Practical Legal Ethics for Advisers

Consider the following scenario from David W Marks QC, CTA...

You operate as a professional in your own field.

You operate as sole principal with a small staff of administrative and clerical employees, including a couple who are able to do bookkeeping.

Some time ago you struck up conversation with a senior employee at a nearby retirement village, Ms Retirement.

One Sunday afternoon you receive a call from Ms Retirement.  She tells you the following:
  • One of the residents at the retirement village, Mr Elder, had been talking to her for some time about getting his affairs in order.
  • In fact, a solicitor had drawn up a final draft Will and a final draft Enduring Power of Attorney for his consideration.  Each is complete but for inserting the name of the executor and attorney, respectively. 
  • Mr Elder then fell out with the solicitor and the work was not completed.
  • Part of the reason for the work not being completed was that Mr Elder has no relative living in Queensland.  His closest relatives are nieces and nephews living in Western Australia.  Although fond of his nieces and nephews, Mr Elder regards them as being too young, and physically too distant, to deal with his affairs.
  • This is probably why Mr Elder has prevaricated over completing the documents, and the real cause of tension with his former solicitor (who declined to be named as executor and attorney).
  • Matters have now come to a head.
  • Mr Elder has been admitted to the Gold Coast University Hospital with unexplained bleeding that must be explored by surgery that evening.
  • Ms Retirement impresses upon you that the doctors say that Mr Elder looks fit and well, and anticipate no untoward outcome from surgery, though perhaps there will be a longer term disease process revealed.

Ms Retirement asks you to meet her and her husband (a Justice of the Peace) at Mr Elder’s bedside, at 4.30 pm.  (An operating theatre is only available at about 10 pm that night, but the case is regarded as urgent nevertheless.)

First, are you obliged to go?

You do meet Mr Elder, in the presence of the other two, and discuss his wishes. 

You strike up an immediate friendship.  He is a decent chap with similar interests to you, and it turns out that you know several people from his circles of acquaintance on the Gold Coast. 

He volunteers that he would like you to be named as executor and as attorney, and produces the draft documents. 

Is acting either as an executor or as an attorney consistent with your professional practice? 

What is your insurance position? 

What body of ethical rules and guidelines applies?

You take the draft documents from him and read them. 

They have been carefully drafted by the previous solicitor.  Each has a charging clause, entitling charges to be made by the executor and by the attorney, respectively, at the rates usually charged by the executor or attorney, from time to time, for professional services in that person’s professional practice.  The charging clauses contemplate commission based on asset value and income, in addition.

Mr Elder says that he has carefully discussed the two documents with his previous solicitor.  He considers that they are suitable subject only to inserting your name in them. 

Do you raise with Mr Elder the existence of the clauses? 

What other steps should you or could you take at this point concerning securing remuneration?

The documents are duly signed and witnessed. 

Mr Elder’s exploratory surgery goes badly. 

He has had an adverse reaction to the anaesthetic. It is a known risk with all general anaesthetics. The anaesthetist, through years of experience, is nevertheless is able to save Mr Elder’s life.

Over the coming weeks it emerges that Mr Elder has suffered some brain injury, and will have trouble managing his own affairs.  The views of both the gerontologist and psychiatrist are that Mr Elder is well able to attend to day to day activities, such as buying a packet of cigarettes, managing simple personal matters such as what to wear and dressing himself, but will need considerable assistance in anything slightly more complex. 

Further, the consultant oncologist says that Mr Elder has a need, now, for high care on discharge from hospital.  The three specialists agree that Mr Elder cannot safely return to his retirement village, given his needs. 

Ms Retirement calls you and says that the owners of the retirement village have activated a provision under their contract with Mr Elder, terminating his right to stay at the retirement village.

You have been busy over the last few weeks, and have had trouble keeping up with Mr Elder’s medical ups and downs.  What do you do first?

The Enduring Power of Attorney covers personal matters as well as financial matters. 

Housing can only be obtained once you source financial resources.

You begin to gain access to, and review, Mr Elder’s financial affairs.  In short, he is a wealthy man on paper, but his investments are locked up in minority shareholdings in companies, where over a period of time he sold down his shareholdings to promising local managers.  There is no simple way of gaining access to cash from those sources. 

The retirement village anticipates a very substantial refund to Mr Elder on his exit.

But his exit can really only occur on Mr Elder finding suitable placement in a nursing home.

The complexities of gaining a place in a nursing home, putting up a bond, and managing social security and private superannuation are (presumed for this exercise) outside your usual field of practice. 

This is truly a complex area where specialist financial planning advice is often engaged. 

You have an offer for Mr Elder’s unit at the retirement village.  There is pressure from the rehabilitation ward at the hospital for him to be housed.

Do you ring up the financial planner? 

How will you pay the financial planner?

There will be paperwork from both the sale and the placement of Mr Elder.  Can you or should you engage a solicitor to review the contracts?

The financial planner is a genius and works out a way of coming up with any necessary bond.

She also has a friend who enables to quick placement in an aged care facility.

Unfortunately, there is a deal of paperwork that must now be signed. 

The paperwork is generally signed by a close relative of the person entering the aged care facility. 

Because the documents purport to require guarantees, the nieces and nephews in Western Australia are reluctant to sign anything.  Their respective financial positions are precarious, and their family has had troubles with guarantees in the past. 

Do you sign the guarantee? 

Do you sign any other contract with the aged care facility concerning Mr Elder’s care? 

If so, in what capacity?

It is now about 12 weeks since Mr Elder had the fateful operation. 

He has been in the aged care facility for less than a week. 

His health deteriorates rapidly and unfortunately he dies. 

You are left as executor, and spend four solid weeks attempting to wrap up Mr Elder’s affairs. 

You actually achieve an outstanding outcome for the nieces and nephews, in that you negotiate favourable exit from the minority shareholdings in the various companies, which formed the bulk of Mr Elder’s wealth. 

You engage an outside lawyer to do some of the specialist drafting and work associated with those transactions, and pay those fees, approximately $35,000, from your own pocket.

You get to the end of the financial quarter. 

Your firm uses an external tax agent, as a good discipline rather than relying entirely on your own skills in your own business.  Your tax agent, Ms Accountant, rings you and asks you why your billings are so significantly down for the last two quarters. 

On review, you find that you have spent about six weeks working on nothing other than Mr Elder’s affairs. 

You have not attempted to render any fee note, as matters progressed so quickly from the start. 

And you note that one of your clerical staff, who has some bookkeeping skills, seems to have spent about half her time over that period from the initial meeting at the hospital doing nothing other than Mr Elder’s affairs.  This included everything from settling outstanding accounts with chemists, through lengthy discussions with banks and financial institutions so as to gain access to financial information and gain control of accounts when necessary. 

Do you now render accounts?  On what basis?  Did you issue a retainer letter?  If so, to whom?

Now, you discover that Mr Elder actually has substantial, further wealth in a discretionary trust (the Elder Trust).  The deed named Mr Elder as appointor.  The successor appointer clause provides that the executor of Mr Elder takes his place on Mr Elder’s death.

The trustee is a sole member, sole director company, and Mr Elder held both roles. 

Under the Will, the sole share passes to the niece and nephew jointly, which is unwieldy. 

As they are now in dispute with each other (over unrelated business matters in WA), the trustee company seems unsuitable.

Do you replace the trustee?  Do you “try to do the right thing” by appointing yourself as trustee? 

The clause in the trust deed reads:

“The trustee may make the usual professional charges.”

Can you act to appoint yourself as trustee? 

What can you charge to the trust fund, for your efforts as trustee?

David W Marks QC, CTA
At the 2018 Death... and Taxes Symposium, David W Marks QC will explore this scenario in his keynote address ‘Practical legal ethics for the adviser’.

All advisers are potentially faced with issues of conflict and potential liabilities when taking on roles, such as executor, thinking that they are assisting their clients.

In what will be an eye-opening start to the Symposium, David’s keynote address will highlight the risks for all advisers, be they accountants, lawyers or otherwise.

David will look at the issues in acting as an attorney, executor, trustee, or appointor, and the ethical pitfalls and best practice when asked to assume such roles.

The session also covers issues around guarding against adviser liability, taking instructions and gaining meaningful consent, managing conflicts between spouses/family members, and potential conflicts between adviser and client.

David W Marks, QC, CTA, is a commercial Silk at the Queensland Bar practising principally in tax. He has a broader practice in commercial litigation, trusts and estates, and administrative law. He contributes to the life of the profession through his committee work for The Tax Institute and other professional bodies. He is a Chartered Tax Adviser and a registered Trust and Estates Practitioner. He received The Tax Institute’s Meritorious Service Award in 2013.

Find out more about David’s session and the rest of the program on our website. Join us for the 2018 Death... and Taxes Symposium, 19-20 July 2018, on the Gold Coast.

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