Avoiding negligence claims in wills, trusts and probate law

Paul Smith is a solicitor and risk consultant who works alongside some 20 lawyers across the Travelers claim, risk and underwriting teams. He helps law firms to identify and avoid professional indemnity insurance risks. (Updated 18 January 2024)

Here he explains some common errors in wills, trusts and probate work and how to avoid them

Wills, trusts and probate work currently ranks third in our most recent data showing which areas of work in law firms generate the most negligence claims, after residential conveyancing and commercial conveyancing. It is sixth in terms of the value of the claims.

In recent years we have seen an increase in the share of wills, trusts and probate cases as against other work areas. Probate litigation is increasing, due to the high asset values combined with a range of ways to challenge wills (on the basis of capacity, coercion, calumny, and lack of financial provision). There is also the potential for claims from wills drawn up under the particular pressures and practical difficulties of lockdown, although these may not come to light for some years.

The most frequent cases involve retainer management, advice, and drafting errors in wills and codicils and the distribution of assets. The highest value claims involve tax errors.

The remaining areas of work – settlement, inheritance claims, investment management, Court of Protection work, and asset realisation – generate relatively fewer claims.

This article highlights some of the more common issues, and how your firm can reduce the risk of a claim.

1. Agreeing the retainer

Some claims reflect a serious mismatch between what the client believes has been agreed and what appears in the documentation.

For example:

• A husband and wife case - the wife instructed the law firm to sever their joint tenancy so that her share of their house could pass to their child. No severance took place, so on her death the share passed to the widower.

1. Are instructions clearly agreed from the outset?
2. Do you document these in a well structured retainer?
3. Are the client’s intentions and assumptions checked?
4. Are the client’s expectations (including timescales) established and then managed?
5. Do you establish all the relevant facts in an organised way?

2. Drafting errors

Drafting errors are often the result of not establishing the retainer in the first place. But errors and oversights can happen in any case. Perhaps the wrong precedent was used, or frequent or complex changes to instructions were inadequately recorded, or the client was particularly demanding.

For example:

• A will left the deceased's house to the widow for life and thereafter on the trusts set out in the will. The will provided that the residuary estate was to be divided into 8 equal shares of which 3 shares were left to the deceased's daughter, 3 shares to the deceased's son, and 4 shares to the deceased's four grandchildren. So the will purported to divide 8 shares into 10.

1. Can you spot fee-earners who take on excessive workloads?
2. Are these fee-earners adequately supported in these situations?

3. Lack of file notes

File notes can be vitally important in case of any dispute about what was said. It is not uncommon for beneficiaries to challenge the testator’s intention on a particular point.

For example:

• A will provided for the testator’s house to go to his children and the residue to grandchildren. The gift of residue was challenged by one of the children beneficiaries, but the firm’s file notes were inconclusive about the instructions received.
• 'Larke v Nargus' requests (seeking information about the circumstances surrounding the drafting of a will) are becoming more common. Often these can be the precursor to a claim for poor drafting or a failure to assess the capacity of the instructing testator.

1. Do you produce clear attendance notes and maintain orderly files?
2. Are timings and participants of the discussion noted?
3. Is the capacity of the testator made clear in the notes?
4. Do the notes record what was discussed and any advice given?
5. Are there effective work handover and file closure processes?

4. Managing estates, managing trusts

There can be a tendency to relax a little once a case is at this stage. Key points can be overlooked.

For example:

• A firm failed to pursue rent from occupiers of estate property over several years, causing loss to the estate.
• A firm failed to act impartially or with unanimous authority in exercising their powers over discretionary trusts, including a breach of fiduciary duty (conflict of interest), and was negligent in drafting a deed of easement.

1. Do you regularly refer back to your work plan and retainer?
2. Do you maintain an issue log as a way of keeping track of issues raised and ensuring they are addressed?

5. Deadlines and timing

Any timescales, including tax-related timescales, need to be anticipated and planned for from the outset.

For example:

• A firm failed to action instructions for a 90-year-old client who wished to change his will and give his residuary estate to his daughter that otherwise would go to a charity. An inexplicable delay in execution of the new will was such that the testator died and a claim was pursued by his daughter.
• A wife wanted her husband to remain in her property for his lifetime and her share would then go to her friend. The wife’s will was prepared and she signed a notice of severance of joint tenancy, but she died shortly thereafter. The firm had not served the notice on the husband before her death, so her friend received nothing from the estate.
• A firm failed to advise beneficiaries to enter into a deed of variation within the two-year time limit, in order to reduce the IHT liability.

1. Do you use a multiple diary system and task planners for each fee-earner and each case?
2. Are potential causes of delay identified and communicated to the client as soon as possible?

6. Distribution of assets

This is another area where busy people make mistakes.

For example:

• A firm overpaid a beneficiary by £15,000 and then sought to reclaim this money.
• A firm made distributions under a will that was unsigned and therefore invalid.

1. What checklists do you have in place for preventing mistakes?
2. Do you have clear systems in place for the verification of payees’ identification and the authorisation of payments?

7. Tax advice

Tax advice is a particular danger area for law firms. The rules are complex and mistakes can be expensive.

For example:

• A firm completed an IHT return for the client and gave incorrect information regarding the tax rate band. HMRC saw the disparity between the incorrect answer and account submitted along with the form and imposed a penalty on the client due to the “careless" mistake.
• A client made gifts to a discretionary settlement. The firm’s documentation effecting the gift was defective. The seven-year IHT taper only started to run from completion of the rectification process, increasing the period of exposure to the tax charge.
• When distributing the sale proceeds of a property, a firm failed to account for IHT on the life interest of a deceased person. The IHT was payable in any event, leaving the firm liable for penalties and interest due to the delay.

1. Do you have a tax expert with oversight over all tax matters?
2. Are your fee-earners trained to recognise potential tax issues when they arise?

8. Legal advice

Poor legal advice often comes down to lack of skill, lack of time, lack of care, or lack of supervision.

For example:

• A woman with a daughter had a will that provided a specific legacy of money to her sister and left the residue to the daughter. The residue was a half share in the home the woman owned with her daughter. On death, there were insufficient funds to meet the sister’s legacy and the daughter could not raise a loan to do so. Without explaining the potential consequences, the firm advised the daughter to pay the legacy by transferring the mother’s share of the house to the sister, rather than sell the property. The daughter sustained a loss when the half share in the house turned out to be worth far more than the legacy.
• A firm acted in relation to the wills of Mr and Mrs W in relation to their home, which was held as joint tenants. There was a clear intention to sever the tenancy. Despite having appreciated what was needed, the formalities were never dealt with.

1. Is adequate supervision in place?
2. Do you have an 'Open door' culture, encouraging discussion of challenging cases and issues?
3. Do you promote knowledge exchange, through regular opportunities to raise and discuss questions, to tap into colleagues’ knowledge, and linked with ongoing regular training or knowledge updating?
4. Is there a mentoring scheme?
5. Are the workloads of individuals managed, to prevent the excessive pressure that might impair judgement due to stress or fatigue?

9. Dishonesty

We also see some dishonesty cases – these are infrequent but have proved challenging and costly to resolve.

For example:

• Monies were transferred to personal bank accounts of deceased clients where the individual held a power of attorney. Recovery of the assets became necessary.

There are countless different situations that can lead to a PI insurance claim from a law firm, but hopefully this note has given you helpful ideas about where to focus your risk management efforts and the sort of controls you can use.

Why do law firms choose Travelers?

It’s because Travelers has unmatched expertise and longevity in the legal sector, with a dedicated team of experts in underwriting, claims and risk management.
 

See also:

• How to avoid professional negligence claims in residential conveyancing, commercial property, company and commercial, and commercial litigation.
• PI insurance for law firms FAQs: Part one (51 FAQs), and PI insurance for law firms FAQs: Part two (48 FAQs)
• A quarterly series of 'Legal sector risk soundbites', plus longer videos such as Dishonesty risk in legal service delivery