Avoiding Common Ethical Traps in Estate Planning

“Avoiding Common Ethical Traps in Estate Planning,” that’s the subject of today’s ACTEC Trust and Estate Talk.

Transcript/Show Notes

This is ACTEC Fellow Stacy Singer from Chicago.

Lawyers often face ethical challenges, but estate planners may encounter some of these issues more frequently than other attorneys. Helping families and older adults can be tricky because legal matters are personal and sensitive. It can also be confusing to determine whose interests the lawyer is supposed to represent.

ACTEC Fellow Lauren Wolven, also from Chicago, is with us today to highlight important ethical issues that estate planners need to keep in mind using recent cases of disciplinary actions and disqualifications. Welcome, Lauren.

Lauren Wolven: Thank you. It’s good to be here. I’m going to talk a little bit today about areas involving conflict of interest, diminished capacity, and then ways that attorneys if you do make a mistake, can mitigate the issues that they may have and avoid falling into an ethics quagmire through their adding to their behavior in a negative way.

So the problem with ethics, right, is that like the MPRE (Multistate Professional Responsibility Examination), the issues aren’t always apparent and the questions don’t always make sense. It would be so nice if everything were just very much black and white, but that is not the case. And particularly when we’re moving very quickly in real-time, it can be tricky to spot all of the pitfalls that we might accidentally fall into.

So I like to look back at the rules once in a while. And there are a few that I just want to highlight today before we talk. I’m not going to go into depth on them. And they do vary from jurisdiction to jurisdiction. So, I’m just going to work with the Model Rules of Professional Conduct as kind of the basis for the conversation.

Model Rule 1.7 – Conflict of Interest

Model Rule 1.7, Conflict of Interest, deals with current clients and talks about when you actually have a conflict and when you don’t actually have a conflict. But if you do have a conflict or you’re even concerned that there could be deemed to be a conflict, it’s strongly recommended that you get the consent from the client in writing. And the rules actually say that consent should be in writing.

It can be hard. You don’t always remember who all of your former clients are. And so that’s a tricky one. Did you send them a termination letter? In estate planning, in particular, it’s a polarizing topic. If I send them a letter saying that the engagement is terminated, did they view it as terminated? Whose viewpoint counts for that? You have to look at whether matters were substantially related, so it can be difficult to ascertain with former clients in particular as to whether there is or was a conflict of interest.

And then when you’re looking at an organization as a client, it’s very important that you identify who your client actually is. Do you represent the corporation? Do you represent the business owner? In many cases, particularly with small businesses or closely held businesses, you might represent multiple owners and the business. The rules expressly say that that’s okay — but you have to be very careful about identifying what information will be shared among individuals, what information won’t be shared among individuals, and ensuring that if you do recognize a conflict, that you recognize as well, that keeping the business is not more important than keeping your license –o you really do need to pay attention to those ethics rules so that you don’t run afoul of them.

Working with Multiple Generations: Haynes v. First National State Bank of New Jersey

One of the cases that I like to talk about when I’m dealing with identifying who your client is and making sure that you’re always keeping that in mind is the case of Haynes v. First National State Bank of New Jersey. And apparently this case did involve an ACTEC Fellow. One of the issues here was that there were two daughters of Mrs. Dutrow; Mrs. Dutrow had worked for many, many years with an attorney named Stevens that had been her longtime estate planning attorney. Mrs. Dutrow lived with one of her daughters, that daughter died, and then she moved in with the other daughter, whose name was Dorcas.

Dorcas and her husband very quickly got to work on modifying Mrs. Dutrow’s estate plan. They contacted Stevens and involved their own attorney; so Dorcas involved her own attorney named Buttermore. Stevens was very concerned about the way that things were going. He called Mrs. Dutrow, talked to her separately. Mrs. Dutrow said she was receiving enormous pressure from Dorcas and her husband to change her estate plan. Stevens was very careful about sharing information and tried to talk to Buttermore about the concerns that he had. Nonetheless, Buttermore proceeded, they kind of cut Stevens out of the process –and the court essentially said that there was a very high concern for undue influence in this situation. Buttermore was in a position of irreconcilable conflict with the common sense and literal meaning of the applicable ethics rules. And the court, I think, gave a really interesting and stern warning: “A conflict of interest need not be obvious or actual to create an ethical impropriety. The mere possibility of such a conflict at the outset of the relationship is sufficient to establish an ethical breach on the part of the attorney.”  (See “Developments of the Law Conflicts of Interest in the Legal Profession,” 94 Harv.L.Rev. 1244, 1292-1315 (1961).)

So if you are going to represent multiple generations, if they’re deviating at all, the older generation, from sort of a normal intestacy scheme of division of assets, you really need to be thoughtful about whether you should be working with that client, whether you need to have some kind of engagement letter or conflict waiver that addresses that situation.  And you need to be very, very careful to make sure that like Stevens was doing, he was communicating with his client, Mrs. Dutrow. Buttermore was kind of cutting her out of the process and really just dealing with her daughter.

Clients with Diminished Capacity

Another area that we frequently find ethical pitfalls is with respect to incapacity. Model Rule 1.1 deals with competence, and [Model] Rule 1.4 deals with clients with diminished capacity. The courts say that attorneys are not expected to be experts on medical issues. You can ask a doctor. There are certain things that might be more apparent or less apparent. But if you look at [Model] Rule 1.6 in the selected comments, comment 6 actually sets forth a number of factors that attorneys can look to, to try and determine whether they think they need to make further inquiry about a client’s capacity.

• Whether the client can articulate the reasoning behind decisions;
• Whether the client is changing their mind a lot;
• Whether the decision seems substantively fair;
• Whether it’s consistent with prior decisions the lawyer has known the client to make.

If you start seeing deviations like that, it might be good to send a client to their doctor to get evaluated just so that you can make sure that you really are fulfilling the client’s wishes.

Conflict of Interest

And then last but not least, I wanted to talk a little bit about some of the areas that can get attorneys in trouble. The first case I’m going to talk about is called Disciplinary Counsel v. O’Diam.

There was an estate attorney who was very frustrated with a beneficiary who refused to sign some estate closing documents and who caused other delays. She ended up getting disciplined. In part, the beneficiary spoke publicly about his concerns that the judge was presiding over a case where the attorney who received discipline was actually the judge’s daughter. The judge and the daughter got very upset that David had spoken publicly about the situation and the judge required all of the beneficiaries to appear before him or be in contempt of court. At the highly unusual hearing, the judge and daughter berated the beneficiary extensively under oath on his public comments. So, the judge ultimately recused himself. The attorney received a six-month suspension, provided that she engaged in no further misconduct. So if you’ve got family relationships going on with other lawyers, other judges, things like that, be very, very careful.

Communication Pitfalls

And then a couple of other items to consider before you can start counting sheep and get a good night’s sleep thinking that you’ve got all of this tucked away. Make sure that you tell the court ASAP if your client dies. In the case of Bunton v. Alaska Airlines, Inc. the attorney was disqualified for gross misconduct for failure to inform the court of his client’s death for nearly a year. That is something you definitely don’t want to do. And if you do have an issue that crops up, you really need to be honest with the tribunal and with your client. If you have more experience, the court cases find that you’re expected to make fewer errors and know better.

Some of the common things that are looked at in mitigating factors for attorney disciplinary actions include:

• absence of a prior disciplinary record;
• absence of a dishonest or selfish motive;
• personal or emotional problems;
• timely good faith efforts to make restitution or rectify consequences of misconduct;
• full and free disclosure to the disciplinary board, or cooperative attitude toward the proceedings.

Inexperience is going to be weighed in, so, just as experience is an aggravating factor, inexperience is a mitigating factor;

• Character or reputation, physical disability, mental disability or chemical dependency;
• delays in the disciplinary proceedings;
• imposition of other penalties or sanctions
• remorse;
• the remoteness of prior offenses; and
• the unlikelihood of repetition of conduct.

And that last one is really kind of an interesting issue that comes up in the Attorney Grievance Commission of Maryland v. Karam Bellis. That attorney was disbarred for a host of offenses. He had been practicing for 40 years and misappropriated estate funds for personal use. He made intentional misrepresentations to the tribunal and to his client. He argued that he shouldn’t receive discipline because he was unlikely to repeat the violations given that he’d practiced law for 40 years without disciplinary action. The tribunal, however, said the fact that he practiced for 40 years yet still committed that long list of violations did not convince them that his decades of experience would prevent further misconduct. Quite the contrary.

Final Thoughts

In short, be very careful about knowing who your client is. Make sure you’re communicating with your client. If you have any reservations, call in the professionals. Get a doctor to sign off on the client’s ability to sign in an estate plan. If you do accidentally trip across that line, cooperate with the tribunal, say you’re sorry, and proceed as though you want to continue practicing law, unlike Attorney Karam Bellis. Thank you very much.

Thanks so much, Lauren, for that great discussion on avoiding common ethical traps in estate planning.

You may also be interested in:

• The ACTEC Commentaries on the Model Rules of Professional Conduct
• ACTEC Engagement Letters
• Steps a Lawyer Can Take to Identify, Understand, and Deal With a Client With Diminishing Capacity (Dec 2023)

 

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