Mcle Article: Don't Answer That! Spouses, Families, and Privilege

• Publication year: 2017
• Author: By Patrick A. Kohlmann, Esq. and Jennifer F. Scharre, Esq.

MCLE ARTICLE: DON'T ANSWER THAT! SPOUSES, FAMILIES, AND PRIVILEGE

By Patrick A. Kohlmann, Esq.^* and Jennifer F. Scharre, Esq.^*

INTRODUCTION

One of Mark Twain's most well-known quotes is the "only constant is change." This applies now more than ever. Society is changing rapidly. Have you ever heard the saying, "the new normal?" Nevertheless, as a profession which must follow the dictates of statutory and common law principles, attorneys must apply long-standing rules to "modern" society.

Lawyers may be faced with representing spouses who have no desire or interest in leaving their assets to each other. Is this ethically permissible? In practice, is it possible to represent them both?

More established firms may find themselves representing multiple generations. Although such representation may be permissible with conflict waivers, what does a waiver letter really mean? With the percentage of marriages ending in divorce estimated at 46%,¹ what are the implications of a typical waiver letter on discovery by the in-law spouse (or, as some say, the "outlaw" spouse) in a marital dissolution?

This article outlines the ethical wrinkles that arise in our modern society on a regular basis in estate planning engagements. Part I explores unorthodox estate planning engagements with spouses. Part II explores estate planning engagements within families. Part III explores the risks that multi-client engagements or third party communications may have on the attorney-client privilege.

I. SEPARATE ENGAGEMENTS WITH CLIENTS WHO MAY HAVE POTENTIALLY CONFLICTING INTERESTS A. Default Approach

Where an attorney represents two clients with potentially conflicting interests, the common tried-and-true approach is for the attorney to present the clients with a conflict waiver letter. This letter is not so much hinted at in the ethical rules² as it is spelled out. This letter generally accomplishes two key tasks. First, it authorizes disclosure of all confidential information to both clients. Second, it waives any potential conflicts of interest.

Ultimately, it is the attorney's decision, not the client's, whether to disclose confidential information. What is the impact of disclosing this confidential information? This is discussed further in Part II below.

Consider, however, the waiver needed where spouses choose to not to leave each other anything and desire their testamentary intentions remain confidential from each other. The authors have encountered such situations where joint representation is nevertheless requested. For example, spouses with significant wealth may not want to provide for each other. Or, in marriages with age disparities, testamentary objectives may be quite different. Also, in "convenience marriages," wherein spouses co-own complex assets that make it impracticable to divorce, clients may seek representation by the same lawyer who may have institutional knowledge of family assets but may seek privacy as to the planned disposition of their estates. These matters are not joint engagements, as is often encountered with spouses, but rather two separate engagements. What business is it of one spouse if the other is planning to leave his or her estate at death to someone other than the spouse? Such situations impact how the attorney will advise the respective clients, given that their interests may be better served if their communications with the attorney remain confidential. The decisions made at the beginning of the engagement as to whether confidences will be disclosed, and whether the matters are joint or separate engagements, are critical. Whatever decisions are made will impact the attorney-client privilege down the road.

The default approach of a conflict waiver letter and an agreement to disclose and share confidential communications is perfect for joint clients who are generally trying to maximize the spousal tax advantages available in estate planning; however, if each spouse's matter is deemed separate, is dealing with such representations as simple as applying the same rules but instead in an inapposite manner?

B. Alternate Approach

The inapposite approach of applying the same rules does not stray too far from what one would expect. It requires modification of a conflict waiver letter from boilerplate to a carefully drafted document. Instead of just pointing out and waiving conflicts generally, the attorney must methodically explore the ethical grounds of the duty of loyalty and impartiality.

A letter like this may, and likely should, include express waivers for spouses that do not intend to provide for each other. Such a letter will usually provide that there will be no disclosures of confidential information with respect to the separate engagements. This letter begins to resemble a post-marital agreement between the parties.

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Although permissible within the Rules of Professional Conduct, practically, how can it be that an attorney can simultaneously divide his or her loyalty between two clients in this way?³ Is it truly possible to provide full disclosure such that the layperson client would come to the conclusion that such a representation would be within his or her interests? So long as it is clearly delineated that each spouse has no expectation to a devise from the other, they acknowledge such disinheritance and confirm that no confidential information will be shared, and each signs off, the separate engagements are permissible and may proceed.

Oftentimes, such a full and frank disclosure may result in either or both clients declining to move forward, despite the perceived conveniences or economies of scale. Indeed, the attorney may find, through some of the issues highlighted below, that he or she may not be comfortable with the proposed engagements, even if the clients are.

II. MULTIPLE GENERATIONS A. Representing "The Family"

It is not uncommon that we hear of a lawyer referred to as the "family attorney." Nevertheless, the "family attorney" moniker is more common in the trusts and estates arena because lawyers may be advising on inheritance planning or succession planning and, accordingly are inherently involved in discussing the next generation(s) to some degree. However, there is, of course, no such thing as the "family" lawyer.

It is all too common for the next generation to believe that they become the clients once their parents begin to lose capacity, or even prior to that time. It is easy for the attorney to become immersed in this sort of routine as well, and begin to correspond with the children instead of the parents.

However, while a child may have every intention of acting in the best interests of his or her parents and their estate, is it advisable for an attorney to be representing the family in this way? Even with the best of intentions, it is easy to see how a duty of loyalty could start to become divided. One could envision a situation where certain planning may significantly benefit the interests of the children or later generations, but has a modest negative impact on the parents or current generation. While this type of planning is regularly done in the form of GRATs, QPRTs, and other irrevocable trusts, sometimes such planning might be taken on at the direction of the children instead of the aging parents. Who, then, are the attorney's actual clients? Can the attorney modify his or her duty of loyalty to accomplish such a plan for the benefit of the "family"?

B. Modification of the Duty of Loyalty

Neither the State Bar Act nor the Rules of Professional Conduct explicitly refers to or defines the duty of loyalty. This duty is generally extrapolated by rules relating to avoiding adverse interests, maintaining the duty of confidentiality, and generally devoting all of the attorney's energy to his or her client.⁴ The California Supreme Court, without defining it, has noted that the duty of loyalty is not capable of being divided in "narrow...circumstances...one in which the attorney is confronted with a mandatory and unwaivable duty not to represent the second client in light of an irremediable conflict with the existing clients and acts promptly to terminate the relationship after learning of the conflict."⁵ In fact, the duty of loyalty is so important that not even by withdrawing from a relationship can an attorney evade it.⁶

Clearly, both of the duties regarding adverse interest and confidentiality can be modified to some degree with client consent, as discussed above.⁷ There is nothing, however, that would require an attorney to continue representation if a conflict arose. Further, the requirement of "informed" consent under the Rules of Professional Conduct may become impossible in a case where there is an actual conflict.⁸ A conflict would become clear when confidential information obtained from one client is withheld from the other; however, without knowledge of the confidential information, the client would be unaware of the degree or seriousness of the conflict. Thus, the attorney could not sufficiently "inform" the client to obtain consent without violating his or her duty of confidentiality.

The more common issue occurs where the attorney, through multiple representations, is working with the "family" and one course of action...