The Gift that Keeps on Giving: Ethics and Privilege Landmines with Gifts and Form 709

January 17, 2023

By Roberto Viceconte

At the 57th Annual Heckerling Institute on Estate Planning, Stephanie Loomis-Price and Christine S. Wakeman presented on privilege and ethics issues arising during gift planning.

The discussion surrounding gifting, or, in the broader sense, engaging in estate planning, can originate from one or more of the client’s advisors. Attorneys, accountants or perhaps the investment advisor may all be involved in the client discussion. When engaged in planning, neither practitioners nor clients want to contemplate the all-too-real possibility of audits or potential litigation.

It is these very issues that Ms. Loomis-Price and Ms. Wakeman suggest that practitioners ought to keep in mind during the planning process. Practitioners should handle the discussions, communications and engagement of various other professionals on the team in such a way as to minimize risks.

One of the potential landmines that may arise is the joint representation of both spouses in the planning process, should future marital issues unfold. Professionals, especially attorneys and accountants, may need to consider the ethical implications of joint representation and should at a minimum disclose these issues to the clients.

Another area of concern might be potential litigation from beneficiaries. During litigation, various documents are subject to discovery. Some documents and communication may be considered privileged depending on the practitioner, though not all practitioners are covered by the same type of privilege. Many forms of communication that we take for granted can be subject to being disclosed. Emails, texts and even voice messages in many cases could serve to provide unwelcome insight into the planning process. Practitioners and clients may be best served by talking in person when discussing ideas, concerns and potential risks. Furthermore, in many cases, a “Kovel Agreement,” named after a landmark case in this area, may be used by attorneys to engage accountants, experts and other advisors directly, thus having their work product brought under the attorney-client privilege.

Gift tax returns also require the disclosure of various back-up information to support the actual gifts. Adequate disclosure is required on all gift tax returns, and failure to do so could jeopardize the running of the statute of limitations. Knowing what information to disclose -- and in what manner to do so -- will serve in properly filing a gift tax return. Furthermore, proper disclosure can mitigate potential issues if the return is ever selected for audit by the government. Ms. Loomis-Price made the point that practitioners should anticipate their future audience when providing support information.

While no one wants to contemplate audits and litigation, practitioners would be well-served to keep these things in mind during the estate planning process to avoid potential issues down the road.

About Roberto Viceconte

Roberto Viceconte is a Tax Partner providing private services to high net worth clients.