Ethical, Moral, And Thorny Personal Issues In Estate Planning

Introduction

Ethical questions arise during many estate plans. Sometimes, these are ethical issues that you and/or your family may have to grapple with. Sometimes, the ethical issues that arise are ones that you create for your professional advisers. While the adviser has to determine how they will address those issues, their decision may affect what you ultimately may have to do (e.g., change plans or get a new adviser, perhaps). In some cases, creative planning approaches might provide a means to resolve or avoid the ethical or personal challenge that arose. Those cases, in particular, might be instructive to consider.

Ethics or Morals

An ethical question relates to moral principles. What is appropriate or correct behavior with respect to a particular action? Ethics seems to pertain to more global or universal concepts of right or wrong and fairness. Perhaps ethics pertains to the analysis of whether a particular action is responsible. Ethics might be contrasted with morals. Morals may connote similar questions of right versus wrong and fairness but are based on a person’s subjective preferences. So, a course of action may be ethical but morally unacceptable to you.

Professional ethics for attorneys, CPAs and others more technically may refer to the published ethical guidelines a professional organization promulgates. The discussions following will implicate these in many of the situations discussed, but the focus will be on the less technical or legal perspective and rather on societal ethics and individual morals.

Different Religious Observances Amongst The Family

Healthcare documents are a common, if not essential, part of most estate plans. These might include a living will (a statement of health care wishes, e.g., end-of-life treatment), a health care proxy, or medical power of attorney (a document designating a particular person to make health care decisions if the signer cannot do so), and perhaps other documents (Health Insurance Portability and Accountability Act or HIPAA release authorizing someone to communicate with the medical providers, etc.). When parents create these documents, what if the children or family members they name as agents to make decisions have different levels of observance or are of a different faith altogether? A simple solution might be that anyone named agent should carry out the wishes of the person naming them to make such decisions. After all, isn’t it the right of the person to have these documents prepared to have their wishes respected? That would seem ethically appropriate. Shouldn’t everyone’s wishes be respected, especially if they cause no harm to anyone else?

But that conclusion is not the full picture. Suppose the child (or anyone else) named as agent for the parent has become more devout than the parent or has converted to another faith. The following is a not-uncommon dilemma. Suppose the child’s faith, for example, recognizes life as sacred, and she believes that only God can make a decision to end a life, not people. However, the parent, after an earlier bout of cancer or another serious illness, has determined that she does not want to be kept on life support, nor would she want heroic measures performed. Those wishes, clearly communicated in the living will, might require the agent to request the cessation of medical treatment affirmatively and actively. While those are the parent’s wishes and they should be respected, implementing those decisions would violate the child/agent’s profound religious beliefs. While perhaps viewed as ethical, even an imperative, by society generally, carrying out those wishes may be an anathema to the particular agent.

The solution seems simple: the parent should name someone else as an agent. But simplicity does not always comport with reality. The parent may have no one else they trust to name. Like most people signing estate planning documents, the parent probably won’t have a heartfelt and open discussion with the child named as agent, so the conflict and dilemma may not be known until the parent is in a critical situation requiring immediate action. The child’s religious observance or philosophical beliefs may have evolved after the parent named them as agent.

What if none of this is done and the agent finds themselves in the common dilemma of the parent being in a medical crisis and they only then learn of the document naming them and their parent’s wishes? Does the agent violate their beliefs to fulfill the parent’s wishes? Certain the child should confer with their religious adviser on how to proceed, but such decisions will never be easy.

Practical planning can avoid the above situation. Anyone creating these documents, it would seem, has an ethical duty to have a frank and open discussion with the person they wish to name before completing and signing the legal documents. If the agent cannot morally accept the requests, then other options might exist. The parent might rely on a living will to communicate their health care wishes and provide that to their medical providers. The parent might sign a Physician Order for Life-Sustaining Treatment (POLST) that can instruct medical providers directly regarding their wishes. It may be feasible to name a friend or other family member. A professional healthcare agent might be hired and designated if that is not practical.

Pregnancy Considerations

Healthcare documents should and often do address the issue of pregnancy as that is a vital healthcare decision and one fraught with personal, religious, and philosophical considerations. A woman of childbearing age should carefully address the issue of pregnancy in her life. Medical decision-making concerning a fetus varies greatly among different religions. Some faiths proscribe taking direct action that could cause the death of the unborn child or the mother. The life of the mother cannot be chosen over the life of the unborn child, or vice versa, because all life is sacred, and the right to choose is in God’s hands alone. Other faiths take an opposite approach, suggesting that the life of the mother takes priority over that of the fetus if a decision must be made. Apart from faith, there is a wide continuum of different views on what can or could be done. Unless this matter is expressly addressed in a living will, no one may know the degree of the client’s devotion. Healthcare providers cannot be expected to have the knowledge necessary to carry out the client’s wishes without clear guidance from the client.

What if the decision the mother wishes to provide for contradicts state law? Can that be addressed by permitting the agent to move the mother to a different state to obtain a more favorable law? Will that type of provision be respected? What if the agent’s views differ from those of the person signing the healthcare document? That needs to be addressed no differently than the general healthcare issues discussed in the preceding example. What if the attorney requested to prepare the document has fundamental religious beliefs at odds with the decisions requested?

Pain Relief

Many patients and healthcare providers view alleviating all pain as an essential and ideal objective. There are exceptions. For those of some faiths, the act of suffering can be an experience providing for purification, redemption, and salvation. Although suffering is clearly not encouraged, pain relief to the point of making someone unconscious during their last days may prevent them from addressing profound and moving observances essential to their religious beliefs. Some faiths suggest that being lucid during one’s last days to be free to confess their sins and participate in important rituals and prayers is very important. If the attending physicians are unaware of this, they cannot be assumed to respect and foster this type of care. A sensitive balancing of important goals is thus required. These decisions can also raise complex ethical issues for the patient, agent under a healthcare proxy, family, physician, and even attorney. At what point does providing pain relief evolve from reliving pain to becoming the active hastening of death? Does approaching or crossing that line affect the comfort or even willingness of those involved to participate?

Funeral Wishes That Will Offend the Family

A related issue can arise in a somewhat different iteration of conflicting religious beliefs. You want to have your healthcare documents created so that they comport with your religious beliefs. However, you know that those beliefs will offend your family (or loved ones, as the case might be). You should ethically be able to mandate whatever you want. It is your decision. But is that really ethically appropriate? Perhaps yes, but there may be a better option. This odd-sounding solution has actually occurred more than a few times. Instead of specifying that the decisions, such as end-of-life, funeral, and burial arrangements, be handled in accordance with the dictates of a specified faith (a specification that will offend or upset other family or loved ones), consider a different approach. Leave out the reference to the specific faith and instead list the specifications of what that faith requires. That might recast what others might view as a statement of faith adherence into more innocuous personal requests that may not even be realized as comporting with that faith.

While the above might be viewed as the signer tip-toeing around their own faith observance, if the documents can be done in a way that both accomplishes the signer’s religious wishes but does so without causing upset for the family at an emotionally traumatic time, it might that not be a better ethical result?

Wife Disinherits Husband

This was a particularly sad and unfortunate case that we were asked to assist with by the surviving husband. The husband and wife had a long-term, intact marriage, and several children and grandchildren. Together, they went to an estate planning attorney and had wills and other documents prepared. The plan and documents were as common as could be. Because, at the time, the estate tax exemption (what could be bequeathed without an estate tax) was quite low, that amount was bequeathed to a creditor shelter or bypass trust that would permit the surviving spouse access to the money and the rest of the estate above that was bequeathed outright to the surviving spouse. That was a typical plan for married couples. Some years later, for reasons no one could ever identify, the wife went to a new attorney, alone and without mention to her husband or anyone in the family. No one ever learned what the wife discussed with the new attorney before he prepared a new will for her. But, if that attorney did what most attorneys would do, he would have obtained information about her family and would have learned that she was in a long-term marriage. If he did what most attorneys would do, he would have requested copies of current documents before drafting new ones. Whatever he saw or learned, or not, he drafted a new will, leaving all of her assets to children outright and nothing to her long-term husband. Years later, the wife died, and the husband, when he learned of her will, was in such incredible shock that he had to seek professional help.

Ethical questions abound. How a spouse in a long term marriage could commit such a hurtful and deceitful act is certainly the primary issue. But that, sadly, was not a question that could ever be posed to her. What about the attorney? He had to know the woman who sought his help was disinheriting her long-time husband. How could he have facilitated what had to be an act that would obviously create tremendous heartache at best and, as it turned out, made her husband’s final years financially difficult as well? Was he conducting himself ethically? Certainly he did what his client requested of him. Nothing he or she did was illegal. But was it ethical? Even if ethical, why was the attorney comfortable facilitating an action that would have such painful consequences? Did he do it for the few thousand dollars he could bill for the work?

Once the wife died, the children might have been able to disclaim or renounce their interests in the estate and shift some of the assets back to the father. Even if they did not formally disclaim those assets, they could have returned the wealth to the father as needed. But did they? It would undoubtedly have been difficult for them to have relinquished the early windfall they received. Did they rationalize they’re not doing so because their mother’s will made it clear that was what she wanted? What was the ethical or moral obligation, if any, of the children?

The Monied Spouse Gets The Attention

This is a common situation. Say, one spouse owns a business and generates substantial legal fees. The other spouse is a homemaker or at least a more modest earner. Both together hire an attorney to assist them with their estate planning. The attorney should ethically represent both spouses equally and fairly. This is not only a societal ethical matter but one that has received considerable attention from the various estate planning professions. There are detailed professional mandates on what conduct is appropriate or not. However, will each spouse, in fact, receive comparable treatment? How might that affect the interactions and results? Does the non-monied spouse assert themselves so that their views are known? Do the professional advisers seek input from that spouse as well as the monied spouse? The reality is that even within the bounds of professional ethical rules and guidelines, this is not always the case. What should the professional do differently? What should the professional do if the monied spouse endeavors to control the conversations and decisions?

How Little Might it Take to Get Disinherited?

Sometimes estate planning is used almost as an act of anger. That is rarely appropriate and perhaps may overstep the bounds of what is ethical. Even if ethical, should or must the professional adviser permit themselves to be used to carry out dispositive plans that will cause harm?

Not infrequently, parents have disinherited a child out of anger. The following is a story that has occurred too many times. A new client comes in and wants to update their estate plan. A common estate planning process would include the advisers collecting financial, family and other data. Existing documents are often (but not always) reviewed. Early in the process, it is discovered that one child of several has been disinherited. Some estate planners may not question such a decision beyond confirming (and perhaps several times, and from different lenses to be sure) that the parents, in fact, are intentionally determining to disinherit that child. Is it ethically required to inquire why such a potentially hurtful step is taken? The parents may not wish to discuss the decision (e.g., it may have been and remain so painful for them). Should the advisers nonetheless push for explanations? Without the parents providing some background and insight, it is not possible to guide them on options that might provide less permanent or less hurtful ways to deal with these likely raw emotions.

Several times, when confronted, parents have intimated that they were very angry when the will disinheriting a child (or other loved one) was requested and signed. Making those decisions in a charged emotional state or without proper reflection may never be ideal. One couple said they had left a family gathering and were so angered over an event that occurred that they called their then estate planning attorney on the way home to update their wills, removing that child and then perhaps a week or so later, while still simmering from the event, signed that will. Upon some discussion, the parents, in tears, explained that they were disturbed by the child’s spendthrift and irresponsible ways. What followed was a detailed discussion of how a professional, institutional trustee could be designated to serve over a trust for that child so that other family members would not be embroiled in saying no to the spendthrift. The pros/cons of a restrictive trust with detailed distribution provisions were discussed. Those could have been used to constrain distributions to or for the benefit of the spendthrift child. In the end, it was decided to give the institutional trustee wide discretion to distribute to the child. General clauses about considering the child’s other resources, the needs of remainder beneficiaries, etc., were added to the trust document. Then the parents wrote a very difficult personal letter of instruction providing much more detailed background and guidance for the named trustee. They opted for this approach as removing family members from the mix would provide a professional who has dealt with similar issues with the role to serve and would avoid the 2 am phone calls that would probably rattle a family member. Using a letter of instruction created the flexibility to modify the letter as circumstances evolve, and hopefully as they improve.

The Despised Son/Daughter-in-Law

A similar situation involving the detested son-in-law or daughter-in-law has given rise to parents wanting to disinherit the child married to that disliked spouse. Whether the reasons for the friction are substantial or petty, the angst and problems this can create are legion. Disinheriting a child because you dislike their choice of spouse may be too extreme for whatever infraction, real or perceived, was committed. One such scenario involved a family with two children. The parents wanted the estate divided equally between their son and daughter. But they disliked their daughter’s husband and feared his interfering in the family business that their son was running. So, their plan was to cut their daughter out and leave her entire inheritance to her children naming the good son as the trustee. Apart from the ethics of their decision, can you imagine the havoc on the family from such an arrangement?

What is the estate planner’s responsibility in such a situation? If you meet with the attorney and inform her that after much thought, here is the plan that you want, should the attorney question your judgment? Is it ethically or morally necessary for the attorney to inquire as to the reasons for your decision? This presents a similar dilemma to the wife disinheriting her husband in a preceding discussion. The attorney does not represent your daughter; her loyalty and responsibility are just to you. So should she just carry out your wishes? That is certainly legally permissible, but is it ethical? Even if ethical, what if it offends the attorney’s own morals? What should be done?

In the particular case above, the real issue was the parent’s worries about the son-in-law interfering in the family business. A drafting and planning solution could remedy that instead of the harsher approach of cutting out the daughter. They could name an institutional trustee for the trusts for both children. The trustee could be a directed administrative trustee with no investment responsibility. The son who is running the family business could be named as an investment advisor to direct the institutional trustee to any decisions regarding holding the family business. In that way, the son and the son alone could control the business and their daughter’s husband could have no involvement with the business. The daughter would not need to be cut out, and the family’s equanimity needn’t be jarred. Sometimes, a planning situation can offer a less harsh approach to addressing the parent’s (or other benefactor’s) concerns with less harm to all.

What if the attorney presents an option appropriate to the circumstances, and the parents reject it? If the attorney feels so uncomfortable with the plan the parents continue to demand, should the attorney just acquiesce and complete the plan or consider terminating their involvement?

Disinheriting an Heir that Marries Outside of the Faith

Many people are very concerned about their descendants staying true to their faith. Some are so concerned that they want their wills and trusts to disinherit someone who marries outside their faith. Apart from the ethical or moral issues, the question that arises is whether you can legally disinherit someone for the decision they make as to who they will marry. Shapira v. Union National Bank 39 Ohio Misc. 28. Is that an unlawful restriction on the freedom to marry? Even if you can legally craft such a disinheritance, will that really accomplish the desired goal? If you disinherit a descendant based on their religious preference, instead of trying to motivate them in a positive way about the beauty of the faith you adhere to, are you not giving them the legal equivalent of a kick in the pants on their way out the door? The harsh disinheritance approach would almost seem to assure that that heir will never return to the faith that was your initial objective to promote.

Is disinheritance an ethical approach to take? Is it morally acceptable to the attorney involved to write such a document?

Is it an Aggressive Tax Plan or Fraud?

A driving purpose behind many estate plans is reducing estate or income taxes or some combination of the two. There is certainly no obligation to pay more taxes to the federal fisc than the law requires. The often-used quote from Justice Learned Hand is: “Anyone may arrange his affairs so that his taxes shall be as low as possible; he is not bound to choose that pattern which best pays the treasury. There is not even a patriotic duty to increase one’s taxes.” Helvering v. Gregory (1934). But how far can one traverse down the continuum before the contemplated steps rise to the level of not constituting tax planning but rising to tax fraud? There is often a realm of increasing shades of gray before the line crosses into fraud. How “far” can or should you go in your pursuit of tax minimization? At what point does the attorney have an obligation, or perhaps a duty of self-preservation, to communicate to you that what you are doing is very risky or worse? At what level of aggressiveness might the attorney determine that warning you is not enough, but that to avoid themselves becoming embroiled in the risks you want to take, they should distance themselves from you? Backdating documents to change a tax result is clearly inappropriate. But what of the level of discounts on the valuation of a non-controlling interest in a family business given to a trust? Is there a level of discount that is simply too high to be reasonable? That will often depend on interpreting a wide array of unique facts and circumstances. But there may be aggregate levels of discount that are simply unreasonable to claim based on those circumstances.

Should your advisers themselves be concerned? Does some degree of tax planning aggressiveness become unethical or to that particular adviser immoral? At what level of concern should your adviser send you a written communication or emails warning you of their concern? At what level of aggressiveness should your adviser consider withdrawing from representing you?

Conclusion

Difficult, sometimes complex from both a legal and personal perspective, ethical, moral and thorny personal issues arise in common estate planning scenarios. No matter how difficult to resolve, finding a path to address them, especially if it can be done in a manner that is least disruptive or antagonistic to those involved, may provide better results for all.