Death and Taxes Blog

Probably the two biggest areas for potential conflicts of interest in estate planning are:

1. Where the estate planner represents husband and wife (I discussed this here); and

2. Where the estate planner represents multiple generations of the same family (I discussed this here).

A third area of potential conflict involves referrals. Let's say that I as an attorney receive a fair amount of business from a financial planner with Firm X. Firm X refers me a new client. To whom do I owe a duty: the client, or Firm X?

The answer should be simple -- I owe the duty to the client. I spell this out clearly in my engagement letter to the client; I also talk to the financial planner about it, to make sure he or she understands who I represent.

In most cases, there's absolutely no problem, but a problem can arise if the financial planner wants me to benefit Firm X in some way, particularly if the financial planner wants Firm X to act as a fiduciary. In that case, I discuss the issue with the client, and present the client with the pros and cons of having a corporate fiduciary (and of having Firm X in particular). The client makes the final call, of course.

What happens if Firm X wants me to do a "hard sell," and convince the client that Firm X needs to be the fiduciary. At that point, I tell the client what Firm X is trying to do, and try to make it clear yet again to whom I owe my duty. If that means no more referrals from the financial planner, so be it. This MUST be the approach that an ethical estate planning attorney takes.

I've talked previously about the FlashPoints e-mail newsletters offered free of charge by the Illinois Institute for Continuing Legal Education (IICLE). You can sign up here for the newsletters.

The July 2007 Ethics & Professional Responsibility newsletter (authored by Terrence P. McAvoy and Thomas P. Sukowicz) cites an interesting disciplinary case from Montana (In the Matter of Steven T. Potts). Mr. Potts was hired by a decedent's daughter ("Evon") to represent her, her son Tyson, and her other children with respect to her mother's estate. The estate featured litigation -- a Will contest, and allegations that Evon misappropriated her mother's assets during her mother's life when she acted as a conservator (like a guardian).

A settlement was reached, but it was unclear whether the settlement extended to certain accounts owned jointly by Evon and her mother (Evon's mother had added Evon to these accounts). Here's problem #1, and it relates to settlement negotiations generally: it's imperative that EVERYONE know and agree about the nature and extent of the settlement. That wasn't the case here -- from FlashPoints:

Following the mediation, one of the opposing attorneys contacted Mr. Potts to seek clarification on whether the agreed to settlement included the joint accounts. In a letter, counsel asked Mr. Potts to let the attorney know whether there was a dispute on this issue. Tyson told Mr. Potts not to answer and so Mr. Potts did not do so. Later, Mr. Potts circulated a stipulation that was filed with the court stating that the settlement was to resolve "all disputes" regarding "the estate" and dismissed both the will contest and the conservatorship proceeding.

I've added emphasis to the above to point out Mr. Potts' big problem. Apparently, Mr. Potts' clients were attempting to perpetuate a fraud on the Court. What could Mr. Potts do? Could he reveal what his clients were plotting? Not if he wanted to risk violating his duty of confidentiality. (Note that if Mr. Potts was an Illinois attorney, the question is a much more close one. In Montana, the duty of confidentiality may be violated "to prevent reasonably certain death or substantial bodily harm" -- the Illinois rule (Supreme Court Rule 1.6) features an exception "to the extent it appears necessary to prevent the client from committing an act that would result in death or serious bodily harm," but a lawyer may also reveal "the intention of a client to commit a crime" other than an act that would result in death or serious bodily harm. Were Evon and Tyson intending to commit a crime?)

But Mr. Potts could have withdrawn from the case. By staying silent, Mr. Potts was invoking another rule of professional responsibility. In Illinois, that rule (Supreme Court Rule 3.3) is titled "Conduct Before a Tribunal," and it states that in relevant part that "a lawyer shall not... make a statement of material fact or law to a tribunal which the lawyer knows or reasonably should know is false... [or] fail to disclose to a tribunal a material fact known to the lawyer when disclosure is necessary to avoid assisting a criminal or fraudulent act by the client."

Yesterday I talked a little bit about conflicts of interest.  Today, I wanted to make a couple more points.

I think (1) planning ahead and (2) communication are the most important skills an attorney can employ when considering conflicts of interest.  Many of my conflict of interest issues arise in connection with probate litigation.  For instance, if I represent two beneficiaries in an action against the trustee, I need to consider -- from the beginning of the representation -- what happens if the beneficiaries can't agree on a course of action, and discuss this possibility with the beneficiaries so there is no confusion.

Another possible conflict exists in cases where I represent multiple generations of the same family (for instance: mom and dad, and daughter and her husband).  As I said yesterday, I do not keep secrets between spouses -- anything one spouse tells me can be conveyed to the other spouse.  But that isn't the case in a multi-generational representation, and I make this clear from the get-go.  (I also get the consent of the existing client -- usually the parents -- to represent the new clients.) As a result, if mom and dad decide to disinherit daughter in THEIR estate plan, I can't and won't say anything about this to daughter when I prepare HER estate plan.  Is this a hindrance to my work as attorney?  I don't think so, since I always tell my clients not to plan on an inheritance. 

Last year I talked briefly (here) about ethical conflicts in representing a husband and wife.  I was reminded of this post by something Professor Beyer wrote about at his blog yesterday, here.  Professor Beyer's post discusses an attorney who represented spouses in their estate planning, and later prepared a new Will for the wife (a Will in which she disinherited her husband).  The attorney was reprimanded, although there are some pieces missing in the disciplinary report (why was the husband an ex-client?).

What disturbs me is Professor Beyer's introduction to the post, in which he says that "[d]espite repeated warnings of the risks associated with representing both spouses in preparing an estate plan, many attorneys continue the practice."

Here's how I see it:

1. It's not "many attorneys" who continue the practice of representing both spouses in preparing an estate plan -- it's pretty much every estate planning attorney in America.

2. That being said, there are obvious cases where such representation should be stopped after it's started (or shouldn't be started at all) -- the husband and wife seem at odds about the disposition of their property from the outset, one spouse attempts to disinherit the other, etc.

3. The issues mentioned in 2 above can be solved quite easily through the use of an engagement letter that spells out the potential conflicts, and talks about what happens if conflicts actually occur.  The letter should also detail how (or whether) information will be shared by the attorney with each spouse.  I take the approach that anything one spouse tells me can be conveyed to the other spouse.  Other attorneys favor the "priestly" approach -- all confidences are kept.  It doesn't matter which approach you choose, as long as the clients understand and consent to it.

4. "Potential conflicts" are just that -- potential conflicts. For the large majority of married couples, hiring two separate estate planners makes no sense whatsoever.   

5. Most people don't like paying for estate planning, but it's much cheaper to hire one estate planner to do the job for both than to hire two separate estate planners.  In my experience, no one wants to do that.

6. The case discussed above isn't an example of the dangers in representing a husband and wife -- it's an example of the dangers in not dealing with a conflict between clients when it arises.

This month's IICLE Ethics Flash Points newsletter (written by Terrence P. McAvoy and Thomas P. Sukowicz of Hinshaw & Culbertson) presents an interesting case involving a probate attorney and a potential disciplinary violation.  The case is from New Hampshire, and is called In re Lane -- it's published at 889 A.2d 3.

Lane represented Dick, the executor of Robert's estate (Dick was also Robert's son).  After the estate was closed, Lane found out about a life insurance policy on Robert's life.  The policy was payable to Robert's surviving spouse (Jane), but Dick deposited it into a joint account owned by him and Jane.

Lane gave information about Dick's disposition of the insurance policy to the attorney for Robert and Jane's daughters, who was preparing a petition to remove Dick as Jane's guardian.  Dick's attorney reported Lane to the New Hampshire Supreme Court's Committee on Professional Conduct.

Did Lane do anything wrong?  According to the court, he didn't, because of New Hampshire Rule of Professional Conduct 1.6, which governs attorney-client confidentiality.  The Rule is as follows:

(a) A lawyer shall not reveal information relating to representation of a client unless the client consents after consultation, except for disclosures that are impliedly authorized in order to carry out the representation, and except as stated in paragraph (b).

(b)  A lawyer may reveal such information to the extent the lawyer reasonably believes necessary... to prevent the client from committing a criminal act that the lawyer believes is likely to result in death or bodily harm or substantial injury to the financial interest or property of another.... (emphasis added)

Unfortunately, a different result would be reached under Illinois' Rule 1.6, which provides an exception under 1.6(b) only "to the extent it appears necessary to prevent the client from committing an act that would result in death or serious bodily harm" -- Illinois doesn't have an exception for injury to someone's financial interest or property.  In other words, if I (as an Illinois attorney) had done what Lane did in the above case, I would be subject to discipline by the Illinois Attorney Registration and Disciplinary Commission.  That doesn't seem so fair, does it?

I try to address the issue of confidentiality when I enter into an engagement with an executor or administrator.  I require my clients to consent to my release of otherwise confidential information if it indicates that the clients engaged in wrongdoing.  Of course, this language appears to be ineffective, since Illinois Rule 1.6(a) prevents me from revealing client information "unless the client consents after disclosure" (emphasis added).

Yesterday, Professor Beyer at Wills, Trusts & Estates Prof Blog wrote (here) about a Dear Abby question with estate planning ramifications.  The case involved a second marriage situation, and a husband ("Girard") who said he would allow his wife to continue to reside in his house for the rest of her life if Girard predeceased her.  The wife wound up discovering that Girard had really signed a Will saying almost the exact opposite (that she would have 90 days after his death to vacate his house).

It appears that the wife found out the contents of Girard's Will from his estate planning attorney.  Professor Beyer then raises the following question, about a lawyer's duty of confidentiality: "how could 'his attorney' ethically reveal to the author of the letter (wife) what Girard (the client) had or had [not] done?"

It may be hard to believe (especially after some of the articles I post here), but attorneys -- including estate planning and probate attorneys -- really are bound by ethics rules, and (I think) most attorneys try to follow these rules.  That being said, the Rules of Professional Conduct (the "Rules") can be fairly tricky for estate planners because many of the rules are aimed at attorneys in other practice areas (like those involving litigation or business deals). 

As an initial matter, it's sometimes difficult for estate planners to even determine whether they can take on a representation without creating a conflict of interest.  This problem can be generational (can I represent mom and dad and their grown son and his wife?), but more often arises in the case of married couples.  The assumption of most members of the general public is that married couples should use the same attorney to prepare their estate plan, and that using separate attorneys (one for each spouse) would be a waste of time and money.  That isn't always the case, particularly in situations where the husband and wife don't have interests that are perfectly aligned (like in the case of a second marriage).

The issue of confidentiality is tied closely to the "conflict of interest" issue.  Maybe I can represent mom and dad and their grown son and his wife, but what if mom and dad tell me that they want to disinherit grown son?  Can I (must I) tell grown son about this?

In the Dear Abby question, I think the answer to the confidentiality question is fairly clear, given that the wife doesn't appear to have been the attorney's client.  In that case, I don't see how the attorney can get away with revealing client confidences to a non-client.

But confidentiality is a much more difficult issue when the attorney is representing both husband and wife.  Early in my career, I was one of the youngest attorneys attending an ABA seminar for estate planners.  A speaker on attorney ethics posed the following question to the audience: "We all have meetings with married couples to discuss their estate plans.  What is the soonest after such a meeting that one member of the couple has contacted you to request 'secret' changes to the plan?"  One answer went something like this: "I met with husband and wife at my office.  At the end of the meeting, wife went to use the restroom, and husband told me to forget everything he said in our meeting -- he wanted to leave everything to his mistress."

In this scenario, must the attorney make the change requested by the husband?  Must he do so without telling the wife about the change?  I try to short-circuit even reaching this issue by sending all of my clients an engagement letter (to be reviewed, agreed to, and signed by them) that sets forth the terms of my representation.  When I represent a married couple, the engagement letter also includes language that I will keep no secrets between them.  I would suspect that most attorneys use the "keep no secrets" approach, although I have heard of some attorneys who employ a "priestly" approach" (and will not reveal one spouse's confidences to the other spouse).