A Few Words About Estate Planning and Trustee Engagements

Ron Klein, JD, CFE
Published Date:
Jul 1, 2016

Thirty years of protecting CPAs from malpractice risks has shown that every CPA is safer if they understand the risks they are facing. In no type of engagement is this truer than in estate planning and trustee engagements. And the reason for this is clear: hindsight!

CPAs are always judged in hindsight. When the work in question is completed 10, 15, or 30 years prior to the lawsuit against the CPA, this hindsight can be powerful. Although there is nothing you can do to prevent your acts from being judged in hindsight, you can, however, ameliorate its effects by accurately assessing your exposure.

Your Client is Not Who You Think

The first thing to recognize is that if you are going to be sued, it will likely be the heirs and expected heirs of your client after they pass away. All that loyalty and trust built up over many years between you and your client may not count for anything. Rather, it is the family of the deceased that you will be dealing with—and the more dysfunctional the family, the greater your risk.

We have a saying we use in estate planning and trustee claims: “You know there’s going to be problems if the surviving spouse is younger than the children from the first marriage.” More broadly stated, your exposure is directly related to the dysfunction in the family—whether it be competing marriages, a spendthrift heir, or addictive or abusive family members.

There isn’t much you can do about the dysfunction except recognize it as a red flag of potential future problems and prepare yourself accordingly. First, thoroughly document the client’s decisions about who gets what (along with the estate attorney). Second, if you are expected to be a trustee, reconsider that decision.

If you are named as the trustee, you do not have to accept that responsibility. Many CPAs may feel a sense of obligation to fulfill their promise to the now deceased client—but in my experience, this feeling quickly wanes if the family gets into a major squabble and you are in the middle of it.

Of course, if you are to be the trustee and you are present at the original drafting of the trust agreement, you can also insist on protective clauses in the trust document to ensure that you are only liable for gross negligence, that you can use trust assets to pay your attorney fees if sued, and that you can engage your firm to do the accounting without it being considered a conflict of interest.

Trust Corpus

If you are going to be the trustee, the other major area of risk is the corpus of the trust. The more trustee decisions to be made, the higher the risk. So a trust with only marketable securities is not as risky as a trust with raw land that needs to be developed—and a trust with an active business that needs to be operated is even riskier.

The Estate Planning Attorney

Your risk is also significantly impacted by the estate planning attorney’s skills and collectibility.

If the estate planning attorney is gone or uncollectible when the claim arises, you will likely become legally responsible for the attorney’s negligence. If you are working with a sole proprietor attorney, the likelihood of this happening even 10 or 20 years after the drafting of the documents is high.

If you and the attorney are not working as a team or communicating effectively with each other, your risk increases. The most common estate planning claim we receive is a failure to properly fund the trusts with the proper assets. In each of these cases the CPA and the estate planning attorney wind up pointing their fingers at each other. Not good!

See the Future

What all this means is that you likely have two occasions in which it is critical to “see the future”: first, when the estate documents are being drafted and it is extremely difficult to assess the risk even 20 years later; and second, if you are to serve as a trustee, it will be much easier to see risk and you can refuse the trusteeship if circumstances and risk level dictate.

Lastly, the larger the estate, the higher the risk. So if you perceive that future risk may be high, talk to your risk advisor about ways you can make yourself safer—or if you should consider withdrawing.

RonKleinRon Klein, JD, CFE, has been with CAMICO since its inception in 1986 and managed the claims department for 20 years. In his current role as Risk Management Counsel, he leverages his extensive knowledge and expertise of CPA professional liability issues to help CAMICO policyholders practice sound risk management, which can help them avoid or mitigate claims. He is a frequent speaker, and his primary responsibilities include risk management-focused CPE (through both webcasts and speaking events), and developing loss prevention content and tools for policyholders. Prior to joining CAMICO, he was a controller, a practicing attorney, and a vice president of finance in the real estate syndication industry and is a co-author of CPA’s Guide to Effective Engagement Letters. He can be reached at rklein@camico.com.

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