Earlier this year, a federal court rendered an opinion in Janice C. Specht et al. v. U.S., No. 1:13-cv00705 (U.S. District Court, S.D. Ohio, Western Division, 2015), that should be a strong warning to those persons tasked with being executors of estates, and in particular, those large estates that may be subject to substantial estate taxes due. When relying on advice of counsel, an executor or personal representative must be reasonable and cautious in their reliance or face consequences similar to those in this case.
This case involves the Estate of Virginia Escher, a woman who at the age of 92, died with substantial wealth amounting to $12.5 million in 2008. Janice Specht, cousin of the deceased, was named executor of the estate. Specht had never been an executor, was not especially qualified to manage financial holdings, and apparently had never been in an attorney’s office. The decedent’s lawyer, Mary Backsman, was retained by Specht as the estate’s attorney. Backsman seemed well-qualified to assist having 50 years of estate planning experience.
Unbeknownst to Specht, Backsman was battling brain cancer at the time. Specht was aware that the estate would be subject to a sizeable estate tax and she also knew the date taxes were due. Specht stayed in contact with Backsman regarding progress on administering the estate, and Backsman assured her that everything was fine.
Specht received notices from the probate court that the estate accountings were overdue and had not been filed. Backsman continued to assure Specht that everything was fine. Backsman even reported that she had filed for an extension when the deadline for filing the estate tax passed, yet she had not.
A year and two months after the estate tax should have been paid, Specht obtained a new attorney who filed a return for the estate tax. The IRS assessed some $1.1 million in penalties and interest, which the estate paid. The Estate then turned around and sued the former attorney for malpractice, which was settled about a year later.
In seeking a refund of the assessed penalties and interest because of the estate’s reliance upon advice of counsel, the Court held that no such relief was available. Specht had many warning signs to act sooner and her failure to do so amounted to willful neglect. The disability of the attorney was not considered as a mitigating factor as Specht herself was not disabled. Thankfully for Specht and the Estate, the malpractice action offered some relief, but those executors administering estates need not only consider engaging competent attorneys to assist with probate administration, but also need to be aware that their own obligations in the event of failures by the attorney.
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*This post was originally published on April 28, 2015
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