A special needs trust can often save assets for future care needs while securing or maintaining eligibility for public benefits programs. For most individuals with a disability it makes sense to consider transferring assets into a special needs trust as a means of gaining—or maintaining—eligibility. But is it legal malpractice for a lawyer to fail to suggest the use of such a trust?

That question may seem straightforward, but the authorities are mixed. A recent Montana Supreme Court sheds a little additional light on the answer, but fails to resolve it. The case is several steps removed from the direct question. It involves additional questions, including whether the attorney for a conservator has any obligation to the ward, and whether the attorney's malpractice insurance carrier has a duty to promptly resolve claims made against the attorney.

Janet Redies was in a bicycle accident in 1995, and she suffered a traumatic brain injury. Two weeks after the accident she emerged from a coma, but still had serious limitations. After court proceedings initiated by her mother and her sister, the sister was appointed as guardian of her person and a local Certified Public Accountant, C.A. Cosner, was appointed as conservator of her estate. In the course of that proceeding attorney Vicki W. Dunaway was appointed to represent Ms. Redies.

Mr. Cosner, the conservator, sought legal advice from attorney John Kelly Addy. The guardian, conservator, Mr. Addy and Ms. Dunaway all met to discuss what to do about management of Ms. Redies' assets and her mounting medical bills a few months after the legal proceedings were begun. Mr. Addy recommended that Ms. Redies’ assets be liquidated and used to pay for her care until she would qualify for Medicaid.

Based on that advice and the discussions at the meeting, Mr. Cosner sold Ms. Redies’ five vehicles, a twenty-acre parcel of land south of Red Lodge, Montana, and most of her other assets. After he used the proceeds for her care (and after he avoided personal bankruptcy for her by, among other things, negotiating a $123,000 reduction in her medical bills) she qualified for Supplemental Security Income and Medicaid.

Ms. Redies’s medical condition continued to improve, and by 1998 she began asking what had become of her assets. When she learned that they had all been liquidated and spent on her care, and that they could instead have been transferred to a special needs trust for her benefit, she hired an attorney to pursue Mr. Addy for what she argued was improper legal advice.

Mr. Addy’s malpractice insurance company declined to settle the claim, arguing that the attorney represented the conservator and owed no duty directly to Ms. Redies. She ultimately filed suit against Mr. Addy, who raised the argument that there was no "privity" allowing Ms. Redies to pursue him directly. Under Mr. Addy's theory, Ms. Redies would have to sue Mr. Cosner for any malpractice as her conservator, and Mr. Cosner could then sue Mr. Addy for having arguably given him bad advice. After the trial judge declined to dismiss the claim Mr. Addy settled the lawsuit for an undisclosed amount of money. Ms. Redies then sued his malpractice insurance carrier under state law for what she alleged was its bad faith in failing to promptly settle her claim.

The Montana Supreme Court decided that the malpractice insurance carrier had not acted in bad faith, as there was a legitimate legal question in 1995, when the advice was given, about whether Mr. Addy owed any duty at all to Ms. Redies. Though Montana law had subsequently developed so that Mr. Addy more clearly did owe a duty to Ms. Redies, the malpractice carrier’s interpretation of the law existing at the time of its negotiations was not unreasonable. Since the lawsuit was against the insurance company for its alleged bad faith in negotiating with Ms. Redies, there was no recovery and the action was properly dismissed. Redies v. ALPS, January 17, 2007.

Two of the seven Justices of the Montana Supreme Court dissented. Justices Patricia O. Cotter and James C. Nelson, in separate dissenting opinions, both note that Mr. Addy had variously referred to himself as representing "the Estate of Janet Redies" and as "Attorney for Ms. Redies" during the early years of the conservatorship. That should be enough, argued the dissenters, for him to be treated as her attorney and as directly owing her a duty of competent representation. As Justice Cotter said: "We have in effect said here that an attorney hired and paid by one's estate to serve the best interests of an incapacitated person does not owe that person a direct duty of professional care. We have erred."

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