Ethics in Estate Planning:

1. Ethics in Estate Planning: What Is The Difference Between an Estate Planning Lawyer and a Non-Lawyer Estate Planner, and Why Does it Matter? May 28, 2014 Paul P. Morf pmorf@simmonsperrine.com 319 896 4012 www.simmonsperrine.com

2. Agenda: 1. How has the Iowa Supreme Court’s Ingram decision expanded professional liability to non-lawyers giving estate planning advice? When, under Ingram, may beneficiaries of a client sue the client’s non-lawyer advisors after the client’s death? 2. To what extent has the Iowa Legislature abrogated the holding in Ingram, at least with respect to individuals who sell insurance and who do not charge separately for any other service, including estate planning advice?

3. Agenda: 3. How do estate planning attorneys and affiliated estate planning advisors work together for optimal client results? 4. What liability to attorneys and non-attorney advisors subject themselves to if they divert from the “optimal” team approach to planning?

4. What is the Unauthorized Practice of Law?

5. Unauthorized Practice of Law: • The Iowa Supreme Court has exclusive authority over admission to the practice of law which includes the power to define what constitutes the practice of law and to prevent the unauthorized practice of law by those who have not been properly licensed in Iowa. • In order to understand what constitutes the unauthorized practice of law, we must understand what constitutes the practice of law.

6. IA R 32:5.5 – prohibits an attorney from aiding another in the practice of law in a jurisdiction in violation of the regulation of the legal profession in that jurisdiction.Comment says :The definition of the practice of law is established by law and varies from one jurisdiction to another. Whatever the definition, limiting the practice of law to members of the bar protects the public against rendition of legal services by unqualified persons.”

7. Definition of Practice of Law • There is no one specific definition of what constitutes the practice of law; • Rather courts have provided examples of what constitutes the practice of law which includes, but is not limited to: • Representing another before the courts; • Giving legal advice and counsel to others relating to their rights and obligations under the law; • Preparation or approval of the use of legal instruments by which legal rights of others are either obtained, secured or transferred even if such matters never become the subject of a court proceeding.

8. Definition of Practice of Law: • Functionally, the practice of law relates to the rendition of services for others that call for professional judgment of a lawyer

9. Commission on Unauthorized Practice of Law: • The Commission on the Unauthorized Practice of Law, is charged by the Supreme Court with the investigation and abatement of the unauthorized practice of law in Iowa. • Iowa Court Rule 37.1 establishes the Commission on Unauthorized Practice of Law.

10. Commission on Unauthorized Practice of Law: • The Commission receives complaints related to unauthorized persons practicing law and investigates such complaints.

11. Commission on Unauthorized Practice of Law: • If the commission has reasonable cause to believe that any person is engaging in the practice of law, the commission may seek an injunction to stop the activities constituting the unauthorized practice of law. (Iowa Court Rule 37.2) • Violation of the injunction would result in a finding of contempt of court.

12. Where is the line? When does a non-attorney cross the line into practicing law?When does an attorney inappropriately assist in the unauthorized practice of law?

13. Baker Decision (1992): • Facts: • A CFP (Voegtlin) and a bank trust officer (Miller) held seminars for the public promoting revocable trusts. • After each seminar, attendees were invited to a free consultation. • At the consultation, Voegtlin and Miller would discuss living trusts and diagram how a living trust would work for the individual client. At the conclusion, there would be a consensus as to the estate plan that worked best for the clients. • At the conclusion of the consultation, Voegtlin would tell the client to get their attorney involved and if the client did not have an attorney Voegtlinwould provide a list of attorneys and recommend Baker.

14. Baker Decision (1992): • Facts: • Attorney Baker agreed to take referrals from Voegtlin that resulted from such consultations. He would receive the work-up documents from the consultation and call the client to discuss them. • At the request of Voegtlin, Baker provided Voegtlin with sample copies of living trusts and other estate plan documents, including a Supplemental Financial Plan Letter that stated that Voegtlin was involved in the estate plan and should be involved in the administration of the estate. These documents were to be used as examples during Voegtlin’s consultations. • But Baker did the actual drafting after a referral was made to him.

15. Baker Decision (1992): • QUESTION: Did Voegtlin Engage in the Unauthorized Practice of Law?: YES • Court expanded definition of the practice of law to include: • Giving legal advice, directly or indirectly to individuals or groups concerning the application, preparation, advisability or quality of any legal instrument or document or forms thereof in connection with the disposition of property inter vivos or upon death, including inter vivos trusts and wills. • Court found that Voegtlin was engaged in the unauthorized practice of law since he met with clients, advised them about what they needed in the way of estate planning including what documents they needed and how those documents should be tailored. • Baker’s role was one of a scrivener of Voegtlin’s determinations. Voegtlin, rather than Baker, was exercising professional judgment.

16. Baker Decision (1992): • Aiding in the Unauthorized Practice of Law – Did Baker aid in Voegtlin’s Unauthorized Practice of Law?: • Court found that Baker violated these rules since Voegtlin controlled the whole process from the initial interview to the final meeting with the client. He recommended the living trust, the necessary documents to effectuate it, and recommended a lawyer who he believed would not counsel against his advice. • Baker never discouraged Voegtlin and instead encouraged it by: • Allowing Voegtlin to exercise the professional judgment; • Allowing Voegtlin to act in a confidential capacity with clients referred to him; • Furnishing Voegtlin with forms to be used in his seminar; • Accepting over 100 referrals from Voegtlin; • Provided Voegtlin advice with regard to marketing materials.

17. Baker Decision (1992): • Conflict of Interest: • Court also found that since Voegtlin was allowed to direct or regulate Baker’s professional judgment in rendering legal services to his referred clients, a conflict of interest existed for Baker since this interfered with his loyalty to his clients. • Note: Attorneys are subject to more demanding conflict of interest rules than most other professionals. If we represent multiple generations in a single family, that is a complicated ethical situation.

18. Baker Decision (1992): • Disciplinary Action: • As a result of the Court’s findings, Baker was publicly reprimanded by the court and assessed all costs related to the hearing.

19. Question • What is the real distinction between a lawyer and a non-lawyer in the estate planning field? • Do all lawyers know more about estate planning than all CFPs, all CLUs, Trust Officers, Planned Giving Officers? [no] • Are there some CFPs, CLUs, Trust Officers, and Planned Giving Officers that know more about estate planning than 90% of Iowa attorney? [yes, probably]

20. Question • What then makes the attorney unique? • Ethical rules re Conflicts of Interest and Independent Judgment • Scope of the Work and Reasonable Expectations of the Client • Ideally, knowledge and training regarding the entire breadth of the law that applies to estate planning documents (but . • The Buck Stops With the Lawyer (not the CLU, CFP, Trust Officer, or Planned Giving Officer) Regarding any Documents that are Drafted and Executed. So the attorney needs to exercise independent judgment to make sure they are suitable and fit for the unique needs of the client in question.

21. Sturgeon Decision (2001): • Involved a disbarred attorney, Sturgeon, who assisted clients in completing the paperwork necessary to file for bankruptcy; • Sturgeon’s office contained multiple signs stating he is a “non-attorney bankruptcy specialist” and “no legal advice” is given.

22. Sturgeon Decision (2001): • The Court said that “the line drawn when unauthorized practice of law occurs is at the point at which data entry crosses the line between copying written information provided by the client and oral solicitation of the information necessary to fill out documents selected by the preparer.” • Court Conclusion: Sturgeon participated in the selection, preparation, and filing of the bankruptcy forms, and the advice rendered to his clients crossed the line from merely filling out forms to practicing law.

23. Sturgeon Decision (2001): • Court Order: • Court upheld the injunction, with one slight change, against Sturgeon permanently enjoining Sturgeon from engaging in those activities which constitute the practice of law including 1) preparation of bankruptcy documents; 2) preparing documents for others in connection with judicial proceedings; 3) preparing or approving the use of legal instruments by which legal rights of others are either obtained, secured, or transferred; 4) giving legal advice to others relating to their legal rights and obligations under the law; or 5) otherwise providing advice or services which constitute the practice of law.

24. Consequences of Crossing the Line

25. Consequences to Aiding in the Unauthorized Practice of Law: • Attorney Sanctions: • If an Attorney is found to have aided another in the unauthorized practice of law, the Attorney will be subject to discipline action and investigation from the Commission, the Iowa Disciplinary Board, and the Iowa Supreme Court. • Potential disciplinary actions that could be taken against an attorney include: • Public reprimand; • Sanctions; • Suspension of law license; • In extreme cases, disbarment.

26. Consequences to Engaging in/Aiding in Unauthorized Practice of Law: • Injunction: • Definition - a judicial order that restrains a person from beginning or continuing an action threatening or invading the legal right of another, or that compels a person to carry out a certain act, e.g., to make restitution to an injured party. • In other words, a court may order you to stop what you are doing, including limiting or stopping someone from providing advisory services if the court believes it encroaches the practice of law. • Failure to comply with such a court order could result in you being found in contempt of court.

27. Consequences to Engaging in/Aiding in Unauthorized Practice of Law: • Legal Liability: • Clients (or other interested persons under an estate plan) could sue for damages (at least if your business is not limited to selling life insurance). • Beyond the risk of court ordered damages, there is the time and costs associated with litigating the matter.

28. Consequences to Engaging in/Aiding in Unauthorized Practice of Law: • Other Negative Consequences: • Reputational harm to you and your business; • Potential implications on professional licenses or membership in professional associations.

29. Consequences to Engaging in/Aiding in Unauthorized Practice of Law: • Legal Liability: • Significant New Iowa Supreme Court Decision: • St. Malachy Roman Catholic Congregation of Geneseo v. Ingram, 841 N.W.2d 338, 340 (Iowa 2013), reh'g denied (Feb. 11, 2014).

30. Ingram Case: Disclaimer The Author Makes No Statement or Evaluation Regarding the Relative Merits of the Parties to this Case. All statements regarding the Facts of the Ingram case are taken from the Iowa Supreme Court’s Published Decision. The author has not personally verified any of these facts, and makes no comment as to their accuracy. The purpose of this discussion is not to evaluate the rightness or wrongness of the actions of any party to the Ingram case, but rather general educational purposes regarding developments in the law which may inform best practices and risk management decisions going forward.

31. Ingram Case: Question Presented • Question: Can a financial advisor of a deceased client be sued by identified beneficiaries of the deceased client's signed written estate plan when, due to the advisor's allegedly negligent performance of his duties, those beneficiaries do not receive what they were supposed to get under the plan? • Note: The answer is already “yes” for attorneys. Schreiner v. Scoville, 410 N.W.2d 679, 682 (Iowa 1987).

32. Ingram Case: Holding “We conclude the rationale of Schreiner v. Scoville, 410 N.W.2d 679, 682 (Iowa 1987), which held that attorneys could be sued in these circumstances, extends to non-attorneys acting within the scope of their agency.”

33. Ingram Case • Facts: • Alvin Engels • Died February 2006, 80 Yrs Old • No Children • In About 1993, Engels retained James “Jay” Ingram of Piper Jaffray as a securities registered representative. • Engels and Ingram consulted re estate planning

34. Ingram Case : Facts • On September 24, 1999, Engels executed a revocable trust agreement that appointed Engels and Loretta Wongstrom as co-trustees of the Alvin F. Engels Revocable Trust. • Engels also created the Engels Charitable Foundation, a not-for-profit corporation, of which Engels, Ingram, and Wongstrom were appointed directors. • The Revocable Trust and Charitable Foundation paperwork was drafted by attorney Jerry Pepping • Ingram handled the transfer of Engels's assets—including his home, checking accounts, Piper account, series H and HH bonds, a promissory note, and a variable annuity—to the Revocable Trust

35. Ingram Case : Facts • The Revocable Trust agreement provided for a “zero estate tax plan,” passing the tax-free amount to Trust B for individuals, and the rest to Trust A for non-profits. • Trust A would be funded only to the extent necessary to minimize federal estate taxes. The contents of Trust A were to be distributed to the Charitable Foundation, except for $15,000, which would go to St. Malachy Roman Catholic Congregation (St.Malachy's). • Trust B would receive the remaining assets, which would be used for the benefit of some neighbors and nieces and nephews (Katherine, Andrea, and Andrew Bristol and Jerri McLane, Lynn McLane, and James Kleinau)

36. Ingram Case : Facts • “It is clear that Ingram was involved, to some degree, in the planning for Engels's estate during this time, including the Revocable Trust.” • Pepping sent drafts of the Revocable Trust agreement and a draft of Engels's last will and testament to Engels, Ingram, and Wongstrom. • Ingram was also named as executor of Engels's will in an October 1, 2001 codicil and, on the same day, was named as the successor trustee of the Revocable Trust. • Less than a year later, Ingram was appointed Engels's attorney-in-fact for healthcare decisions.

37. Ingram Case : Facts In approximately November 1999, Ingram left Piper Jaffray for Robert W. Baird & Co. He took the Engels account with him.

38. Ingram Case : Facts • In 2003, Engels apparently decided to alter his estate plan. • On October 1, 2003, Engels executed five documents: • (1) a durable power of attorney appointing Jerri McLane as attorney-in-fact for healthcare decisions, • (2) a living will, • (3) a durable financial power of attorney appointing Ingram attorney-in-fact for Engels's financial affairs, • (4) a new last will and testament, and • (5) a charitable trust agreement creating the Alvin F. Engels Charitable Trust. – • NOTE: NO REVOCATION OF REVOCABLE TRUST: THIS WILL REPLACED THE POUR-OVER WILL, BUT THE REVOCABLE TRUST HAD ALREADY BEEN FUNDED, SO CHANGING THE WILL DID NOT CHANGE THE DISPOSITION OF THE REVOCABLE TRUST ASSETS.

39. Ingram Case : Facts • These documents were drafted by a different attorney (attorney Marie Tarbox of the law firm Gosma, Tarbox & Associates). • Ingram signed the Charitable Trust agreement. • Ingram's wife witnessed three of the documents, and each document, with the exception of the living will, was also notarized by Ingram's assistant, Mardee Trapkus

40. Ingram Case : Facts • The Will provided that Steve Bristol would receive Engels's residence located in Geneseo, Illinois. • In addition, the Will made specific bequests of $75,000 to Jerri McLane, $25,000 to Lynn McLane, and $25,000 to James Kleinau. • However, the entire residue of the estate after these bequests was to be paid to the Charitable Trust. The Will named Jerri McLane as executor and Ingram as successor executor in the event McLane could not serve. • In article 5, Ingram and Jerri McLane were designated to serve as cotrustees of the Charitable Trust upon Engels's death.

41. Ingram Case : Facts The Charitable Trust provided in article 3 as follows: “On the death of the Grantor [Engels], the Trustee shall distribute the net income and so much of the Trust principal as the Trustee may determine among St. Malachy's Catholic Church, Geneseo, Illinois, and the United Way and the American Red Cross, with direction that distributions to the latter two organization[s] shall be used for the benefit of residents of Henry County, Illinois, and to such other 501(c)(3) organizations benefitting Henry County, Illinois as may apply for distributions and which the Trustee, in its sole discretion, determines appropriate in any given year. The Grantor recognizes that he is placing a good deal of discretionary power in the Trustee, and is confident that the Trustee will exercise its discretionary power in a manner that will best meet[ ] the needs of the charitable organizations named herein, Geneseo, Illinois and Henry County, Illinois over the years.”

42. Ingram Case: • As with the 1999 estate planning documents, the record reflects that Ingram was heavily involved in the development of the 2003 Will and Charitable Trust. • Tarbox testified she had a referral relationship with Ingram and received four-to-six referrals from him annually between 1998 and 2002. • In each referral, Tarbox testified Ingram typically provided her with background information about the client in the sense of what their asset value was, if there was a trust in existence, information about the family, information about things that may be of particular concern to that client, and if there had been [specific] things that he had discussed with the client․ Engels was one of these referrals. • Tarbox said she had three or four conversations with Ingram in which he outlined Engels's estate plan before she ever met with Engels. • According to Tarbox, during her meeting with Engels, Mardee Trapkus—Ingram's assistant—was also present. • Tarbox stated Ingram had told her in advance which charities Engels wanted to benefit.

43. Ingram Case : Facts • “Despite Ingram's history of disclosing a client's existing trusts, Ingram made no mention of the existence of Engels's Revocable Trust. Tarbox indicated she did not become aware of the existence of the Revocable Trust or the Charitable Foundation until after Engels's death.”

44. Ingram Case : Facts With [a] letter, she enclosed draft documents, including versions of the Will and Charitable Trust agreement. She later testified it was her intention that Engels would review the documents and return to her office to execute them if they were acceptable. According to Tarbox, rather than returning to Tarbox's office, Engels executed the documents and merely had copies delivered to Tarbox. Tarbox was angry that Engels had executed the documents outside of her office. Apparently, Tarbox and Engels patched things up because Tarbox continued to do work for Engels.

45. Ingram Case : Facts • Meanwhile, the record indicates that Ingram made several efforts to get Engels to transfer his assets into his Charitable Trust during his lifetime. • On January 23, 2004, Ingram's assistant Trapkus sent Engels a letter that stated, “I have enclosed a form that needs to be signed so that Marie Tarbox can change the ownership of your house into the [Charitable] Trust that you have created. Please sign by the red arrow and return to me in the envelope I have enclosed. I will notarize your signature for you.” • Nineteen days later, on February 11, 2004, Tarbox's office sent a quitclaim deed to the recorder's office. The quitclaim deed stated “Alvin F. Engels” was conveying the home in Geneseo to the “Alvin F. Engels Charitable Trust Agreement.” The deed was recorded on February 23, 2004. • However, apparently unbeknownst to Tarbox, at the time the home was titled in the name of the Revocable Trust, not in Engels's name, so the deed was ineffective.

46. Ingram Case : Facts • Approximately one year later, in February 2005, Ingram sent another letter to Engels regarding the Charitable Trust. • In it he stated: “Mardee [Trapkus] indicated that you have some issues with Marie [Tarbox]. It's important to make choices according to what you want. (It's your money and you can control where it goes.) I've enclosed transfer forms that are necessary to move your assets into the [C]haritable [T]rust. Enclosed are forms necessary to transfer your assets into the [C]haritable [T]rust.” • Tarbox testified she was unaware of Ingram's attempts to transfer Engels's property into the Charitable Trust. Had she been asked about the transfers, she claims she would have told Ingram or Engels the transfers were “inappropriate” because Engels would lose the benefit of those assets during his life. Yet, it is not disputed that Tarbox's office sent the quitclaim deed for Engels's home to the recorder's office in February 2004.

47. Ingram Case : Facts Several months later, in August 2005, Ingram again wrote Engels urging him to fund the Charitable Trust by transferring his brokerage account assets into it. Ingram noted the annual income on Engels's account amounted to $20,000 and “[t]he annual gifting of $20,000+ to worthwhile charities, organizations and scholarships will make a substantial impact on the lives of many people in the future.” Ingram added, “We really need to get the [C]haritable [T]rust funded, so please return the enclosed forms to your attorney when you make your changes.”

48. Ingram Case : Facts On January 6, 2006, Ingram's office called Tarbox to let her know that Engels wanted to change the designated individual on his healthcare power of attorney. Tarbox drafted the necessary forms and sent them to the new designee. At this time, Engels's health was deteriorating. Ingram sent a letter to Central Trust and Savings Bank indicating Tarbox had “requested that [Ingram] assist [Engels] in compliance with his Durable Financial Power of Attorney dated October 1, 2003.” He asked the bank to “honor [Ingram's] signature on [Engels]'s personal checks until further notice.” Engels died on February 12, 2006 -

49. Ingram Case : Facts On February 15, 2006, Tarbox sent a letter to Ingram offering “a short review of Mr. Engels'[s] estate plan documents.” In it, she went over the terms of the Will and the Charitable Trust. Tarbox testified she first became aware of the Revocable Trust after Engels's estate was opened and Ingram provided the Revocable Trust documents to her.

50. Ingram Case : Facts In a handwritten, one-page document that Ingram created after Engels's death entitled “Alvin Engels Estate,” Ingram listed the monetary bequests to the nieces and nephew under the Will and additionally noted the house was to “deed out quickly to Bristol.”