Ethical Duties of Estate Planners - What Would You Do?
Keeping the Confidence

By Christopher H. Gadsden

Lawrence Wolf's greatest satisfaction during his many years of law practice was his close relationship with his clients. As a general practitioner he worked with some individuals throughout their lives sharing many of their happiest and saddest moments.

His clients trusted in Lawrence because he was always ready to address their needs and speak to them in understandable terms. He had the knack of putting a human touch on the most complicated state planning techniques. Lawrence enjoyed widespread respect in his community a small city in the Mid-west for his sound judgment his good-natured humor his unfailing honesty and his approachability.

Over the years Lawrence's legal handiwork for Isabel Green had typified his practice. When Isabel and her first husband Tom were buying their "dream house" Lawrence had helped them secure the necessary financing. Buying the house - an architectural jewel on three acres with a swimming pool - was a "stretch" at that point in their lives, but Lawrence had introduced them to a mortgage banker and found some creative ways for Tom to use his business as additional security for the loan. Lawrence could still vividly recall the excitement in the young couple's eyes when they signed the papers at closing.

The memory of Isabel's grief 10 years later when Tom suffered a fatal heart attack was equally vivid. Lawrence had lost both a friend and a client, but the opportunity to help Isabel through this difficult stage had been gratifying. She had relied on him completely during the estate administration. Lawrence's earlier insistence on estate planning had helped Isabel preserve what she and Tom had built. The life insurance proceeds had satisfied the mortgage on their house and the balance of the proceeds provided a cushion until the sale of Tom's business interest to his former partner had been accomplished. Lawrence's advice to Tom about a buy/sell agreement some years back had assured that this sale would occur. As a result Isabel had been able to stay in their much-loved house and their children Tom Jr. and Emily had completed their educations. Both children had found jobs in distant parts of the country but the house continued to provide a special place for them to visit.

Premarital Agreement

Three years later Isabel had called Lawrence with the good news that she was remarrying. Her husband-to-be, David, had been an acquaintance and business competitor of Tom's. Lawrence recommended a premarital agreement and worked with David's lawyer to establish a suitable arrangement. Both David and Isabel had residences and they agreed that David would sell his house and move into Isabel's. Lawrence suggested an equitable approach with David leaving the net sales proceeds in trust for Isabel if he died first and Isabel giving David the right to live in her home if she died first. Both clients liked this idea and signed the premarital agreement just before the wedding.

Isabel asked Lawrence to prepare a will that would satisfy her obligations under the premarital agreement. Lawrence crafted a will that placed the house in a trust with David as life tenant and sole trustee if Isabel died first. David would be able to reside in the house for life so long as he paid the operating and maintenance costs. At his death the house would be sold and the proceeds given to Isabel's two children. The balance of Isabel's estate a modest portfolio of securities and some cash was to be given on her death to her two children. Isabel felt that both her children would have great need of funds. Tom Jr. had a child whose health problems incurred huge medical bills. Emily was divorced and working for a nursery school at a low salary. Neither had shown a talent for managing money.

The joy of Isabel's marriage to David was short-lived. Six months later she was diagnosed with an inoperable brain tumor. Isabel died before she had been married to David a year.

At the funeral service, Lawrence had reflected on other major events in Isabel's life that had brought him to the same church. He was surprised three days later when David telephoned him about estate administration. David asked Lawrence to represent him as executor and trustee. "After all" David said, "no one is more familiar with Isabel's estate plan and intentions than you." At David's initiative they met with Tom Jr. and Emily to read the will and discuss how the estate would be administered. In the midst of their grief, David and the two children seemed to pull together, and Lawrence felt that his presence might have contributed to this happy result.

Under Lawrence's guiding hand, estate administration had gone smoothly. At the end Lawrence had prepared an executor's account for David that was submitted to Tom Jr. and Emily. Both children readily signed approvals of the account and Lawrence was particularly touched by a note in Emily's transmittal letter: "My brother and I felt very reassured that you were overseeing the estate. Thank you for taking such good care of my mother's affairs."

Lawrence lost contact with David but two years after the estate administration was complete, David called to say he was selling the house. "I'm just rattling around in there with memories of Isabel" he explained. "Besides I'm at the office most of the time and I really don't have time to enjoy it." David's plan to invest the proceeds in the trust and use the income to rent an apartment seemed to make sense. When he drove by the house for a last look before settlement, Lawrence noticed that the place needed some upkeep. Perhaps the sale of the "dream house" was for the best.

Confidential Information?

Four years passed before Lawrence saw David again, this time at the home of mutual friends. He noticed that David looked weary and drank a bit too heavily that evening. In a brief snatch of private conversation, Isabel's widower complained that business was going badly and confided to Lawrence that he had already borrowed half of the sale proceeds from Isabel's trust to shore up the business. And even with those steps, David described his creditors as relentless in their pursuit. "But don't worry about me," he told Lawrence. "The next loan from the trust should keep the business afloat. Besides I've had some good advice from a bankruptcy lawyer and I think I'm judgment proof. Those guys won't get a nickel from me." The memory of David's words gnawed at Lawrence. He had felt it was inappropriate to criticize David at his friends' house even though they were out of the earshot of others. But the interests of Tom Jr. and Emily were obviously in great jeopardy.

The next day, Lawrence called David to insist that the trust proceeds be restored. Clearly annoyed by this unsolicited advice David refused to consider the matter. He also rejected out of hand Lawrence's demand that Tom Jr. and Emily be notified of the situation. "I told you that information in confidence and I don't want it going any farther. I can take care of this myself."

What To Do?

Distraught, Lawrence sought advice from the Professional Responsibility Committee of his state's bar association. The committee member who interviewed him a senior litigation partner at a firm in Lawrence's hometown, politely listened to Lawrence's tale but offered him little solace. "David was a trustee of Isabel's trust and you were representing him," the committee member declared. "Rule 1.6 governs this situation and does not allow you to disclose David's information to anyone. A lot of harm has been done, but no bodily injury has been threatened. If David is rejecting your advice to correct the situation or notify Isabel's children your only recourse is to withdraw."

"What will that accomplish?" asked Lawrence.

"At least it may get you off the hook for David's future misdeeds," the committee member responded.

"But-but the children really need that money. And Isabel would have wanted me to protect the trust for them."

"They're not your clients. David is. You can't sacrifice confidentiality just to protect them."

"What can be done for the children?" Lawrence asked.

"If and when they learn about David's misdeeds, they can hire a lawyer and sue him. Yes, indeed," the committee member chuckled, "this could be a field day for lawyers."

Withdrawal: An Empty Solution

With sadness and a feeling of frustration, Lawrence drafted a terse letter of withdrawal and sent it to David by certified mail, return receipt requested. He expected no reply and received none. Several months later he noticed a small article in the business section of the local newspaper to the effect that David's business had filed for protection of the U.S. Bankruptcy Court. The article speculated that a personal bankruptcy petition by the business owner was expected to follow.

Christopher H. Gadsden is a partner with Drinker Biddle & Reath in Philadelphia, Pennsylvania. He is chair of the Section's G-1 Committee on Professional Responsibilities and Liabilities of the Estate Lawyer.

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