legal ethics for estate planning attorneys · hater 7ethical sses or advanced rst and estate...

Online CLE

Legal Ethics for Estate Planning Attorneys

1 Ethics credit

From the Oregon State Bar CLE seminar Advanced Estate Planning (2015), presented on June 12, 2015S

© 2015 Allison Martin Rhodes. All rights reserved.

Chapter 7

Ethical Issues for Advanced Trust and Estate Lawyers—Presentation Slides

Allison MArtin rhodes

Holland & Knight LLPPortland, Oregon

Chapter 7—Ethical Issues for Advanced Trust and Estate Lawyers—Presentation Slides

Advanced Estate Planning 7–ii


Advanced Estate Planning 7–1

5/22/2015

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Copyright © 2014 Holland & Knight LLP. All Rights Reserved

Ethical Issues for Advanced Trust and Estate Lawyers

May 2015

Allison Martin Rhodes, Holland & Knight

Our Program Today

Duties to Third Parties

Aiding and Abetting Breaches of Fiduciary Duty

Conflicts of Interest

Candor to the Tribunal

Testamentary/Diminished Capacity

Continuing Obligations 2



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Lawyer Jack and the Rich Family

Lawyer Jack meets with Grandma Rich, her adult grandsons, Greed E. Pigg and Seth Sloth, and Rich’s spiritual and financial adviser, Wanda Cash. During the meeting, Jack learns that Rich is very well to do but is not infrequently disoriented and that until Piggrecently insisted that she live with him, Rich lived for years with her only other living relative, a niece named Melissa Martyr. Based on what Jack hears and sees during the meeting, he comes to believe that Pigg was at least for a time a cocaine addict, that Sloth is a spendthrift and that Cash may be devoted to Rich but has no particular financial or investment expertise.

Day 1: Issues discussed at the first meeting includeThe potential appointment of Pigg and/or Sloth as trustees of a revocable trust for Rich; how to minimize Rich’s estate tax bill; and how much Martyr’s share of Rich’s estate should be reduced since she no longer takes care of Rich.

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Day 2: Jack, Rich and Cash Talk Further

Jack has Rich come back the next day, with Cash but without Pigg or Sloth. In Cash’s presence, Rich tells Jack that while she has doubts about yesterday’s discussions and also about whether Pigg and Sloth would, as her trustees, try to have her declared incompetent at the earliest possible date in order to get their hands on her money. Nevertheless, she says she is willing to proceed because she loves and doesn’t want to upset her grandsons.

Cash then suggests that Jack become trustee. Rich says that this is great because Jack could then hire Cash as the investment manager. Rich tells Jack that she does not mind that Cash lacks substantial skill in investments because someone who is that good as a spiritual adviser can just be trusted.

Day 3: The Work Begins

Jack asks Jill, his partner, to draw up the trust documents and also to draw up a bill of sale under which a portion of Rich’s property will be sold to Pigg and Sloth at bargain prices. The documents do not state with clarity who Jack and Jill do and do not represent.

The documents do, however, designate Jack as trustee. Jack explains that no one should worry about this because he will take care of everyone.



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Further Events

The documents are signed as drafted. Portions of Rich’s property are then sold to Piggand Sloth at bargain basement prices. In addition, Jack becomes trustee, declares Rich incompetent and then uses Cash as investment adviser.

Jack eventually represents Wanda Cash in setting up an LLC for off shore resort investment and the yacht. The advisor uses that LLC to “invest” all of Rich’s assets during the late stages of her life.

Who is the Client?

• Who are/were Jack’s clients?• An attorney-client relationship is

based on the reasonable subjective belief of the would-be client. Lawyers must therefore be vigilant to avoid unintended clients through non-engagement letters/emails, through updated notices when circumstances change and through avoiding giving even benign advice to nonclients.

Also known as “who wants to be a plaintiff?”



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The Attorney-Client Privilege

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Which conversations are confidential and or privileged and why?

The first meeting with all the family (Pigg, Sloth, and Cash)?

The second meeting with Cash?

Any of the meetings as asserted by one of the grandsons?

Conversations pertaining to the LLC, offshore investments and the yacht?

Does the lawyer have any duties to third parties?

• Split of authority re duties to third-party beneficiaries of an attorney-client relationship

• 34 states provide a cause of action for legal malpractice brought by beneficiaries for errors in estate planning that void an intended gift .

• This is not to say that all lawyer duties (such as care, loyalty, confidentiality etc) are enjoyed by beneficiaries. Authorities vary on this question.

• But lawyers can’t lie.

• RPC 4.3: dealing with unrepresented parties:

In dealing on behalf of a client with a person who is not represented by counsel, a lawyer shall not state or imply that the lawyer is disinterested. When the lawyer knows or reasonably should know that the unrepresented person misunderstands the lawyer’s role in the matter, the lawyer shall make reasonable efforts to correct the misunderstanding. The lawyer shall not give legal advice to an unrepresented person, other than the advice to secure counsel, if the lawyer knows or reasonably should know that the interests of such a person are or have a reasonable possibility of being in conflict with the interests of the client.”



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Spencer v. Barber, 299 P.3d 388 (N.M. 2013)• Client is driving car when accident occurs killing client’s daughter and infant

granddaughter. Lawyer represents client in wrongful death suit for death of daughter and granddaughter.

• Surviving father/grandfather is statutory beneficiary, but lawyer did not represent him.

• Lawyer received settlement offer from defendants and asked father/grandfather for release of claims in exchange for certain sum. Lawyer makes clear he is not representing father/grandfather. Lawyer and father/grandfather reach agreement of $20,000.00

• Father/grandfather reneges on agreement after lawyer settles with defendants for $900,000.00 and countersues for malpractice, alleging lawyer owed him duty as statutory beneficiary.

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Spencer v. Barber, 299 P.3d 388 (N.M. 2013)• Rules of Professional Conduct were relevant when ascertaining the scope of the duty

owed by the attorney to the personal representative in a wrongful death action and how a breach of that duty may have harmed a statutory beneficiary.

• “There can be no other purpose of an attorney-client agreement to pursue claims for wrongful death than to benefit those persons specifically designated by the Act as statutory beneficiaries. We conclude therefore that … the very nature of a wrongful death action is such that we will imply in law a term in every agreement between an attorney and personal representative that the agreement is formed with intent to benefit the statutory beneficiaries of the action.”

• Attorney owed duties to beneficiary and could not resolve conflict of interest by merely informing father/grandfather that he represented mother/grandmother. Conflict of interest arose when client informed attorney that father/grandfather was not entitled to any portion of proceeds due to alleged abandonment of daughter.

• Lawyer could have represented mother/grandmother through settlement with defendants. Who was entitled to proceeds thereafter should have been handled separately.

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Lawyers with Multiple Roles• Lawyer as fiduciary.

which rules apply?• Lawyer or firm as both fiduciary and fiduciary’s counsel.

– Conflicting fiduciary duties.– Higher fees (?)– Client conflict of interest rules apply.

• Lawyers as beneficiaries.• Conflict under RPC 1.7(a): there is a significant risk that the representation of one or

more clients will be materially limited by the lawyer's responsibilities to another client, a former client or a third person or by a personal interest of the lawyer.

• Lawyers representing individuals who are both fiduciaries and beneficiaries.– ACTEC Commentary to RPC 1.2 recommends disclosure to other beneficiaries, separate

files and careful billing practices. • Lawyers representing more than one party (e.g. co-trustees, multiple beneficiaries, husband

and wife). – No ACP/confidentiality as between joint clients– No authority to advocate the interests of one client over the other – unanimous directives

required– Duty of loyalty (conflicts) survive death

Conflicts of Interest

Be sure we are reading the lawyer rules.• Current client conflicts and former client conflicts RPC 1.7 and 1.9• Prospective client rules RPC 1.18What stakeholders must consent to a waiver and what is the waiver’s life span?• May be necessary to get beneficiary consent• Can a protected person waive a conflict?

– It is a question of informed consent which is defined in the professional responsibility rules and not other measures of competency.



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Duties to Prospective Clients

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RPC 1. 18 provides a prospective client is a person who discusses with a lawyer the possibility of forming a client-lawyer relationship.

Even when no client-lawyer relationship ensues, duties to a prospective client may arise if the prospective client discloses information to the lawyer.

Minimizing Duties to Prospective Clients

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To minimize duties to prospective clients in initial meetings:

Consider whether to consult a prospective client only after an estate planning questionnaire has been completed.

Consider whether to notify a prospective client, in writing, that no action is being taken on the prospective client’s behalf.

ACTEC Commentary to RPC 1.18 permits a lawyer to condition conversations with a prospective client on the person’s informed consent that information disclosed during the consultation will not prohibit the lawyer from representing a different client in the matter.



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Representing Multiple ClientsBefore representing multiple clients:

Consider whether conflict exists and can be waived. ACTEC Commentary on RPC 1.7 recommends that before accepting a representation involving multiple parties a lawyer may wish to consider meeting with the prospective clients separately, which may allow each of them to be more candid and, perhaps, reveal conflicts of interest

Discuss the potential for withdrawal if a conflict were to develop where the lawyer could not effectively represent both clients. Consider which of the clients, if any, the lawyer would continue and be able to represent if a conflict were to develop.

Memorialize terms of multiple representation in engagement letter.

When an existing client asks a lawyer to prepare a will for another person that will benefit the existing client– exercise caution. ACTEC Commentary to RPC 1.7 states that lawyer should caution both clients that existing client may be presumed to have exerted undue influence on the other client because the existing client was involved in the procurement of the will.

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Spence v. Wingate, 716 S.E.2d 920 (S.C. 2011)• Wife of comatose Congressman hires lawyer to advise her of rights in estate in light of

prenuptial agreement. Lawyer negotiates agreement between wife and Congressman’s children from another marriage.

• Congressman dies, and lawyer represents estate. Lawyer tries to convince wife to relinquish rights in Congressional life insurance policy. Wife asks lawyer to “put his hat back on” as her attorney, but he refuses.

• Wife retains interest in life insurance policy and sues lawyer for breaching his duty to her as a former client.

• Court held that lawyer breached duty to wife as a former client under RPC 1.9(a):

Lawyer who has formerly represented a client in a matter shall not thereafter represent another person in the same or a substantially related matter in which that person's interests are materially adverse to the interests of the former client unless the former client gives informed consent, confirmed in writing.

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Aiding and Abetting Breaches of Fiduciary Duty

• When the lawyer’s client (fiduciary or otherwise) is the bad actor, what may, must and can’t the lawyer do?

Rule 4.1 Truthfulness In Statements To OthersIn the course of representing a client a lawyer shall not knowingly:(a) make a false statement of material fact or law to a third person; or(b) fail to disclose a material fact to a third person when disclosure is necessary to avoid assisting a criminal or fraudulent act by a client, unless disclosure is prohibited by Rule 1.6.

RPC 1.6: A lawyer may reveal information . . .

(2) to prevent the client from committing a crime or fraud that is reasonably certain to result in substantial injury to the financial interests or property of another and in furtherance of which the client has used or is using the lawyer's services;(3) to prevent, mitigate or rectify substantial injury to the financial interests or property of another that is reasonably certain to result or has resulted from the client's commission of a crime or fraud in furtherance of which the client has used the lawyer's services.



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RPC 3.3 Candor to the Tribunal – the only MUST rule

(b) A lawyer who represents a client in an adjudicative proceeding and who knows that a person intends to engage, is engaging or has engaged in criminal or fraudulent conduct related to the proceeding shall take reasonable remedial measures, including, if necessary, disclosure to the tribunal.(c) The duties stated in paragraphs (a) and (b) continue to the conclusion of the proceeding, and apply even if compliance requires disclosure of information otherwise protected by Rule 1.6

Clients with Diminished/Diminishing Capacity

RPC 1.14 and express or implied authorization to make disclosures necessary to protect the client and the attorney client relationship, potentially including protective proceedings.• In whose name is it filed?• Can the lawyer be paid by another client to file such proceedings against the lawyer’s

own client?• Who does what after the case is filed?• Authority to act on the client’s behalf absent a fiduciary



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Recommendations for Diminished Capacity

ACTEC Commentary to RPC 1.14 suggests that a competent client consider executing a letter or other document that would authorize the lawyer to communicate to designated parties (e.g., family members, health care providers, a court) concerns that the lawyer might have regarding the client's capacity.

In addition, a lawyer may properly suggest that a durable power of attorney authorize the attorney-in-fact, on behalf of the principal, to give written authorization to one or more of the client's health care providers and to disclose information for such purposes upon such terms as provided in such authorization, including health information regarding the principal, that might otherwise be protected against disclosure by HIPAA.

If the client wishes the durable power of attorney to become effective at a date when the client is unable to act for him- or herself, the lawyer should consider how to draft that power in light of the restrictions found in HIPAA.

When Diminished Capacity and Crime/Fraud Collide• Attorney Grievance Comm’n of Maryland v. Coppola, 19 A.3d 431 (Md. Ct. App.

2011)

• Lawyer was asked by client to prepare estate plan for mother. Lawyer had telephone conference with mother, but mother was placed in hospital before signing new documents.

• Children pleaded with lawyer to allow oldest daughter to forge mother’s signature on documents. Lawyer notarized the false signatures on documents and requested his employees to sign as witnesses.

• After mother died, a dispute over property arose among children and forgeries revealed. Lawyer argued no violation of RPC 1.2(d) because the mother rather than children was his client, and he did not advise a client to commit fraud.

• Court held that where he was advising children on effect of the documents, children were also his clients.

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Beware of Creating Continuing Obligations

Svaldi v. Holmes, 986 N.E.2d 443 (Ohio Ct. App. 2012)

• Lawyer for elderly client drafter a power of attorney for the client which included language that holder of power attorney

shall also file an annual account by January 31st of each year and deliver it to Robert D. Holmes, attorney, or any attorney licensed in Ohio, designated by me or by the holder of this Power-of-Attorney for safe-keeping…

• The attorneys-in-fact did not file the inventory or accountings and stole large sums of money from the client.

• The client sued the lawyer, and the court held that including this clause created additional duties owed by the lawyer to the client. Lawyer was required to follow up with holders regarding requirements of power of attorney document.

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Any Questions?

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