On appeal from Superior Court of New Jersey, Law Division, Somerset County, L-443-98.
Before Judges Baime, Wallace, Jr.*fn1 and Carchman.
The opinion of the court was delivered by: Archman, J.A.D.
NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION
Following the untimely death of her husband, plaintiff Joan Fitzgerald (Joan) retained the legal services of defendant Francis P. Linnus. The nature of that representation and the duties imposed upon defendant generate the issues in this appeal. Plaintiffs assert that defendant owed a duty not only to Joan, but to her children, plaintiffs Michelle Young, Colleen Fitzgerald and Brian Fitzgerald*fn2 (collectively, the children) as her putative estate beneficiaries. The gravamen of plaintiffs' complaint is that defendant negligently failed to advise Joan that she could disclaim a portion of her husband's life insurance proceeds in favor of the children which would have resulted in a substantial estate tax savings upon Joan's death. Defendant responded by denying that he was retained to provide estate planning services for Joan or that he owed such a duty to Joan and the children. The motion judge agreed with defendant, granted summary judgment, and dismissed plaintiff's complaint. Plaintiffs appeal, and we affirm.
These are the facts adduced on the parties' cross-motions for summary judgment. On March 6, 1996, Craig Fitzgerald (decedent), a C.P.A. and partner at Price Waterhouse who held both J.D. and M.B.A. degrees, died suddenly. Decedent's last will and testament left his entire probate estate to Joan and named her as executrix. The children were named as contingent beneficiaries of a testamentary trust to be established for their benefit in the event Joan predeceased decedent.
Although decedent's will, along with Joan's reciprocal will, was prepared by defendant, a neighbor and social acquaintance, in 1988, it was not executed by decedent until January 10, 1995, approximately fourteen months prior to decedent's death. The Fitzgeralds' wills were prepared in accordance with decedent's instructions, including that defendant "not engage in any estate planning" at that time, as decedent would prepare an estate plan and advise defendant whether the wills were suitable. Apparently, no estate plan was ever formulated.
The material facts relevant to the parties' lawyer-client relationship are not genuinely in dispute. On March 7, 1996, the day after decedent's death, Joan retained defendant to aid her in administering decedent's estate. According to Joan: "I gave a retainer to Mr. Linnus to assist in the administration of the estate for which I was the executrix." Although the Fitzgeralds' assets were then worth approximately $2 million, decedent's estate was virtually "creditor-proof," as his probate estate was only valued at $65,376 on his date of death. Significantly, Joan was the named contract beneficiary of decedent's substantial life insurance policies, which were worth approximately $2.2 million in the aggregate. Joan expressed concern to defendant about whether the benefits of those policies would be paid under the circumstances of decedent's death, and instructed defendant to collect the proceeds.
By letter to Joan dated March 11, 1996, defendant confirmed that his firm had been "retained to represent the estate of . . . Craig Fitzgerald," set forth the terms of his fee and retainer agreement, and delineated immediate measures to be taken in administering decedent's estate. Defendant also offered to refer Joan to a C.P.A. to insure the filing of the Fitzgerald's regular income tax returns. On March 12, 1996, Joan accepted the arrangement by acknowledgment and return of defendant's letter, along with a check for his retainer. Defendant subsequently corresponded with decedent's life insurance companies, obtained the proceeds for Joan by mid-April, and, according to Joan, "advised that [she] could simply deposit those checks and utilize them as [she] saw fit."
Shortly after she cashed those checks, Joan was advised by Lisa Butler, a social acquaintance who happened to be an estate planning attorney, that this would have a detrimental effect on my own estate, and that I could have disclaimed some of the insurance proceeds and have those proceeds go to my children, so that they would never become part of my estate. I learned from her that since they were already cashed the proceeds would become part of my estate, and therefore would be subject to large federal estate taxes.
Joan then retained Butler to assist her in her own estate planning and to assume the administration of decedent's estate. Ultimately, Joan disclaimed $81,179 in favor of the children on Butler's advice, but elected not to disclaim an additional $145,000 representing decedent's 50% interest in the marital home because she believed she would lose various tax advantages and that her children's consent would be required to sell the home once they became owners of the disclaimed interest.
At Butler's suggestion, Joan then filed suit against defendant claiming that "approximately $525,000 was unable to be disclaimed as a result of the contended failure to advise," and that "[a]t the federal estate tax rate of 55%, the present value of the [additional] estate tax that will have to be paid [by Joan's children upon her death] is approximately $288,750."
Defendant testified at his deposition as to the nature of his retention and his undertaking at Joan's behest:
Joan's first inclination or primary inclination was to ask me how quickly she would be able to be coming into the estates money, because she was extremely concerned about the flow of money to her, so that she could live. . . . Craig was an executive at Price Waterhouse, made a substantial salary and had a substantial income. Now, that income was gone, so Joan indicated to me she wanted me to process and probate Craig's will as quickly as possible so that she would receive the money from Craig's estate.
That's what transpired. Basically, what I told Joan was that I would get her the money as quickly as I possibly could, but I was not in the position to give her tax advice or financial advice. I told her that she should immediately retain the services of a tax planner, a financial planner, or someone who would give her that advice, because she was going to be coming into what appeared to be a substantial amount of money, based on the assets that I had seen.
The parties agree that they never discussed Joan's estate, the impact of decedent's insurance policy proceeds on Joan's future estate taxes, or the possibility of disclaiming a portion of those proceeds prior to Joan's receipt and deposit of the funds on or about April 15 and 22, 1996. They also agree that Joan stated, and that defendant understood, that Joan was obtaining separate financial and tax planning advice, and that defendant had no knowledge of the identity of Joan's advisor until late April or early May when he was apprised that Joan had engaged Butler.
Defendant asserts that Joan retained him solely to expedite the administration of decedent's estate in accordance with decedent's testamentary wishes and pursuant to her instructions as executrix. He admits that he discussed the tax consequences (none) of decedent's death, and that he did not discuss any tax liabilities which might arise upon Joan's death. When asked why he did not have such a discussion, defendant responded:
A: . . . I don't believe I was retained for that purpose. I believe I was retained to carry out the wishes of the testator, Craig Fitzgerald.
Craig, as an attorney and as a CPA was fully knowledgeable, in my judgment, about the estate planning and what it would take to create an estate plan that would potentially avoid or eliminate or lessen the impact of estate taxes ...