Taxation & Estate Planning

Conflicts of Interest and Referrals

By Joel A. Schoenmeyer

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.

Full post as published by Death and Taxes Blog on June 12, 2008 (boomark / email).