Wills, Trusts & Estates Prof Blog

Texas Attorney Ernest Cannon is Suing His Estate-Planning Lawyer Over His Ranch's $8.78 Million Loss

Ernest Cannon, a legal legend and longtime rancher, has filed a legal malpractice suit claiming his ranching operation lost $8.78 million over seven years. The "beef" is with Cannon's estate-planning attorney, Crady Jewett McCulley & Houren partner Jay Houren of Houston, Houren's firm, plus two accountants and an accounting firm. Cannon alleges that they made a mistake in his estate plan that that caused an $8.78 million ranching operation loss to come out of a trust he established for his son. 

Cannon has represented legendary Houston litigator John O'Quinn as well as Art Brines, former Baylor University Football head coach, and also litigated against BP over the Deepwater Horizon disaster. 

According to the petition in Cannon v. Crady Jewett McCulley & Houren, Cannon hired Houren and accountants Gary Sult and Elizabeth Ann Minze in 2011 to set up his son's trust. Cannon alleged that Houren and the accountants set up an estate plan that structured the trust to own a principal asset of a 96% limited partnership in J Bar F Investments Ltd., which was allegedly worth millions of dollars. 

J Bar F held a portfolio of securities and also controlled affiliated companies in Cannon's ranching operations. One of these companies was the operating company of the ranching properties and equipment. This affiliated company had been losing money and J Bar F was covering for these expenses ($8.78 million) from 2013 to 2018. 

The petition in Cannon claimed, “This financial situation was inadequately brought to the attention of the trustees by its lawyers and accountants … even thought its lawyers provided legal advice, and its accountants handled the fiscal oversight of all related operations,” The plaintiffs in the case claim that it was professional negligence to include the ranching operations company in the trust. 

Houren advised Cannon to purchase the company in order to maximize the trust's assets, so Cannon purchased the company for $8.78 million in 2019 in order to restore the funds the company drained from the trust. 

The trust was set up to accumulate cash for the son's future needs, but instead the trust incurred expenses worth $8.78 million. The ranching operations company should not have been part of the trust and if the defendants had properly advised Cannon in the beginning, J Bar F would have never owned the company and Cannon wouldn't have had to buy the company, depriving the trust of earnings. 

What now? 

See Angela Morris, Texas Attorney Ernest Cannon is Suing His Estate-Planning Lawyer Over His Ranch's $8.78 Million Loss, Law.com, May 15, 2020. 

Special thanks to Jim Hillhouse (Professional Legal Marketing (PLM, Inc.)) for bringing this article to my attention.

How Pro Athletes Can End Up Losing Their Wealth

The news is littered with professional sports stars earning millions and millions of dollars on contracts and endorsements and then for everything to come crushing back down on them. Once their personal fortunes are exhausted it is nearly impossible to recuperate what they once had, or even to be back on sturdy ground.

The reasons these superstars' wealth goes up in smoke can be devolved into three reasons: overspending, unsound financial advice, and a mixture of both. Overspending is not usually the sole reason that these athletes lose so much money, but it is definitely an attributing factor. Bad or deceptive financial advice can easily be determined to be the overwhelming reason why the fortunes are lost, and sometimes the flimsy advice is unintentional. But as Evan Jehle, partner in FFO Business Management & Family Office explains, “There are also quite a few professionals who exploit the naiveté and unsophistication of successful athletes. In these scenarios, the advice that has been given was done to benefit the advisor rather than the athlete.” Astronomically high life insurance policies with premiums that provide substantial commissions to advisors is one example.

Unbridled expenditures in combination with unsound financial advice can eat away at a professional athlete's fortunes, and in many cases, completely eradicate them.

See Russ Alan Prince, Russ Prince: How Pro Athletes Can End Up Losing Their Wealth, Financial Advisor, April 10, 2019.

Special thanks to Jim Hillhouse (Professional Legal Marketing (PLM, Inc.) for bringing this article to my attention.

Fiduciary Self-Dealing

A fundamental duty of being a fiduciary is the duty of loyalty. In essence, this entails that the fiduciary must act solely in the interest of the beneficiaries. Breaching the duty of loyalty occurs when the fiduciary engages in self-dealing, or places their own interests above that of their charges.

In New York, the trusts and estates practice has had cases that relied on the "no further inquiry" rule, which will result in the transaction being set aside regardless of its fairness. The rule was established by long-standing precedent (1955) as the basis for declaring any such transaction voidable at the behest of the beneficiaries. This rule was recently examined in Albany County in Matter of Smith on May 17, 2018.

In that case, when the decedent died in May of 2003, he owned 90% interest in a closely held business  and the respondent owned the remaining 10%. 70% was to be placed in trust with a few of the beneficiaries being minors, and 15% bequeathed to the respondent, who was also to act as trustee. Thus, the guardian ad litem for the minor beneficiaries claimed that when there were significant real estate sales from October 2003 to May 2004, with the respondent acting as the Secretary of the business and being paid a hefty compensation, that it was an act of self-dealing. The court agreed, and set aside the payments, and directed the respondent to restore the sum that he received from the estate.

The opinion provides a sharp lesson to be learned by fiduciaries who are tempted to benefit themselves at the expense of the estate or trust to which they owe undivided loyalty.

See Ilene Cooper, Fiduciary Self-Dealing, NYE State Litigation Blog, April 17, 2019.

Special thanks to Jim Hillhouse (Professional Legal Marketing (PLM, Inc.) for bringing this article to my attention.

How to Avoid the 8 Biggest Executor Mistakes

An appointed or named executor has a seemingly endless list of tasks to perform, but assembling an appropriate team of advisors can help avoid many pitfalls. Here is a tally of ways to avoid the largest of the pitfalls, compiled by numerous horror stories.

• Do not hire your real estate attorney to probate the will.
  • Chances are that he most likely is not well-versed in probate law.
• Do not ignore the beneficiaries.
  • They are the ones to whom you owe a fiduciary duty, so they will not go away until your tasks and duties are fulfilled.
• Do not think you are all powerful.
  • You might have gotten the job by being the testator's favorite niece or nephew, but the actual business of the estate takes a certain level of humility.
• Do not fail to act.
  • Estate need to be closed, and the sooner the better for everyone involved. And ignoring the responsibilities does not close it!
• Do not fail to speak with your attorney because you are concerned about lawyers’ fees.
  • Properly handling an estate can get expensive, and some tasks that can be done by yourself should be to save on fees. But also rely on your attorney's advice.
• Do not favor one beneficiary over the others.
  • If the testator did not favor one of the beneficiaries, you certainly cannot. This can get you removed as executor.
• Do not resort to self-dealing.
  • Though some of the estate's more enticing assets may seem within reach with just a little tweaking, any sort of personal gain would most likely be a breach of your fiduciary duty.
• Do not forget you have personal liability. 
  • "With great power comes great responsibility." Thus, if you make a irreparable mistake, you may be held responsible for the consequences.

See Christine Fletcher, How to Avoid the 8 Biggest Executor Mistakes, Forbes, April 11, 2019.

Special thanks to Joel C. Dobris (Professor of Law, UC Davis School of Law) for bringing this article to my attention.

Article on Good Estate Planning Process: A Panacea for Litigation

R. Kevin Spencer recently published an Article entitled, Good Estate Planning Process: A Panacea for Litigation, 11 Tex. Tech Est. Plan. Com. Prop. L.J. 137-150 (2018). Provided below is the introduction to the Article.

Every estate litigator must contend with an estate planner, but not every estate planner must contend with an estate litigator. Most doctors, if they practice long enough, assume that will sued at some point, i.e., their work product will be questioned or challenged. While estate planner cannot be sued by a beneficiary in Texas for their estate planning work due to lack of privity, most estate planners believe their work product will someday be contested; but it does not have to happen. The job of an estate litigator is to search for evidence proving the invalidity of a Will, based upon lack of testamentary capacity and undue influence. A failure of formalities and solemnities or "forgery or other fraud" are additional grounds for invalidity. Unlike fire inspectors, who must search for the origin pf a fire. estate litigators know a Will originates with the scrivener. This article reveals some of the secrets of estate litigators and suggests the diligence needed for estate planners to avoid them, such as the importance of documenting their work, and preparing to defend their work product. The quality of the process determines the quality of the product; a Will contest necessarily includes attacking the process. Much to the chagrin of estate litigators, this article arms estate planners with information and knowledge to avoid the attack. Some of the information may seem elementary to good estate planners, but, unfortunately, these errors occur time and time again. The development of a quality estate planning process will improve the product for the client and help to avoid scrutiny of the estate planner's work product in a Will contest.

Article on Old Days are Dead and Gone: Estate Planning Must Keep its Head Above Water with the Changing Tide of Technology

Alexandra M. Jones recently published a Comment entitled, Old Days are Dead and Gone: Estate Planning Must Keep its Head Above Water with the Changing Tide of Technology, 11 Tex. Tech Est. Plan. Com. Prop. L.J. 161 (2018). Provided below is an abstract of the Comment.

Fresh out of law school, many young lawyers are eager to start their legal careers and just right into the courtroom. While they still need some practical training first, many young lawyers accept jobs that deal solely with discovery or intake until they can slowly make their way up the legal food chain. With the advancement of technology, programs like expert systems and artificial technology are taking over some of these first-year associate jobs because they are less expensive and more efficient. As a result, law firms are not hiring as many recent graduates. Eventually, technical jobs could replace the classical notion of attorneys. However, the growing concern that technology is taking over jobs in the legal field is not the only problem caused by artificial intelligence. Issues arise with how much impact technology has in transactional fields, such as estate planning, and the future role that artificial intelligence will play. An even greater issue arises with who is liable for artificial intelligence mistakes when there is very little in terms of legislation.

Tech industry experts are in stark disagreement about the means of regulating artificial intelligence. Stephen Hawking and Elon Musk have warned the world of dangers of advancing artificial intelligence and that governments need to start creating laws and regulations. Experts such as Bill Gates and Mark Zuckerberg believe that creating new regulation is not realistic because the technology has not fully developed. Some critics argue that researchers are already regulated enough, and adding more regulation will stifle innovation. This comment focuses the issue on a much smaller scale by suggesting that lawyers, law firms, and other entities that utilize artificial intelligence, or its branch of expert systems, in their estate planning practice are consistent with ethical rules of conduct for the system. Additionally, this comment will expand upon the meaning of the unauthorized practice of law as it relates to artificial intelligence.

This comment proceeds in five parts. Part I introduces the concept of artificial intelligence through practical and theoretical examples and definitions. Part II discusses the impact that artificial intelligence has on expansion. Part III considers the effect artificial intelligence have on estate planning laws. Part IV discusses the parties liable for artificial intelligence. Part V suggests methods of ensuring compliance with ethical standards to estate planning practitioners as technology becomes more absorbed in transactional fields.

Matters of Style: Spouse’s Elective Share Suit Dismissed for Naming the Wrong Party

Naming the correct party to a suit is one of the most elementary and necessary aspects to any litigation, and though it may appear to be a simple mistake, it can cause the entire case to come crashing down. 

In the appellate level court of Virginia, a wife that had been excluded from her husband's will found this out the hard way. After realizing the circumstance's of her late husband's will after it had been entered into probate, she filed a suit in circuit court seeking to claim her statutory elective share of his augmented estate. When a spouse is written out of a decedent spouse's will, some state's have statutes providing that the surviving spouse is entitled to a certain portion of the estate. The procedures to do so are very precise.

The wife was styled and brought against the Estate itself and did not include the administratrix, the fiduciary appointed to administer the Estate - but the wife did serve the administratrix. The Administratrix later made a motion to dismiss the lawsuit on the grounds that it was filed against the wrong party, and also as the statute of limitations had passed, not allow the wife to file a new suit against the administratrix. Wife argued the amending the complaint was more equitable remedy. The trial court ruled that naming the estate as the party was a nullifying offense, and the complaint could not be amended as there was no other party named. The appellate court affirmed the decision, as litigants have a duty to investigate the proper parties to sue or be sued, and all parties must be living.

See Brett Herbert, Matters of Style: Spouse’s Elective Share Suit Dismissed for Naming the Wrong Party, Estate Conflicts, January 14, 2019.

Special thanks to Jim Hillhouse (Professional Legal Marketing (PLM, Inc.) for bringing this article to my attention.

Advisor Firm in Australia Accused of Billing Deceased Clients

The Australian Broadcasting Company, or ABC, revealed that financial advisors at a firm based in Sydney were charging deceased clients for services that could not have been taking place. In one instance that was investigated, a widow claimed that after her husband passed away in 2013, the financial firm continued to bill him.

This is not the only Australian financial firm that is being investigated. According to Bloomberg, the Financial Services Royal Commission has been looking into the practices of several firms for fee malpractice.

See Asia Martin, Advisor Firm In Australia Accused Of Billing Deceased Clients, Financial Advisor, April 24, 2018.

Special thanks to Jim Hillhouse (Professional Legal Marketing (PLM, Inc.) for bringing this article to my attention.

Russian Woman Dies After Given Formaldehyde Instead of Saline Drip

27-year-old Ekaterina Fedyaeva underwent routine surgery at a hospital in Ulyanovsk, Russia when hospital staff inadvertently hooked her up to a formalin drip instead of the intended saline drip. Formalin drips contain formaldehyde, which is a chemical used in many ordinary household items, though it is most commonly known for its use in preventing corpse decay. While useful in a deceased body, the chemical wreaks havoc on the living. Galina Baryshnikova, Fedyaeva’s mother and witness to the after-effects of the improper drug administration, said the chemical “was simply eroding her body from inside. Her legs were moving, she had convulsions, her whole body was shaking.” Fedyaeva was eventually transferred to a Moscow hospital where she passed away.

See Michael Bartiromo, Russian Woman Dies After Given Formaldehyde Instead of Saline Drip, Fox News, April 11, 2018.

Estate Planning Attorneys May Be Held Liable in Legal Malpractice Lawsuits

Generally, estate-planning attorneys in California who draft wills and trusts can only be sued by the client who hired them. There is a narrow exception to this rule. An attorney may be liable to a beneficiary when the attorney’s error harms the intended beneficiaries of the will or trust. The court will use a balancing test to determine if the attorney should be accountable for a drafting mistake. Among these factors are the extent of harm, foreseeability, and proximate cause. When all the balancing factors are met, a harmed beneficiary may successfully file suit against the drafting attorney. Of course, potential damages should be sufficient to warrant the suit; litigation may not be worth the effort in every circumstance.

See Keith Davidson, Estate Planning Attorneys May Be Held Liable in Legal Malpractice Lawsuits Where Intended Beneficiaries Lose Inheritance Under a California Trust or Will Due To Attorney Error, Albertson & Davidson, August 4, 2016.