Choices and Challenges in Succession Laws
Written by David I. Faust, Published in the New York Law Journal
Being the "family lawyer” can be very rewarding for attorneys. But the complexities inherent in family relationships means that lawyers need to carefully consider the effect of the solutions they offer—and the ethical implications of working with clients who may have differing goals. This article discusses how to successfully navigate these issues while avoiding reputational harm.
The ability to freely dispose of one’s estate creates both choices and challenges.
In civil law countries, as in countries which follow Sharia law and for those people who choose to follow Halacha, the disposition of one’s assets on death is basically prescribed by law. The decedent has little or no discretion over who gets what of his or her assets. Children get most or all of the decedent’s estate.
Common law countries grant decedents far greater authority over their estates. In the U.S., absent a valid pre or post-nuptial agreement, one cannot disinherit a spouse.
In New York, the spouse of a decedent may demand roughly one-third of the decedent’s estate. The balance may generally be disposed of as the decedent wishes, disinheriting children if he or she wishes. No relative or other non-creditor (other than tax authorities) has any right to participate in the estate.
Despite the lack of “forced heirship” in common law countries, children often have the view that they are entitled, as a matter of right, to a share of their parent’s estate. I recently faced this presumption in a highly unusual case. A client was happily married to his second spouse. Both he and his spouse had adult children from prior marriages.
During his second marriage, my client became highly successful in business. While his spouse was not active in the business, he considered her “his partner.” At my client’s request, I prepared a will with generous provisions for his spouse, with the bulk of his estate going to his adult children. When reviewing the draft, my client asked, “What happens if my wife predeceases me?” I said that she could not inherit if she predeceased him. He replied, “That’s not fair.”
After considerable discussion, I drafted a provision to the effect that, if his wife predeceased him on his death, his second wife’s children would inherit an amount roughly calculated to be his deceased wife’s inheritance had she survived him, net of taxes. When advised of this, the wife was very grateful, and the client was pleased that he was “doing the right thing.” When his adult children found out, I was threatened with a lawsuit for impairing “their” inheritance.
Lawyers should be both gratified and alerted when a client refers to him or her as “our lawyer” or even “our family’s lawyer.” Lawyers who advise clients in this area have both ethical and practical responsibilities. The ethical issues in representing families regarding estate planning are as complex as families themselves.
In both personal and business contexts, a lawyer must be sensitive to these issues on two fronts: protecting his or her own reputation and integrity, and protecting the viability and enforceability of whatever structures result from his or her advice.
It is basic, commonly accepted knowledge and practice that pre-marital and post-marital agreements require each party to have separate, independent counsel. But what if a couple, apparently happily married, asks for complex wills, which may include inconsistent provisions, distributions to to-be-created irrevocable trusts for children and grandchildren, or some unusual provisions?
What if one or both want a so-called “Bimbo Clause,” conditioning the continuation of certain benefits on not remarrying or cohabitation? If a client who is in a less-than-happy marriage asks for advice on structuring his or her personal or business assets in contemplation of a divorce, a whole new set of ethical issues arise, which are beyond the scope of this article.
What if either asks for an agreement that the other will not change his or her will after the death of the first to die?
Is that effectively a post-nuptial agreement…in effect, an agreement to dispose of assets on death in an agreed way? If so, separate and independent counsel would be required; two lawyers from the same firm won’t do.
Can/should a lawyer confer separately with each spouse to make sure that each understands and knowingly agrees to the will provisions of the other? That neither is being pressured? Are waiver letters from both spouses a good idea? Does doing so imply or suggest a conflict?
Suppose the assets of a testator consist primarily of a successful business in which some of the testator’s children are active, and others (who may be quite successful in other activities) are not. Should the children who contributed to the success of the business inherit a share greater than their siblings?
Compensating the children who work in the business by salaries and bonuses is one possible answer but could be incomplete. It would provide ordinary income, which could be subject to total taxes of 50% or more depending on where the recipient works and resides (including federal, state, city, social security taxes, Medicare taxes) and does not reflect any increased value of the business, which would receive a step-up in basis if bequeathed and would escape tax if the estate were under the lifetime exemption for estate taxes.
Some children pursue fields which are very financially rewarding but require extensive education and diligent, hard work. Others pursue less challenging, less financially rewarding, but nevertheless valuable, worthwhile careers.
Some testators believe that, barring special needs, all children should be treated equally in a will, with each having made his or her own choices, enjoying the benefits and bearing the consequences.
Others believe that some “extra” consideration should be given to the less financially successful children. When the lawyer is asked for advice on this, he or she must understand not only the testator’s desires but also the family dynamics.
He or she must explore the effects any disparate treatment will have on the children’s ongoing relationships, and if there is to be disparate treatment, the lawyer should consider explaining it in the will. Lawyers are often referred to as “Attorneys and Counselors at Law.” Here is where the “counselor role” becomes important.
As counselors, particularly to families, we must be especially mindful of our ethical responsibilities.
Being the lawyer for “a family” is a perilous position. Compare this to being the lawyer for a corporation or other entity. The entity has its own property, liabilities, business, employee, etc. So long as its owners, especially in a private, non-family company, have common interests and objectives, it is not unusual for a lawyer to not only prepare charter documents (certificates of formation or incorporation, bylaws, and the like) but also to prepare shareholder agreements and limited liability company operating agreements defining rights and obligations as to capital contributions, distributions, management, and exit strategies.
While each owner may be advised to have his or her own lawyer review these documents, in my experience that is more the exception than the rule. There generally is, at the beginning at least, a commonality of interests and perspectives, which makes the expense of independent counsel seem unnecessary.
However, over time differences may arise on matters on which reasonable and honest people differ…whether to expand or contract, whether to move, whether to sell or merge. Here, it is clear and common for each owner or group of owners to have independent counsel.
Unlike a lawyer for a business, a lawyer for a family who is asked as family counsel to do estate planning, in fact represents the testator, not his or her estate. The lawyer’s sole, initial obligation is to determine the testator’s financial and family position and his or her intentions…and then to reflect those intentions in documents which reflect those intentions under relevant law.
However, if the lawyer is aware of any potential problems as noted above, and he or she should if they truly are the “family’s lawyer,” then, as counselor, he or she should alert the testator to them and explore alternative solutions.
Being a family lawyer requires knowing more than the EPTC and tax law; it requires an understanding of family dynamics, which are much more complicated. It requires being both an attorney and a counselor. For but one example, if a testator wishes to allocate his or her estate disproportionately among children, he or she has every right to do so, and an attorney cannot be faulted for drafting a will reflecting those allocations.
The counselor could suggest and draft a provision explaining the disparities. If the children are adults and reasonably compatible, the counselor might suggest that the testator explain what is being done and why.
The objective is not only to effect the testator’s wishes but to do so in a way which preserves, or at least does not jeopardize, family harmony after the will is offered for probate. The ideal result: a satisfied client, no antagonistic feelings in the family, and a lawyer who can take pride in a job well done.
David I. Faust is a partner at Gallet Dreyer & Berkey. His practice focuses on trust & estates, tax, and corporate law.