A trustee is held liable for bad estate planning advice

Following up on her banker's advice to create and fund a Crummey trust to lower future estate taxes, an individual had her lawyer draft the trust, and began making contributions to it. Unfortunately, the lawyer neglected to include a Crummey power of withdrawal for the beneficiaries, making this a somewhat rare form of that trust.

After a number of contributions were made, the trustee noticed the drafting deficiency and called it to the attention of the draftsman. The draftsman disagreed that a mistake had been made. Neither of them reported the question to the grantor. Oddly, the trustee continued to encourage contributions to the trust "to lower estate tax obligations." Perhaps the trustee expected a retroactive trust amendment or something. Needless to say, the defective trust saved no estate taxes, so the furious beneficiaries sued the trustee for their mother's lawyer's mistake (deeper pockets, perhaps?).

The Wisconsin Supreme Court held that the trustee had no fiduciary duty to review the trust, nor to call the defects to the attention of the grantor. However, continuing to recommend contributions to a trust when the purpose of saving estate taxes could not be met was negligence. Decision for the beneficiaries. [Hat tip: Gerry Beyer.]