January 14, 2015
Authored by: Luke Lantta
Add South Carolina to the growing list of states that have expanded the ability of third parties to sue estate planners for legal malpractice. The South Carolina Supreme Court described its opinion in Fabian v. Lindsay as follows: “Today we recognize a cause of action, in both tort and contract, by a third-party beneficiary of an existing will or estate planning document against a lawyer whose drafting error defeats or diminishes the client’s intent.”
The plaintiff in this case was the niece of the grantor. The plaintiff claimed that, due to a drafting error on the part of the grantor’s lawyers, she was inadvertently disinherited. The trial court dismissed the case on the grounds that South Carolina law does not recognize a claim for legal malpractice in the absence of an attorney-client relationship and no South Carolina court recognized a breach of contract action by an intended beneficiary of estate planning documents. The South Carolina Supreme Court, however, changed that.
The court noted that today a majority of jurisdictions recognize a cause of action by a third-party beneficiary of a will or estate planning document against the lawyer whose drafting error defeats or diminishes the client’s intent. The vehicle for getting there, however, has varied from tort claims, to breach of contract claims, to both. Furthermore, courts have used one of three approaches to determine whether an intended beneficiary has standing to bring an action for legal malpractice: (1) the balancing of factors test, (2) the ‘Florida-Iowa rule’ (attorney preparing a will owes a duty to intended beneficiaries, not just the drafter; but, liability arises only if, due to professional negligence, the testamentary intent as expressed in the will is frustrated, and the beneficiary’s legacy is lost or diminished as a direct result of the negligence), and (3) breach of contract based on a third-party beneficiary contract theory. After discussing the various approaches, South Carolina recognized the availability of both tort and contract claims. When it comes to tort claims, a balancing test provides a helpful framework. With respect to contract claims, the court relied on the third-party beneficiary theory. Under either theory, however, the availability of such claims is limited to named beneficiaries (by name or by status).
The court’s opinion does not mean that the lawyer got it wrong in drafting the trust amendment. The trial court had tossed the suit on the grounds that a third party could not bring such a claim against a lawyer. The court’s decision sends the matter back to the trial court for consideration of the parties’ claims and defenses.