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Dealing With Ethical Concerns in Estate Planning Matters

For many estate planners, the most rewarding aspect of the practice is the opportunity to develop close and lasting relationships with clients and their families. While the development of such relationships may enhance personal and professional satisfaction, it also lends itself to a high incidence of potential ethical concerns. This article will address ethical concerns in three common estate planning engagements: (1) husband-wife, (2) parent-child, and (3) unmarried couples.

Unfortunately, there are usually no easy resolutions to ethical issues. Accordingly, the goal of this article is to heighten the estate planner's sensitivity to potential problems in each of the three types of engagements described above, and to offer suggestions for preventing unmanageable ethical dilemmas.

Rules of Professional Conduct

Any discussion of ethical issues, whether they arise in an estate planning matter or any other area, must begin with the Rules of Professional Conduct (R.P..). Two rules are of particular relevance: (1) R.P.C. 1.7, Conflicts of Interest, and (2) R.P.C. 1.6, Confidentiality of Information.

R.P.C. 1.7 generally provides, in relevant part, that a lawyer shall not represent a client if: (a) the representation of that client will be directly adverse to another client, or (b) representation of the client may be materially limited by the lawyer's responsibility to another client. Exceptions to these general rules exist, however, where: (a) a lawyer reasonably believes the representation will not be adversely affected, and (b) the clients consent after full disclosure.

R.P.C. 1.6 generally provides, in relevant part, that 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. These rules are clear, but impose a considerable burden on lawyers to determine: (a) at what point will representation of one client be adversely affected or materially limited by representation of another client, and (b) what disclosures of information are impliedly authorized.

Representing Husband and Wife

A threshold question which must be addressed in any estate planning engagement involving a husband and wife is whether the very nature of joint representation presents an inherent conflict of interest. As is customary when dealing with ethical issues, there are no concrete answers, but it would appear that the mere joint representation itself probably does not present an inherent conflict. This was the position taken by the American Bar Association's Special probate and Trust Division Study Committee on Professional Responsibility in a report issued several years ago.1 The committee concluded that an inherent conflict of interest does not develop simply because two people are married, but the lawyer does have a duty to continually monitor the representation for potential conflicts. The committee does not specify at what point a potential conflict arises.

Divergent estate planning objectives, such as choice of a guardian for minor children, or dispositive scheme, should not, alone, rise to the level of a conflict of interest. However, what happens when the lawyer receives confidential information from one spouse that is clearly not intended for the other? Does the receipt of such information automatically present a conflict?

The committee suggests that the lawyer must consider the nature of the confidential information received in order to determine whether the interests of the spouses are adverse. Several types of confidences are cited by the committee as showing that the spouses' interests are adverse, but the most apparent would be one in which the lawyer is asked by one spouse to draft a document or give advice that, without the other spouse's knowledge, would reduce or defeat the other spouse's interest in the confiding spouse's property or would pass such property to another.

For example, suppose that at your initial meeting you have recommended the transfer of assets from the husband's name into the wife's name in order to fully fund the wife's exemption equivalent. After the meeting, the husband contacts you, without the wife's knowledge, and expresses concern with asset transfers due to his unhappiness with the marriage. It is likely that the receipt of information about the husband's unhappiness in the marriage would not, alone, affect the integrity of a joint representation since that information would not necessarily lead to the conclusion that the wife's interest in the confiding spouse's property would be affected.

Failure to fund the wife's exemption equivalent would have no direct effect on her, but would only impact the total estate tax payable in the combined estates if the wife dies first. On the other hand, the argument could be made that if children are involved, the wife's interests would be indirectly affected if the husband's failure to transfer assets to her would reduce the amount ultimately passing to the children. Disclosure would still appear to be unnecessary, since both spouses received the recommendation and are presumably capable of deciding between themselves how to proceed.2

Consider a more potentially harmful confidence. What if the wife tells you, in confidence, of her plans to engage another lawyer to draft a subsequent will containing bequests of property to individuals other than the husband? In this scenario, the lawyer is clearly in possession of information about an action by one spouse that will adversely impact the rights of the other spouse. Should the lawyer disclose the information that was conveyed in confidence in order to protect the interests of the other spouse or should the confidential nature of the communication be maintained? The easy way out might appear to be withdrawal from the engagement, but will the unexpected withdrawal be tantamount to disclosure of the confidential information?

The committee offers little practical guidance in resolving this dilemma, suggesting only that the lawyer act as a fiduciary toward the clients and balance the material harm to the confiding spouse from disclosure against the potential for material harm to the other spouse caused by a failure to disclose.3

Perhaps the best way to avoid this scenario is to make the ground rules of joint representation clear at the outset of the engagement. A common approach is to advise clients of the potential for conflicts of interest in any joint representation, and to have them agree that you will be permitted to discuss any communication received from one spouse with the other. This type of agreement may minimize the likelihood that you will receive confidential information from one spouse about the other.

Another approach is for the lawyer to agree not to disclose confidential information, and to have the clients waive any potential conflict of interest. Even with a client waiver, however, under R.P.C. 1.7 a lawyer may not represent a client unless the lawyer also believes that the representation will not be adversely affected. Would your representation of the husband when the wife advises of a change in her will be adversely affected if the provisions of his documents were based on the erroneous assumption that his wife's will would be a mirror image? Waiver of the potential conflict between the spouses may not extricate you from that scenario without disclosure or withdrawal.

Separate representation of the spouses, with appropriate waivers of the potential conflict, might also be considered, especially where each spouse expresses a desire to convey information which is not intended to be disclosed to the other. But as is the case with any joint representation, information received from each spouse must be constantly evaluated in order to determine its impact on the other. Separate representation does not relieve you of this burden, since you must always determine whether the representation of one spouse adversely affects your representation of the other.

Representing Parent and Child

Two common scenarios arise in this context: (1) Mom and/or Dad are elderly and the children are concerned with the catastrophic financial impact that an extended stay in a nursing home will have on their parents' financial independence (and possibly on the children's inheritance), and (2) Mom and/or Dad seek advice as to alternatives for passing the family business to the children at the least possible tax cost.

In the first scenario, you must first determine who is the client. Where the parent is competent, he or she most likely will be the client. In that situation, the children must be informed that the parent's interests are paramount, regardless of the effect the plan may have on the children, and that any communications with the parent must remain confidential unless confidentiality is waived by the parent. If the parent is not competent, the lawyer should assist the child on the parent's behalf only if the child provides a comprehensive durable power of attorney granting the child the appropriate authority.

Representation of the parent becomes complicated when the initial and primary contacts are with one or more children, as is naturally the case if the parent is not competent. Regardless of the amount of pressure from the children to pursue a particular course of action (e.g., current gifting), the objectives of the parent (if known) must control. Where the parent is unable to express his or her objectives, serious consideration must be given as to whether t represent the parent at all, even if a child, acting under a durable power of attorney, is authorized to hire counsel on the parent's behalf.

In the situation where the parent is the client, but the children are paying the fees, R.P.C. 1.8(f) must be examined. That rule provides that:

A lawyer shall not accept compensation for representing a client from one other than the client unless :(1) the client consents after consultation, and (2) there is no interference with the lawyer's independence of professional judgement or with the client-lawyer relationship.

Another scenario which arises in the parent-child context is business succession planning. In this situation, there are usually no concerns about who is the client and who is paying the bill. However, there are concerns about the extent to which the children's interests should be represented. The children often view the parent's lawyer as "the family lawyer," especially where the children are participants in a closely held business which the lawyer has represented in the past. Accordingly, it must be made clear from the outset that it is the parent whom you represent.

The representation may become complicated where you have developed a close relationship with both the parent and the children, all of whom are involved in the business. Despite suggestions to the contrary, the children may be loathe to seek separate counsel, as they regard you as the family lawyer and desire to minimize transaction costs. Accordingly, every document to which the children are a party should contain a clause which states that each party acknowledges that the document was prepared by the parent's attorney, and that each party was aware of his or her opportunity to seek separate counsel.

It may be that the relationship with the family is such that you feel that the matter will be best handled by representing the entire family. In hat situation you must be cognizant of not only R.P.C. 1.7, but also of R.P.C. 2.2, which deals with the lawyer as intermediary. Under R.P.C. 2.2(a), a lawyer: (1) has a duty to consult with the clients regarding the common representation; (2) must reasonably believe that the matter can be resolved compatibly without prejudicing the interests of any client; and (3) must reasonably believe he or she can remain impartial. R.P.C. 2.2(b) requires consultation with each client on each decision to be made, so they can make "adequately informed decisions." Finally, under R.P.C. 2.2(c), the lawyer can be terminated by any one of the clients, and then cannot represent any of them in the future.

The rule imposes a heavy burden on the lawyer, as each aspect of the transaction must be scrutinized to determine its effect on each individual client. Moreover, the lawyer must consider the potential economic implications if one member of the family is not happy with the representation for any reason. If the lawyer is terminated by that family member, he or she could lose the entire family as a client.

Representing Unmarried Couples

Estate planning for unmarried couples, same-sex or otherwise, has become increasingly commonplace in recent years. Aside from the myriad of tax and legal issues which distinguish this type of engagement from that of a couple whose marriage is recognized under state law, it would appear that, from an ethical perspective, the lawyer's basic approach would be the same. The first step is to determine whether the clients are seeking joint representation or separate representation. For the same reasons discussed earlier in this article in the husband-wife representation, the preferred approach would appear to be a joint representation with an agreement regarding disclosure of all otherwise confidential communications by one person about the other. Separate representation may lead to the receipt of information which may compromise the effective representation of the other client, even if appropriate waivers are received.

As is the case with married couples, an inherent conflict would not appear to exist. Uncommon objectives, especially in terms of dispositive schemes, are more prevalent, but should not be fatal to joint representation. You must, however, still be sensitive to information which gives rise to potential conflict.

Conclusion

It is critical that estate planners be sensitive to ethical issues in any engagement, but especially in the three types of matters described in this article. While ethical issues are rarely easily resolved, estate planners can serve their clients and themselves well by: (a) having an engagement letter for each case which clearly defines the ground rules for the representation, and/or (b) making it clear to all interested parties who your client is and that it is the client's interests that must be considered paramount.

Endnotes
1 See, Moore and Hilker, Representing Both Spouses: The New Section Recommendations, probate & Property, July/August 1993, pp.26-31. The article summarizes the committee's recommendations for representing spouses in estate planning matters.
2 Id. at 29.
3 Id.


This article is reprinted with permission from the June 1997 issue of the Real Property, Probate and Trust Law Section Newsletter.


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