The Benensons are also alleging that they were told they would pay commissions in the $2 million to $2.5 million range, when in fact the sales commissions cost them $4.5 million. They also allege that Blattmachr and Kreisberg told the Benensons that Milbank's $970,000 fee for rendering a tax opinion would be credited to the insurance policy, but they say it never was.
The plaintiffs also allege that Blattmachr used an Alaska-based trust company while failing to disclose that it is owned by his brother, or that the state tax benefits he allegedly promised as a result of setting up the trust in Alaska were not available because of the size of the insurance policy in question.
The Benenson suit makes no claim that Blattmachr or his firm shared commissions with the agents who sold the life insurance policy in this case. But some people in insurance, trust and estate planning circles who asked not to be named say that when Blattmachr helped other law firms package similar deals-as many as 40 such arrangements in total-he may have shared in commissions. That may not be illegal, but lack of disclosure regarding the compensation may have violated certain fiduciary obligations and American Bar Association rules requiring disclosure of fee-splitting, says Daniel Evans, an estate planning attorney in Wyndmoor, Pa. In fact the pivotal role that such disclosure, or the lack thereof, will play in this case is the one thing on which attorneys and advisors across the country seem to agree.
Experts also question where the line will be drawn on Blattmachr's and his firm's scope of engagement and responsibility for performing due diligence and commission negotiation on behalf of the Benensons.
"I do think this hinges on disclosure," says Alabama investment advisor Stewart Welch, who adds that the responsibility of estate attorneys can vary depending on whether they are doing arms' length referrals to insurance agents or others or are packaging entire arrangements as central figures. "I would suggest attorneys do not have zero responsibility if they're bringing parties together," says Welch, who, as president of the Birmingham Estate Planning Council, escorted Blattmachr to one of the group's meetings in May 2002.
At the time, no one could have foreseen that Blattmachr, who discussed the benefits of reverse split-dollar arrangements at the seminar, would be the subject of such a lawsuit, but Welch says today that it was obvious to most of the people who heard Blattmachr speak that his recommendations were fairly aggressive. "There's nothing wrong with aggressive, as long as you understand and are willing to accept the risks," says Welch, president of Welch Group. He finds himself advising some of his own clients to seek redress for questionable insurance-based estate planning arrangements sold to them by outside vendors. "Sometimes it's clear that these deals were commission-motivated and just won't work, so we're advising clients on their options," he says.
Arnold H. Graf, an estate attorney and president of Nebsco Financial Services in Newtown Square, Pa., says: "The cautionary tale here is full disclosure. I think this one blew up in their faces, bad. The tax-shelter deals have persistently been denied by Uncle Sam. I'm surprised they don't settle. I'd predict that's what will happen with MassMutual. I just don't see winning this kind of thing."
Says New York City estate planning attorney Gideon Rothschild, who is a partner with Moses & Singer and chair of the American Bar Association Committee on Asset Protection: "The lesson to be learned is that if you're pushing the envelope too far, there may be consequences you don't want to live with, like seeing yourself in The New York Times, or served with a complaint, or losing your livelihood to practice law or sell insurance. We don't issue tax opinion letters because of the liability. But there are those who are willing to quantify the risks if the price is high enough."
Rothschild maintains, however, that it is not an attorney's responsibility to evaluate insurance policies that go into a trust. "If an agent doesn't do it, then I think the valid claim is against the agent," he says.