Estate Planning

Is My Financial Advisor Practicing Law?

Through the years I have drafted estate plans and asset protection plans only to have a client call and question the validity of the plan based upon a conversation with a friend or relative.  If the conversation starts out something like this: “ I spoke with my brother-in-law and he says…”, my usual response is something like this: “Unless your brother-in-law has malpractice insurance for his advice, you are better off listening to me because I do have such insurance.”  That usually ends the discussion.

But what if the call is motivated by a discussion with your CPA or financial advisor?  After all, they are professionals, they do have specialized knowledge, you have known them for years and relied upon them for years, your relationship with me has likely been short-term.  It may surprise you, but my answer is usually the same as if the advice came from your brother-in-law: “Get the name of the malpractice carrier.”  Even though many non-lawyers are highly skilled in specific areas, they usually lack the broader viewpoint and depth provided by a good law school or years of legal experience.

The preparation of legal documents needed to execute a well-reasoned estate or asset protection plan is more than dusting off an old form or changing names in an existing form. The process involves the proper coordination of how a variety of assets are to be distributed in a specifically timed manner to address concerns and tax consequences.  The proper titling of assets is important in making the plan work. Beneficiary designations on qualified accounts must coordinate with individually held assets or jointly held assets in a manner to efficiently avoid over taxation. I could go on and on, but I think you get the picture. These are just a few examples of the kind of knowledge a good estate planning lawyer will have that your brother-in-law, or accountant, probably don’t.

There is no problem with your advisors reciting general legal rules.  Almost all financial professionals will know general rules on taxation such as cap gain rates and income tax rates. They most certainly will know how those rules are generally applied.  But beware. Providing advice involving the application of general legal principles to a specific situation is clearly the “practice of law.”

Drafting legal documents that apply general legal principles to your specific situation is clearly the “practice of law.”  The place I see this violated the most is in the formation of operating agreements for limited liability companies.  Your financial advisor or CPA should not be drafting these agreements or advising you on what provisions should be included or not included in those agreements.  Once again, drafting legal documents that apply general legal principles to your specific situation is clearly the “practice of law” which you shouldn’t do unless you’ve got a license to do so.

The point of this article is not to call out financial advisors — my business depends on them.  It is more intended to remind you, the client, not to expect this advice from your financial advisors or your tax preparers.  They are specialized and good at what they do, but they should not be practicing law and you should not expect them to. Stay with the guy who has the insurance when taking legal advice.

If you’re in need of estate planning advice, call us, the lawyers.

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