Originally published: Feb. 12, 2023 (distributed by Andrews McMeel Syndication)
Conflicts of interest exist in just about any professional engagement. Sometimes, however, they are not that easy to spot, especially if there is a knowledge disparity between the buyer and the seller.
Think about it: Compare your knowledge of medicine to a seasoned physician's knowledge.
Quoting JAMA, a medical journal, "Even when doctors think they are acting without bias, their judgments and actions may still be influenced by conflict of interest." How? When financial benefits might come into play (tinyurl.com/4td2uy5z).
The same applies to other professionals. What's a potential conflict when it comes to estate planning? Serving as both the estate planning lawyer as well as a fiduciary (trustee or executor) is an example.
Addressing potential conflicts upfront and in writing before an engagement is the answer.
Take a minute to look at the recommended language provided by The American College of Trust and Estate Counsel (ACTEC). See "Form of a Letter Regarding the Appointment of the Lawyer as a Fiduciary" (Form of a Letter Regarding the Appointment of the Lawyer as a Fiduciary.pdf):
"I can serve as your [EXECUTOR/TRUSTEE] if that is your desire. However, several potential conflicts of interest may arise from my service as your [EXECUTOR/TRUSTEE]. One of these conflicts of interest relates to the probability that my law firm will serve as legal counsel for me as [EXECUTOR/TRUSTEE].
"A lawyer's independence may be compromised when that lawyer acts both as the [EXECUTOR/TRUSTEE] and as the lawyer for the [EXECUTOR/TRUSTEE]. The normal checks and balances that exist when two unrelated parties serve separately as [EXECUTOR/TRUSTEE] and lawyer for the [EXECUTOR/TRUSTEE] are absent. Unless [the Probate Court/a court] is asked to intervene, there may not be an independent, impartial review to determine if the [EXECUTOR/TRUSTEE] is exercising an appropriate level of care, skill, diligence, and prudence in the administration of your [ESTATE/TRUST], and there may not be an independent, impartial evaluation as to whether or not the fees and expenses charged by the [EXECUTOR/TRUSTEE] and the fees and expenses charged by the law firm are reasonable."
The ACTEC letter also asks you to waive potential conflicts should you decide to go ahead with naming the lawyer as your fiduciary. For example, the will or trust may contain provisions that require (or not require) the fiduciary to post a bond; to replace a fiduciary; to waive the fiduciary's fees; or to absolve the fiduciary from liability. The letter, which includes a statement that the lawyer did not promote himself for the position, asks you to initial your acceptance of those conflicts:
"We understand our estate plan will include provisions authorizing the compensation of the attorney not only as attorney but as [Executor/Trustee].
"We direct that our [Wills/Trusts] (check the appropriate box for each statement):
"[ ] Include [ ] Not include language relieving our lawyer from the obligation to post a bond for the faithful performance of [HIS/HER] duties as [EXECUTOR/TRUSTEE] and
"[ ] Include [ ] Not include language absolving the lawyer as [EXECUTOR/TRUSTEE] from liability for losses resulting from decisions made in the exercise of reasonable care, diligence, and prudence.
"[ ] Include [ ] Not include language allowing the [BENEFICIARIES/CO-EXECUTORS/CO-TRUSTEES] to remove the lawyer as [EXECUTOR/TRUSTEE] and to appoint someone else to serve in the lawyer's place."
Going back to my point about knowledge imbalance, this type of letter helps you gain insights before deciding on a course of action.
Finally, be sure to have a full understanding of the fees that your lawyer (or another executor or trustee) would charge. This needs to be understood early in the estate planning process. Don't leave it to your heirs to find out after you are gone.
To read Julie Jason's books, go to: https://juliejason.com/author/julies-books.