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Procrastinators' Programs SM Estate Planning – Avoiding Disciplinary Procrastinators’ Programs SM Estate Planning – Avoiding Disciplinary Action And Potential Malpractice Claims by Using Special Needs Trusts When Representing Clients with Disabilities Joel A. Mendler Baldwin Haspel Burke & Mayer Course Number: 0200141229 1 Hour of CLE December 29, 2014 3:40 – 4:40 p.m. AVOIDING DISCIPLINARY ACTION AND POTENTIAL MALPRACTICE CLAIMS BY USING SPECIAL NEEDS TRUSTS WHEN REPRESENTING CLIENTS WITH DISABILITIES By JOEL A. MENDLER Baldwin Haspel Burke & Mayer, LLC 3600 Energy Centre 1100 Poydras Street New Orleans, Louisiana 70163-3600 (504) 585-7885 I. Ethical and Malpractice Exposure A. If you represent a person with a severe disability, whether the disability is physical or mental or parents who may have a child with a permanent disability, you need to consider what type of governmental benefits the client or child is currently receiving or likely to receive in the future. If those governmental benefits are means-tested (that is, eligibility requires limited income and/or resources), then you need to consider and discuss the availability and advisability of a special needs trust (“SNT”) to preserve such benefits in light of any funds already owned by the person with a disability or due to be received by virtue of a potential inheritance, personal injury or worker’s compensation recovery or child or spousal support award. If a SNT is appropriate but your client rejects a SNT, you need to document in a letter to your client that you discussed the SNT and the fact that your client rejected it. If your client accepts the idea of a SNT, then you must be competent in drafting the document and, if not, obtain your client’s approval to associate another lawyer who specializes in such trusts. There have been numerous disciplinary complaints and malpractice suits brought across the country and it is pretty much a “slam dunk” for the person with a disability to demonstrate that the damages suffered by failing to recommend and utilize a SNT are the lifetime of governmental benefits which otherwise would have been available and/or the amount of the recovery which had to be dissipated by your client to private pay the cost of medical care. B. Some Ethical Considerations 1. Rules 1.4(a)(2) and 1.4(b) of Professional Conduct require a lawyer to reasonably consult with a client about the means by which the {B0892690.1} Page 1 of 34 client’s objectives are to be accomplished and to give the client sufficient information to participate intelligently in decisions concerning the objectives of the representation and the means by which they are to be pursued. 2. Rule 1.1 requires a lawyer to provide “competent” representation to a client. Competent representation requires the legal knowledge, skill, thoroughness and preparation reasonably necessary for the representation. Model Rule Comments provide that in determining whether a lawyer employs the requisite knowledge and skill in a particular matter, relevant factors include the relative complexity and specialized nature of the matter, the lawyer’s general experience, the lawyer’s training and experience in the field in question . and whether it is feasible to refer the matter to or associate or consult with, a lawyer of established competence in the field in question. 3. Rule 1.14 addresses the lawyer’s obligations in representing clients with diminished capacity due to minority, mental impairment or for some other reason. As far as reasonable, the attorney should maintain a normal attorney-client relationship, which includes the duties of loyalty and confidentiality. However, if the lawyer reasonably believes that the client has diminished capacity, is at the risk of substantial financial or other harm unless action is taken and the client cannot adequately act in the client’s own interest, the lawyer may take reasonably necessary protective action to protect the client and, in appropriate cases, seek the appointment of a fiduciary (which includes an agent or Trustee), curator or tutor, to protect the client’s interests. C. Estate Lawyers 1. You prepared a Will for a deceased parent who has a child with a permanent disability. The child’s legacy was left in trust for the child’s benefit for life. The trust provides that the Trustee shall distribute income and principal to provide for the child’s health, educational, medical and other support needs (“HEMS”). Distribution standard makes child ineligible for means-tested governmental benefits (as discussed below). Alternatively, you prepare a Will with a trust as legatee of such child’s forced share of the parent’s estate which requires that all income attributable to the forced share be distributed to the beneficiary monthly based upon prior law which required that income from legitime in trust had to be distributed no less than annually. See Rajcau v. Garvey, 807 N.E.2d 725 (Ill. App. 2004) (malpractice claim for two disabled children on {B0892690.1} Page 2 of 34 public benefits against estate planning attorney for failure to create SNT. Attorneys pleaded statute of limitations but court determined that due to attorneys’ fraudulent concealment of their failure to create SNTs, the statute of limitations was tolled. After the plaintiffs’ claims were reinstated, the defendant attorneys settled for an undisclosed amount.) 2. You prepare a Will leaving substantial assets outright to the client’s sister who resides or soon likely will reside in a nursing home and whose cost of care is or would be covered by Medicaid. Board of Overseers of the Bar v. Brown, 200 Me Lexis 190 (10/25/2002) (court suspends attorney’s law license for failure to create a special needs trust and for other reasons). 3. You prepared Wills for a couple in which they leave their estates to each other. Subsequently, wife advised you that her husband now is in a nursing home covered by Medicaid. Wife dies first. Inheritance by husband makes him ineligible for Medicaid covering his nursing home costs. 4. You prepare a Will for a parent or grandparent of a child with a disability leaving assets to an existing first-party d4A SNT with a Medicaid payback provision (discussed below). 5. You prepare a Will for a client who leaves $50,000 to his niece. The niece has no disability at the time. However, upon the client’s death, the niece was disabled and loses means-tested governmental benefits. Will did not contain any contingency provision if a beneficiary was disabled at the testator’s death. D. Trial Attorneys 1. You obtain a recovery in a personal injury or worker’s compensation case for a client who would be considered “disabled” for Social Security purposes and who is or would be eligible for SSI and/or Medicaid. You provide the client with a generous lump sum or structured settlement as a result of your legal efforts. a. Grillo v. Petiete, et al., Cause No. 96-145090-92 and Grillo v. Henry, Cause No. 96-167943 (96th Dist. Ct., Tarrant County, Texas) (Grillo settled personal injury claim for a lump sum based upon advice of her personal injury attorney. Sued the attorney and her guardian ad litem for malpractice. She alleged that they failed to consult competent experts {B0892690.1} Page 3 of 34 concerning a structured settlement and failed to preserve her eligibility for SSI and Medicaid. Case settled by all defendants for a combined $4.1 million). b. Dept. of Social Services v. Saunders, 724 A.2d 1093, 1105 (Conn. 1999) (conservator settling personal injury action sought to create a SNT to preserve wife’s Medicaid eligibility. State objected. Court indicated that the failure of the probate court and conservator to create a SNT “could be deemed to be in dereliction of their duties” to the person with a disability). c. French v. Glorioso, 94 S.W.3d 739 (Tex. Ct. App. 2002) (French shot during a robbery attempt in New Orleans parking garage which rendered her a quadriplegic. Suit against parking garage for negligent security settled and French consulted a Texas attorney about establishing a SNT. Attorney advised her that she would lose her Medicaid since the settlement funds were not deposited into a SNT but the trial lawyer’s trust account. French sued her trial attorney for malpractice. There appeared to be some factual dispute over what, if anything, the trial attorney had or had not recommended. The case was not decided upon the merits but a jurisdictional issue). d. January 17, 2001 letter from the Louisiana Attorney Disciplinary Board. (Appendix “A”). Attorney represented a 5 year old minor in personal injury settlement. Attorney settled case with a structured settlement which would pay a lump sum amount when the minor attained age 18 and an annuity of $1,500 per month thereafter. The minor had been receiving public benefits before the settlement. Twelve years later, as the minor was about to turn age 18, child’s parents filed ethics complaint alleging the receipt of the settlement would result in the loss of SSI/Medicaid. The Louisiana Deputy Disciplinary Counsel wrote: “Need-based services are obviously adversely impacted by the payments to be made under the structured settlement. It appears most probable that [the client] will be substantially worse off given the loss of need-based governmental services (once the structured settlement payments) are received. The loss of need-based {B0892690.1} Page 4 of 34 services due to income under the settlement was clearly forseeable at the time of settlement. Apparently Mr. _______ did not consider or advise his client concerning this forseeable adverse consequence of the settlement . .. These concerns raise serious questions under the Rules of Professional Conduct.” La. Code Civ. Proc. art. 4521 allows a court which renders a monetary judgment or a judgment of possession in favor of a minor to place the funds in trust.
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