United States: Five Important Ethical Considerations In Estate Planning

Published in the New Hampshire Bar News

Ethical issues in estate planning can be quite subtle and are often overlooked. The Rules of Professional Conduct are primarily oriented for litigation matters and their application in estate planning can be difficult.

Considering the ethical issues associated with an estate planning engagement is an important task that should begin early and be continually monitored as the engagement progresses. The following five ethical considerations should be addressed during the course of every estate planning engagement.

Competence

Rule 1.1 of the Rules of Professional Conduct states that a lawyer must have the requisite knowledge and skill regarding a particular matter before providing legal advice on that matter.

Lawyers do not necessarily need special training or prior experience with a particular type of case, but they do have an obligation to maintain the requisite knowledge and skills and should keep abreast of changes in the law.

Prior to accepting an engagement, it is important for a lawyer to determine its scope and make an informed decision as to whether it is within that lawyer's range of competency. It is permissible to engage a client on a limited basis, and in such cases, the limited engagement should be specifically spelled out in writing.

A lawyer who encounters issues beyond the scope of his competency should seek assistance from professionals who have the requisite knowledge to address the issue at hand.

Conflicts of Interest

Rule 1.7 of the Rules of Professional Conduct address the issue of conflicts of interest. At the first meeting with a client, it is important for a lawyer to raise certain ethical issues.

In the common situation of a lawyer representing both spouses of a married couple, there is always a potential conflict of interest. It may be difficult for lawyers to discuss the issue with a couple, but the risks can be significant, so it is important to develop a standard practice of bringing this up routinely, in a clear but nonthreatening way, and following up with a brief mention again in the engagement letter or the cover letter that accompanies the drafts.

The key point here is that if the lawyer is to represent both spouses, they must understand that they are mutually waiving any right to make disclosures to the lawyer that will be kept confidential from the other spouse.

The lawyer must also be alert for intergenerational conflicts. When a lawyer represents older parents whose son or daughter comes in for an estate plan, the lawyer must take care not to disclose information about the parents' assets or plans without express permission. Conversely, when a child brings in an elderly parent for estate planning, the lawyer must be careful to represent the parent and not follow the suggestions of the child, particularly where there are any questions of competence or favoritism.

Rule 1.7 does permit joint representation, provided that each of the parties consents to that representation. The concept of "informed" consent applies. One of the many problems associated with obtaining informed consent is whether the attorney, who is an interested party in this transaction, has the capacity to properly inform each of the parties involved.

A strict reading of Rule 1.7 would essentially prohibit any joint representation. In the real world, this obviously is not practical. As such, the key point is to properly inform each of the clients that you are about to represent in writing of the potential conflict and seek their consent.

Testamentary Capacity

Estate-planning lawyers frequently encounter clients who have experienced challenges in life that have impaired their mental capacity.

In these cases, the attorney must first ascertain that the client has the requisite mental capacity to execute the documents being presented to them. The mental capacity needed to execute a document is not necessarily the same for every document. The capacity for executing a Last Will and Testament could differ substantially from the capacity necessary to enter into a business contract.

Further, the client's state of mind at the time of the execution of the document is of utmost importance. It is also possible for a client to go in and out of competency and may at some point have testamentary capacity and other times lack testamentary capacity.

The execution of instruments raises tricky issues whenever there is any question at all of the client's mental capacity. When a plan is altogether noncontroversial, there is little likelihood that the plan of an older or forgetful client will be challenged. When such a client is making a major change, however, or treating children unequally, there may be a significant risk. The lawyer must be certain that the client has testamentary capacity – understanding of the nature and value of his or her assets and awareness of the natural objects of his or her bounty.

If the drafting lawyer believes the client lacks testamentary capacity or is acting irrationally, the lawyer should not present any documents to that client for execution.

Diligence

Rule 1.3 of the Rules of Professional Conduct states that a lawyer shall act with reasonable diligence and promptness in representing a client.

Rule 1.3 suggests that it is the duty of the estate-planning lawyer to move forward with the estate planning engagement on a timely basis. The ABA comment to this rule sets a high standard, stating that the lawyer should "take whatever lawful and ethical measures are required to vindicate the client's cause or endeavor" and "a lawyer should carry through conclusion all matters undertaken for a client."

It is important that any lawyer who takes on an estate planning engagement is ready, willing and able to produce documentation that reflects the client's intent within a reasonable period of time. Once again, the engagement letter can be very helpful in stating the time frame for the completion of a particular engagement and setting expectations. The use of reminder letters (multiple reminder letters, if necessary) is recommended.

Continuing Obligation

Rule 1.4 of the rules of Professional Conduct gets to the issue of keeping clients reasonably informed. During the course of an active engagement, the issue of continuing obligations does not generally present much of a problem.

Keeping clients informed, particularly after the representation has become dormant, becomes much more of a concern. From a practical perspective, the engagement letter can be very effective in establishing the scope of the engagement. Lawyers may want to consider an exit letter or an engagement completion letter that specifically states that there is no obligation to inform the clients of changes on a going-forward basis. In practice, properly wording the termination of an engagement can be a delicate endeavor.

The importance of these five ethical considerations, and indeed the importance of each and every estate planning engagement, cannot be understated. As officers of the court, it is our duty to pursue every engagement with diligence and competence and to be always vigilant in maintaining our ethical standards.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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