DECEMBER 7, 1998 VOLUME 6, NUMBER 23
Lois Rieger worked in the same office building as Don Jacque. Rieger was a real estate agent, and Jacque sold insurance; Rieger helped Jacque in several real estate transactions over the period of their acquaintance.
Jacque expressed his concern that Rieger had not adequately prepared her own estate plan. He suggested that she should consider establishing an irrevocable trust which, he told her, would reduce her estate taxes upon death while still permitting her to control her assets during life. Jacque also told Rieger that his insurance company, Principal Mutual Life Insurance, could prepare an estate analysis and make specific recommendations for her. When she agreed, the proposal that came back was for her to purchase $400,000 in life insurance, using an irrevocable trust to own the policy.
Rieger and Jacque then met with Iowa attorney Lawrence Stumme to review Rieger’s estate plan. Although the three of them discussed establishing an irrevocable life insurance trust, as had been recommended by Principal Mutual, Rieger made it clear that she wanted to maintain control over the assets of any trust she established. Stumme prepared a trust at her direction, but without reviewing Principal Mutual’s report or contacting anyone at the insurance company about her plan.
Seven years later, Rieger learned to her shock that the trust plan established by Stumme would not reduce the estate taxes on her death. Because she retained control over the trust assets, they would be included in her estate for tax purposes, and there had been no valid tax reason for establishing the trust. Because the trust was irrevocable, it also made it difficult for her to correct the planning error.
Rieger sued both Stumme and Jacque. Stumme apparently settled her claim before trial, but Jacque and Principal Mutual argued that they had no liability for the errors. In fact, they argued, the error had been caused by Stumme’s poor advice, and not by any report or advice prepared by the insurance company or its agent.
The Iowa Supreme Court agreed. The justices chose not to decide whether an insurance agent or an insurance company could be sued for giving bad legal advice; instead, they decided the case based on the theory of “proximate cause.” Even assuming that the advice was bad, and that Jacque and Principal Mutual owed Rieger a duty, they said, the advice she received from the insurance experts was not what led to the faulty estate plan. Rieger v. Jacque, September 23, 1998.
Rieger’s original dilemma was a common one. How can an individual’s estate be reduced for tax calculation purposes without actually requiring that he or she give up control over assets? Not surprisingly, that is a difficult result to obtain. Had Rieger followed the original advice and set up an irrevocable life insurance trust, funded with a substantial policy on her life, she would have at least created a source of funds to pay any estate tax. But she would not have been permitted to retain control over the trust’s assets.