Michael Kosnitzky on Selecting a Private Wealth Attorney

Defining Needs and Good Communication

Ultra-wealthy clients and their family offices first need to define their specific ongoing legal needs in the private wealth space. This analysis is driven by their level of wealth, their existing professional support or professional infrastructure, and the personal, philanthropic, investment, and business goals and objectives of the principal and his or her family. For example, a client may not have the level of wealth to own a private aircraft therefore the legal expertise regarding FAA rules and the complicated tax implications of such ownership would not be relevant to that client. Likewise, some family offices employ a full-time general counsel who may have certain types of legal expertise thereby reducing the need to outsource certain legal services. And some family offices manage their own money and have a robust infrastructure to do this which requires ongoing legal and tax advice and legal due diligence, while others outsource all or a portion of the investment function to institutional investment firms requiring less such legal involvement. Still, others treat their family office as just an augmentation of their family business while others keep the family business separate from the family office and its personnel, therefore, requiring separate employment and executive compensation arrangements for the family office staff. So, it is very important that a private wealth lawyer be well-rounded and experienced in being able to understand and then analyze the current client and family ecosystem.

Oftentimes clients incorrectly believe that private wealth legal advice is simply about estate planning when that is just one subset of the skills that are needed to make these evaluations. Finding a lawyer who can give holistic advice and who views the wealthy and their legal issues as a distinct practice area is extremely important. Referrals of private wealth lawyers can come from respected friends and business associates like bankers, accountants, insurance professionals, and investment firms but be cautious of potential conflicts of interest. It may be difficult for a private wealth lawyer to give candid advice with respect to an investment opportunity recommended by the person who referred him to you as a new client. Potential clients should conduct diligence on these recommendations through an Internet search and a review of the various services that peer review and rate lawyers—Chambers & Partners, Law Dragon, Best Lawyers, Martindale-Hubbell, and Super Lawyers, among others. These services are not definitive; they often neglect younger, up-and-coming lawyers and some­times continue to rate highly older lawyers whose abilities have faded but who still have name recognition, however, they are still worth a look.

One difficulty in vetting private wealth lawyers is that they generally cannot give you client references. Many of my clients maintain their anonymity outside the law firm, and the law firm maintains strict confidentiality about their matters both internally and externally. Any private wealth lawyer you hire must also maintain these protocols. The prospective client should also interview the candidate and look for certain specific qualities. A good private wealth lawyer is a good listener; he or she listens to understand the client’s wants and needs. However, in the practice of private wealth law, the client is not always right about what he or she thinks is needed; often, the client is wrong. The job of the private wealth lawyer is to decipher the client’s real wants and needs from what he or she says, and then articulate suggestions that achieve reasonable goals. While credible and experienced lawyers in this space should not ethically discuss their other clients by name unless their relationship is a matter of public record, they can and should share ‘war stories’ and factual situations that are similar to this new potential engagement. The attorney should also be quite conversant in a number of disciplines including federal, state, and local income taxes; estate, gift and generation-skipping taxes; succession planning; multiple citizenships and passport planning; charitable giving strategies and private foundations; domestic and foreign trust matters; antenuptial agreements; private equity investing; private aircraft; yachts; artwork and collectibles; executive compensation; employment law; federal and state securities laws; estates and legacy real estate ownership; and other business, finance, real estate, and investment-related legal matters.

Wealthy and successful people generally do not have a lot of time to hear about complex strategies, and many such strategies often sound counterintuitive. So, a good private wealth lawyer is a good communicator who can explain these strategies without jargon or arrogance. Clients need to understand enough of the details to assess the relative costs, risks, and complexities of different approaches.

Predictive Planning and Risk Assessment

Private wealth lawyers must have a broad knowledge base in the law, but they also get paid for knowing where the law is going, not where it is today. So, during your interview, you should ask the lawyer where, for example, he or she thinks Congress will come out on a wealth tax, capital gain rates, the unified credit, GRATs, etc. A prospective client should push for a nuanced response: inexperienced and less sophisticated attorneys tend to list all the potential negative out­comes without also detailing the probability of the risks or the effect of a negative outcome. This is because they do not want to be criticized later if results fall short of expectations; it is like a surgeon who never operates on a high-risk patient and then says he achieves only positive outcomes. A private wealth attorney should have a sense of proportionality and be able to assess the risks of different strategies.

Attorneys who practice in this space are also more effective when they truly understand a client’s overall goals and objectives and, most importantly, a client’s risk quotient. The primary responsibility of private wealth lawyers is to identify and help mitigate risks including risks to a client’s and his or her family’s wealth, safety, and reputation.  Therefore, highly effective private wealth lawyers are usually engaged for ongoing and continuous representation where client knowledge can be studied and digested over time rather than “one-off” engagements. I am also often confronted with clients who think they should deploy aggressive legal or tax strategies they “know” others use— such as elaborate and complicated tax shelters; overreaching pre-nuptial agreements for their own or a child’s new spouse; or estate planning that is too controlling, too generous to heirs, too complicated to implement and maintain or too estate tax focused.

The private wealth attorney’s job is to explain, politely and clearly, the risks of these strategies in the context of the client’s true objectives. Is it better to pay more income or estate taxes but ensure that the plan will be respected by the IRS and the courts? Is it better to give more to the presumptive spouse to ensure the enforceability of the prenuptial? Is it better to have some estate tax leakage, less control over post-death events, and less risk of human error—while knowing with a high degree of certainty that the people we care about are being protected? Is it better to give family members less wealth but in the end more rewarding lives?

Quarterbacking Problems and Issues and Responsiveness

The private wealth lawyer should be a first responder and general contractor to the wealthy. He or she must be able to materially understand the issue or problem at hand, diagnose that issue or problem and then act as a counselor or advisor. However, if the private wealth lawyer is not the best person suited to handle the matter, he or she must be able to direct the client to the proper party or parties within his or her law firm, or outside of the firm, who can best resolve the issue or solve the problem. The private wealth lawyer stays involved, as a good first responder should, to make sure that facts are properly communicated to others. They also make sure that the client’s overall goals and objectives are considered and communicated to all parties and that the strategies to be deployed by other professionals comport with the client’s wishes and most importantly, the client’s risk quotient.

There are several things that private wealth lawyers must do differently than other types of lawyers. A private wealth lawyer must be available 24/7 to respond to the ultra-wealthy and their family office staff. This includes weekends and holidays. Clients are often in different time zones and response time is extremely important and expected by this high-end clientele who demand platinum/diamond level legal services and responsiveness.

The Mandate of Transparency

The ultra-wealthy are accustomed to getting their way and sometimes surround themselves with people who tell them what they want to hear. An experienced and competent private wealth lawyer must not tell a client what he or she wants to hear but rather what he or she needs to know. These are sometimes difficult conversations, but they are necessary, nonetheless. I often tell clients that I will do as they ask and affect their wishes if what they ask me to accomplish for them is neither illegal nor unethical, but they must first hear my advice so that they understand the risks and rewards of different alternatives. I insist that they allow me to give them a clear ‘look at the pitch’ so that they can make an informed business decision. To make this type of transparency demand on rich and powerful clients, a lawyer must be very confident in his or her abilities and not be afraid of being fired, so it is very important that the private wealth lawyer has many clients in the space and not be dependent on any one of them to pay his rent. Only then can the lawyer give the proper transparent, unconflicted advice, and demand that the client listens to it before taking a particular course of action. I call a client who fails to listen to my advice before deciding, therefore making an uninformed decision, a “former” client.

One of my pet peeves is also when a client tells his group of professional advisors, usually his or her lawyers, accountants, insurance professionals, bankers, and investment advisors, to reach an agreement on how to deploy a strategy or to solve a problem. Professional disagreements are healthy and, in most situations, productive; I do not believe that the role of the private wealth lawyer is to reach a consensus. Rather, I consider it important to explain the alternative strategies and their relative benefits and detriments to a client. Neither the private wealth lawyer nor the client’s team of professionals should ever come up with a singular strategy or approach to solve a problem. Finally, a good private wealth attorney needs to apply both a cost-benefit approach and a complexity-versus-simplicity analysis to all strategies. Sometimes simpler and less expensive strategies that offer an imperfect solution are better for a client than more expensive and complicated strategies.

There is certainly no “right” lawyer for all situations, but finding a private wealth lawyer who is a good listener and communicator, with the confidence to tell you what you need to know, and who will not engage in groupthink is likely to be your best hire.

This article was originally posted in Haute Lawyer on February 7, 2021.