The integration of artificial intelligence has revolutionized various industries, providing efficiency, accuracy and convenience. In the area of estate planning and family offices, the integration of AI technologies has also promised greater efficiency and accuracy. However, AI comes with unique risks and challenges.
Let's examine the risks associated with the use of AI in estate planning and family offices. We will focus particularly on concerns related to privacy, confidentiality and fiduciary responsibility.
Why should practitioners use AI in their practice? AI and large language models are advanced technologies capable of understanding and generating human-like text. They operate by processing large amounts of data to identify patterns and make predictions. In a family office context, AI can provide assistance from simplifying processes and increasing decision-making. On the investment management side, AI can identify patterns in financial data, asset values and tax implications through data analysis, facilitating better informed asset allocation and distribution. Predictive analytics capabilities enable AI to predict future market trends and potential risks that can help family offices optimize investment strategies for long-term asset preservation and succession planning.
UA can also help prepare documents related to estate planning. Given a set of information, AI can function as a search engine or prepare summaries of documents. He can also draft communications that synthesize complex topics. Overall, AI offers the potential to increase efficiency, accuracy and foresight in estate planning and family office services. That said, concerns about its use remain.
Privacy and Confidentiality
Family offices deal with highly sensitive information, including financial data, investment strategy, family dynamics and personal preferences. Sensitive client information may include intimate insight into one's estate plan (for example, inconsistent treatment of various family members) or succession plans and trade secrets of a family business. Using AI to manage and process this information introduces a new dimension of risk to privacy and confidentiality.
AI systems, by their very nature, require large amounts of data to operate effectively and train their models. In a public AI model, the information provided to the model can be used to generate answers for other users. For example, if an estate plan for John Smith, founder of ABC Corporation, is loaded into an AI tool by a family office worker asked to summarize his 110-page trust instrument, a subsequent user who asks about it The future of ABC Corporation may be said that the company will be sold after the death of John Smith.
Inappropriate data anonymization practices also exacerbate the privacy risks associated with AI. Even anonymized data can be de-anonymized through sophisticated techniques, potentially exposing individuals to identity theft, extortion, or other malicious activity. Thus, the indiscriminate collection and use of personal data by AI systems without robust anonymization protocols poses a serious threat to customer confidentiality.
Even if a customer's data is sufficiently anonymous, the data used by AI is often stored in cloud-based systems that are not breach-proof. Cyber security threats, such as hacking and data theft, pose a significant risk to customer privacy. Centralized data storage on AI platforms increases the likelihood of large-scale data breaches. A breach can expose sensitive information, causing reputational damage and potential legal consequences.
The best practice for family offices looking to use AI is to ensure that the AI tool under consideration has been vetted for security and confidentiality. As the AI landscape continues to evolve, family offices exploring AI should work with trusted providers with reliable privacy policies for their AI models.
Fiduciary responsibility is a cornerstone of estate planning and family offices. Professionals in these fields are obliged to act in the best interests of their clients (or beneficiaries) and to do so with care, diligence and loyalty, duties which may be compromised by using AI. AI systems are designed to make decisions based on patterns and correlations in data. However, they currently lack the human ability to understand context, exercise judgment, and consider ethical implications. Basically, they lack empathy. This limitation can lead to decisions that, while seemingly consistent with the data, are not in the best interest of the client (or beneficiaries).
Reliance on AI-driven algorithms for decision-making can compromise the fiduciary duty of care. While AI systems excel at processing large data sets and identifying patterns, they are not immune to error or bias inherent in the data they analyze. Moreover, AI is designed to satisfy users and infamously created (or “hallucinated”) case law when asking legal research questions. In the financial context, inaccurate or biased algorithms can lead to suboptimal recommendations or decisions, potentially undermining the fiduciary's obligation to manage assets prudently. For example, an AI system may recommend a particular investment based on historical data, but may not consider factors such as a client's risk tolerance, ethical preferences, or long-term goals, which a human advisor would considered.
In addition, AI is prone to errors resulting from inaccuracy, oversimplification, and lack of contextual understanding. AI is often recommended for summarizing difficult concepts and designing customer communications. Giving AI a classic summary question, such as “explain the rule against eternity in a simple way,” demonstrates these issues. When given this request, ChatGPT summarized the time when perpetuity periods typically expire as “about 21 years after the person who created the agreement has died.” As estate planners know, this is a gross oversimplification to the point of being inaccurate in most circumstances. The ChatGPT patch generated an improved explanation, “within a reasonable time after some people who were alive when the deal was made had died.” However, this summary would still be inaccurate in some contexts. This exchange highlights the limitations of AI and the importance of human review.
Given the propensity of AI to make mistakes, delegating decision-making authority to AI systems would apparently not absolve the believer from legal responsibility in the event of mistakes or misconduct. As support for AI expands throughout the professional life, loyalists may be more likely to use AI to perform their duties. An unchecked reliance on AI can lead to errors for which clients and beneficiaries would seek to hold the trustee accountable.
Finally, the nature of AI algorithms can impair transparency and disclosure of trustworthiness. Clients entrust fiduciaries with their financial affairs with the expectation of complete transparency and informed decision-making. However, AI systems often operate as “black boxes,” meaning their decision-making processes lack transparency. Unlike traditional software systems where logic is transparent and auditable, AI operates through complex algorithms that are often proprietary and elusive. The black-box nature of AI algorithms obscures the reasoning behind recommendations or decisions, making it difficult to assess their validity or challenge their results. This lack of transparency can undermine the fiduciary's duty to communicate openly and honestly with clients or beneficiaries, eroding trust and confidence in the fiduciary relationship.
While AI offers many potential benefits, its use in estate planning and family offices is not without risk. Privacy and confidentiality concerns, along with the impact on fiduciary responsibility, highlight the need for careful consideration and regulation.
It is essential that professionals in these fields understand these risks and take steps to mitigate them. This can include implementing strong cybersecurity measures, countering a lack of transparency in AI decision-making processes and, above all, maintaining a human element in decision-making that involves the exercise of judgment.