacting the lawsuit are addressed.
In cases where the plaintiff dies mid-suit, a survival action and/or wrongful death action is initiated and the complaint is amended. If the decedent is a child, the parent (or guardian, or guardian ad litem) will already be the plaintiff on behalf of the child, and in most cases no further process is necessary to continue to the claim. In the case of an adult decedent, however, probate is required to appoint a Personal Representative, giving someone the legal authority to bring the wrongful death or survival claim. A Personal Representative is necessary under RCW 4.20.046 (1) (the “Survival Statute”), which states: “All causes of action by a person or persons against another person or persons shall survive to the personal representatives of the former and against the personal representatives of the latter, whether such actions arise on contract or otherwise[.]” (Emphasis added.) Someone must petition the court to be appointed as Personal Representative in order to continue the lawsuit. This process is much easier, faster, and less expensive when the decedent has made her wishes clear in a Will.
Having a Will that contemplates and directs assets from a pending lawsuit can also help a plaintiff anticipate conflicts and avoid disputes. As parties are substituted and claims are revised, the litigation attorney will already be burdened and under pressure. A Will showing the decedent’s intentions to continue the legal action and what to do with recovery to the estate can at least dampen the likelihood of family disputes concerning the lawsuit.
#3- “Tell me about your family.”
The death of the plaintiff fundamentally changes the distribution of assets recovered in the lawsuit. Whereas a judgment or settlement on behalf of the living plaintiff becomes hers to keep, gift, or later bequest by Will, portions of a recovery for a now-deceased plaintiff under the survival and wrongful death statutes must go to specific statutory beneficiaries who may not be represented by or even known to the attorney, regardless of whether the plaintiff had a Will.
As set out in the Survival Statue, “the personal representative shall only be entitled to recover damages for pain and suffering, anxiety, emotional distress, or humiliation personal to and suffered by a deceased on behalf of those beneficiaries enumerated in RCW 4.20.020[.]” Id. (Emphasis added.) The statutory beneficiaries for these claims under RCW 4.20.020 are the spouse or registered domestic partner and children (including step-children), or if none of the above exist, dependent parents or siblings. This article does not delve into the detailed workings of a Wrongful Death claim, but it is important to keep in mind that, regardless of a Will’s provisions, certain portions of recovery for a survival or wrongful death claim will be allocated to the statutory beneficiaries and are not considered part of the decedent’s estate.[1] In the event of a settlement, the plaintiff’s lawyer can be faced with sticky questions about how dollars are allocated between the different damage categories (and thus different beneficiaries). It is much better to know who these potential beneficiaries are in advance, even if you do not plan to use them as witnesses in the case.
Other portions of recovery from a judgement or settlement do flow to the estate, including recovered medical expenses, funeral expenses, and loss of earnings. Those assets are controlled by the provisions of a Will, or are distributed to statutory beneficiaries under the intestate succession statute (RCW 11.04.015) if the plaintiff died without a Will, in which case your client does not have the ability to “steer” these potential assets.
#4- “Does your Will correctly state what you would want to happen to your portion of the lawsuit recovery?”
In some cases, failed estate planning creates problems only after the litigation. For example, Mom and Child (age 5) recover a net amount of $3M for a birth injury claim. $750,000 goes to Mom and $2.25M goes to the child, either by jury award or by court-approved settlement distribution. Mom purchases a house for $500,000 and puts the rest of her cash into savings. The $2.25M allocated to the Child is placed into a court-established Special Needs Trust, and Child continues to qualify for Medicaid and other valuable benefits. Dad is not married to mom, is not a party to the lawsuit, and is not involved with the child. In fact, he abandoned them years ago and has been in and out of jail.
Without a Will, if Mom is killed in a car accident the following year, her assets (including her portion of the settlement) will go by intestate succession to Child, assuming she has no other children and has not married. After a guardian is appointed, assets received from Mom’s estate will most likely be placed in a type of Special Needs Trust that has a strict Medicaid payback requirement (quite likely the preexisting Trust set up after the settlement).
With better planning, Mom can make her assets last longer in the event of a tragic loss. For example, the terms of Mom’s Will can gift her estate’s assets into a testamentary Special Needs Trust for Child that does not have a Medicaid payback requirement. That way, if the money from the settlement special needs trust runs out during Child’s lifetime, the testamentary trust can pick up where the first trust left off. If some or all of the testamentary trust assets are left at the time of Child’s death, Mom’s chosen residual trust beneficiary will receive the assets left in the testamentary trust, and those funds will not be subject to a Medicaid payback requirement. This level of planning can stretch the benefit of the lawsuit farther into the future for injured plaintiffs and their loved ones.
The same logic applies to bequests from well-meaning grandparents and other relatives as they are considering leaving money to a disabled family member: A Will that creates a testamentary trust for someone who is disabled and on benefits is usually better than a direct bequest. Recommend updated estate planning in your closing letter, and look out for red flags when you sense that a disabled client is expecting an inheritance.
#5- “Does your Will spell out who you would want to take care of your kids?”
In the event that a client with children dies, there may be confusion about who will become the guardian of the children if there is not adequate planning. Guardian provisions in a Will can bring clarity at a time when your clients most need it.
To return to the example above, if Mom died, the court would first turn to Dad as a potential guardian. It may be Mom’s wish—and the most prudent decision in such a case—to have someone other than Dad serve as guardian in the event of Mom’s death, but in this scenario Mom has not made any plan and has given the court no direction. Other estranged family members may also suddenly come out of the woodwork, interested in part due to the access to assets that may come along with the job of caring for this disabled child. Significant assets from the estate may be paid to lawyers trying to sort out the guardianship and conservatorship because of the confusion.
On the other hand, if Mom has appropriate estate planning, she can name her choice for guardian and establish back-up guardians in case her first choice in not able or willing. If she needs to address issues about the estranged father’s potential rights and ability to fulfill his obligations, she can do so by writing out her concerns when there is not an emergency looming. It is often very hard for parents of disabled children to consider who would take care of the child if they are not able, but going through this process prevents the triple-tragedy of losing the caregiving parent, distributing the estate in a way that least protects assets, and leaving a complicated guardianship and conservatorship dispute in the wake of the parent’s death.
#6- “Does your Will have provisions for estate taxes?”
A significant recovery can increase a client’s net worth into the realm of state or even federal estate taxes. Keep in mind that in 2017, the Washington exemption is $2,129,000 per person, and the federal estate tax exemption is $5,490,000 for an individual. In the Puget Sound, simply owning a home (even if it was purchased for a mere $80,000 in the 1980s) can bring a client a long way toward the zone of a taxable estate, and a lawsuit recovery can push them over the top without them recognizing the need for updated estate planning. Clients become more confused when they hear that some or all of their recovery is not taxable as income; this does not mean these funds are excluded from the taxable estate upon death.
For married clients, a common way to preserve assets in the event of a taxable estate is to create one or more trusts in the terms of the Will, which can allow the deceased spouse’s estate to put assets above the estate tax limit into a trust that can be used by the surviving spouse during his or her lifetime. This is not difficult with the help of a competent estate planning attorney, but requires more than an “off the internet” Will, and is not accomplished by a Will that does not contemplate an estate large enough to surpass the exemption limits. There are other ways to preserve assets in the terms of a Will, but each requires expert help. Putting one’s head in the sand is not an effective strategy.
#7- “How are you doing?”
Ask about the client’s health when you first meet and throughout the course of the litigation, even concerning conditions wholly unrelated to the claims you are bringing on their behalf. Keep in mind that although the client may seem to be doing well, conditions can change during the long months or even years of litigation. Even if you know the case inside and out—even if you have certain pages of the client’s medical records memorized—it can be easy to lose track of your client’s health issues in “real time.” Do not let conditions affecting health or capacity sneak up on you due to your failure to check in with your clients.
I know from my own experience that it takes full concentration to pursue injury cases. However, in addition to winning the case, attorneys can help their clients by triaging estate planning issues early on, and keeping them in mind throughout the course of the case. It is also important to think beyond the moment of a verdict or settlement, and help clients avoid pitfalls that can quickly cancel out the benefit of your hard work on the case. A few simple inquiries by the plaintiff’s attorney—and a referral if necessary—can save headaches and make the hard-fought recovery dollars stretch further into the future for clients.
Angela Macey-Cushman is an estate planning and elder law attorney at Somers Tamblyn PLLC, PLLC in downtown Seattle. Before joining her current practice, she represented plaintiffs in medical negligence claims.
[1] For an example of a case illustrating statutory beneficiaries’ standing in wrongful death claims, read Estate of Blessing, 2012 WL 113494 (2012). In this unpublished case, the Washington Supreme Court affirms the right of the decedent’s step children by a prior spouse to recover under claims brought by the estate under the Wrongful Death statute.