What an adviser should do when a client names them as a beneficiary in their will

The following question appeared on an adviser forum during the past month. I found the question interesting, so I made it the focus of this month’s column.

An adviser from Colorado asked for help on the following situation:

“Recently, I was told of an adviser who was named as a beneficiary in a client’s will. The dollar amount wasn’t significant, and it was a cash gift. It came as a surprise to the adviser. I know many of us form very close relationships with our clients, and I’m sure this has happened to others. I’ve discussed the occurrence with a few advisers already, and their responses have varied but include that the adviser should disclaim it, donate it to charity or accept it. I’d love to hear how anyone else handled it.”

There were four responses posted to the community forum within a day of the initial post. One suggested that the size of the adviser’s share compared to the total estate should be considered. Others suggested involving the client’s estate attorney for guidance so as to avoid even the appearance of impropriety while others believed that the preferred solution would be to donate the money to charity either in the client’s name or the adviser’s. One adviser told of working with the estate attorney to restructure the “gift” as a fee to help with repositioning assets at the client’s deaths that the adviser “earned” the sum.

All of the answers had the same, simple flaw. They attempted to justify the receipt of an inheritance from a client by a person providing professional services. It is true that advisers often form close relationships with their clients. The same can be said of attorneys, physicians and priests. Clients place their trust in us to act in their best interests. Given the nature of that relationship, there are no circumstances where a professional can accept a bequest of any type. At a minimum it raises the possibility of impropriety regardless of the amount. At its worst, it could cause the other beneficiaries to challenge the provisions of the entire estate plan.

If the adviser learns of the bequest after the client’s death, he or she should disclaim it immediately regardless of size and have the assets returned to the estate for distribution to the remaining beneficiaries. If the adviser learns of the client’s intentions while the client is living he or she should express their gratitude at being held in such esteem but let the client know that the gift will be disclaimed. Should the client insist on “remembering” the adviser in some special way, the adviser should suggest the client name a charity to receive the funds instead. The Foundation for Financial Planning, The National Endowment for Financial Education and the Center for Financial Planning are all worthy 501C(3) organizations that would benefit from such gifts.

Simply put, acting ethically means doing the right thing and it is never the right thing to benefit from the death of a client.

Dan Candura is founder of the education and consulting firm Candura Group. Write to him to submit a question. All submissions will be treated confidentially.