The Florida Bar v. Doherty, — So.3d —-, 2012 WL 1033478 (Fla. March 29, 2012)

Plenty of estate planning lawyers also advertise themselves as financial planners. There’s nothing inherently wrong with this (hey, some of my best friends are financial planners!), and I’m sure lots of clients appreciate a "one-stop-shopping" approach to their estate planning (which is inextricably linked to financial planning). In fact, advocates of the multidisciplinary practice approach would argue these lawyers/financial planners are the wave of the future!

Lawyers aren’t prohibited from providing financial planning services to their clients; but be warned, if you do so you’re walking into an ethical minefield. One wrong turn and … BANG! There goes your law license. That’s what happened in the linked-to case above.

Case Study:

In the linked-to case above the Florida Supreme Court held that a lawyer selling annuities to his client (and earning a commission on that sale) is subject to rule 4-1.8(a), the Florida Bar ethics rule prohibiting a lawyer from engaging in a business transaction with his client unless the lawyer makes the specific written disclosures required by rule 4-1.8(a). No such written disclosure was made in this case, resulting in the lawyer’s disbarment. For an example of what that written disclosure might look like, click here for ACTEC’s sample disclosure letter waiving the conflict arising when a lawyer writes himself in as a personal representative or trustee of his client’s will or trust.

The estate planning lawyer in this case didn’t just market annuities to his client (an elderly widow dying of cancer), he also wrote himself in as personal representative of her will and trustee of her three trusts. One of these trusts was also drafted in a way that compelled the trust to buy annuities from two companies lawyer was an agent for. Here’s an excerpt:

In addition to her investments, in the last several weeks of the client’s life [lawyer] worked to revise her estate planning documents. . . . The client named [lawyer] as her personal representative. She also executed amendments to the Restated Trust to name [lawyer] as successor trustee.

[Lawyer] also authored two new trusts for the client’s estate. The first, a real estate trust, was executed on August 10, 2006. The primary asset in the trust was to be the client’s condominium unit. The trust instructed that the unit be sold and the proceeds from the sale used to purchase annuities. [Lawyer] was named the successor trustee for the real estate trust and was granted sole discretion to select the annuities that would be purchased. Significantly, the referee found that [lawyer]’s authority to sell financial products was limited to Conseco or Washington National annuities. The second trust at issue, an educational trust, was also executed on August 10, 2006. It was established to pay future educational expenses for the client’s grandchildren. [Lawyer] was named the successor trustee for the educational trust.

Not surprisingly, when the Bar examiner took a look at all this, lawyer got hammered. The recommended sanction was disbarment, which the Florida Supreme Court upheld on appeal. Here’s an excerpt of the Court’s analysis:

[Lawyer] held himself out as a lawyer and a Certified Financial Planner. His professional relationship with the client involved both legal work, including amending her will and executing two trusts on her behalf, and financial services, namely brokering the sale of Conseco and Washington National annuities. It is clear that [Lawyer] stood to earn a commission from the sale of the annuities had those transactions been completed. It is also clear that he did not disclose his financial interest in the transactions to the client in writing as required by rule 4–1.8(a). Accordingly, we approve the referee’s recommendation that [Lawyer] be found guilty of violating rule 4–1.8(a).

. . . . .

The evidence demonstrates that [Lawyer]’s conduct created a clear conflict of interest in that there was a substantial risk that his representation of the client would be limited by his own interests. [Lawyer] acted purposefully to make his personal, pecuniary interests at least as important as those of his client and her estate. He advised his client to select various means of estate planning and wealth management that would earn him a personal financial benefit. Additionally, [Lawyer] participated in a business transaction with his client and failed to disclose his substantial interest in the transaction. We believe his actions amount to egregious misconduct.

Florida ethics cases usually don’t garner much out-of-state attention, but this one did. Why? Because it involves the insurance industry, which plays a huge national role in the estate planning arena. For a solid national take on this case, you’ll want to read this commentary published jointly by California attorney Jay Adkisson of Riser Adkisson LLP, and New York attorney Richard LeVine of Withers Bergman LLP.