WHEN, IF EVER, SHOULD AN ATTORNEY SERVE AS A CLIENTS FIDUCIARY The - PowerPoint PPT Presentation

WHEN, IF EVER, SHOULD AN ATTORNEY SERVE AS A CLIENT’S FIDUCIARY The Attorney As Fiduciary: Permissible Actions & Problem Areas By Kim D. Fetrow, Esquire Heckscher, Teillon, Terrill & Sager, P.C.

2 Heckscher, Teillon, Terrill & Sager, P.C. THE INITIAL APPOINTMENT Outline pages 2-14

3 Heckscher, Teillon, Terrill & Sager, P.C. The Initial Appointment • Generally: There is no per se prohibition against serving as fiduciary under a trust/will the attorney drafted • Model Rules Guidance – Ethical Consideration (EC) 5-6: A “lawyer should not consciously influence a client to name him as executor, trustee, or lawyer in an instrument. In those cases where a client wishes to name his lawyer as such, care should be taken by the lawyer to avoid even the appearance of impropriety.” Outline Pages 2-3

4 Heckscher, Teillon, Terrill & Sager, P.C. The Initial Appointment • Current Guidance – Model Rules of Professional Conduct: • Rule 1.1 – Competence • Rule 1.2 – Advisor • Rule 1.4 – Communication • Rule 1.7 – Conflict of Interest: Current Clients • Rule 1.8 – Conflict of Interest: Current Clients: Specific Rules • ABA Formal Opinion 02-426 (2002): • Where a client has asked a lawyer to fill this role, the lawyer must explain: • (1) the lawyer’s ability to fill the role of a fiduciary; • (2) the availability of others to fill the role; • (3) the compensation for the fiduciary; and • (4) potential conflicts of interest. Outline Pages 3-6

5 Heckscher, Teillon, Terrill & Sager, P.C. The Initial Appointment • Pennsylvania Ethics Informal Opinion 96-36 • If attorney wants to serve as trustee of trust he drafted, he must: • (1) Be able to perform the duties of a trustee; • (2) Provide options for other trustees the client could appoint; • (3) Discuss his compensation as trustee how that compensation differs from compensation to be paid to legal counsel, if any, representing the trustee; and • (4) Discuss all potential conflicts of interests that may arise from serving as trustee. Written by the Pennsylvania Bar Association Committee on Legal Ethics and Professional Responsibility Outline Page 8

6 Heckscher, Teillon, Terrill & Sager, P.C. The Initial Appointment • Other Jurisdictions: • Rule 1.7 Informed Consent Differences: • When does informed consent have to be in writing? • New York’s Approach : • § 2307-a requirements (statutory): • Testator must be informed that: • (1) Any person can serve as executor; • (2) Any person, including an attorney-executor, is entitled to receive executor commissions; • (3) Without a proper disclosure, attorney-executor is entitled to only one-half the commissions he or she would otherwise be entitled to receive; and • (4) If the attorney-executor needs legal services, either from himself or herself or from an affiliated attorney, such attorney is entitled to compensation in addition to the executor commission. Outline Pages 8-12

7 Heckscher, Teillon, Terrill & Sager, P.C. The Initial Appointment • Takeaways and Best Practice: • First : Understanding the specific rules of your jurisdiction • Second : 2002 ABA Opinion and ACTEC Guidance (Chapter 4 of Engagement Letters: A Guide For Practitioners – Estate Planning Lawyer Serving as Fiduciary): • Even if you can serve as fiduciary, you should consider the following: • (1) Firm policy and readiness (Trained staff? Malpractice coverage?) • (2) Rule 1.4 discussion (including the advantages and disadvantages of attorney-fiduciaries and the alternatives) • (3) Obtaining Rule 1.7 informed consent – conflicts disclosure • (4) Which attorney, if any, the client wants to serve as fiduciary • (5) Compensation disclosure Outline Pages 12-14

8 Heckscher, Teillon, Terrill & Sager, P.C. The Initial Appointment • Takeaways and Best Practice • Even if you can serve as fiduciary, you should consider the following (continued): • (6) Discussion regarding attorney- fiduciary’s ability to serve and who attorney-fiduciary can expect to hire in the course of serving as fiduciary • (7) Disclose attorney-executor may select herself or someone from her firm as lawyer for estate or trust • (8) Possible wavier of bond/exculpatory provisions • (9) Discussion regarding possible conflicts of interest (explained in the next section) • (10) Discussion about client’s expectations of attorney serving as fiduciary Outline Pages 12-14

9 Heckscher, Teillon, Terrill & Sager, P.C. STANDARD OF CARE & EXCULPATORY CLAUSES Outline Pages 14-23

10 Heckscher, Teillon, Terrill & Sager, P.C. Standard of Care • PAJUR PROBATE § 38:69: “The standard of care imposed on a trustee is that which a man of ordinary prudence would practice in the care of his own estate; however, if a trustee has greater skills than a man of ordinary prudence or if he or she has obtained appointment by claiming such greater skills, then the standard of care imposed on the trustee will be that of a person with such greater skills .” • Also consider “Special Skills” provisions, heightening the standard of care: • Does this apply to trust and estate lawyers serving as fiduciary? • Expect that it does, and proceed accordingly Outline Pages 14-15

11 Heckscher, Teillon, Terrill & Sager, P.C. Standard of Care • Other Jurisdictions: • Similar standards of care regardless of the jurisdiction • Uniform Trust Code jurisdictions: • e.g. , New Jersey, Pennsylvania, Maryland and Washington, D.C. • Non-Uniform Trust Code jurisdictions: • e.g. , Delaware and New York • Attorney-Fiduciaries: • Proceed with caution and expect to be held to a higher standard of care, especially if, prior to the appointment, you state you possess advanced skills Outline Pages 15-17

12 Heckscher, Teillon, Terrill & Sager, P.C. Exculpatory Clauses • Proceed with caution and focus on full disclosure • Model Rule 1.8(h)(1): • “ A lawyer shall not (1) make an agreement prospectively limiting the lawyer’s liability to a client for malpractice unless the client is independently represented in making the agreement …” • ACTEC 2016 Commentaries: • No per se prohibition on exculpatory clauses applying to attorney- fiduciary • However, the inclusion of the exculpatory clause must be at the client’s request Outline Pages 17-18

13 Heckscher, Teillon, Terrill & Sager, P.C. Exculpatory Clauses • Effectiveness of Exculpatory Clauses, Generally: • Generally, a reasonable exculpatory clause in a governing instrument that does not purport to exculpate bad faith or reckless indifference will be upheld • Exculpatory clauses will not be upheld if they violate public policy • Attorney-Drafted Exculpatory Clauses: • Uniform Trust Code: • An exculpatory term drafted or caused to be drafted by the trustee is invalid as an abuse of a fiduciary or confidential relationship “unless the trustee proves that the exculpatory term is fair under the circumstances and that its existence and contents were adequately communicated to the settlor .” Outline Pages 18-19

14 Heckscher, Teillon, Terrill & Sager, P.C. Exculpatory Clauses • Uniform Trust Code, Continued: • Factors court may consider in evaluating exculpatory clauses: • (1) Relationship between trustee and settlor; • (2) Whether settlor received independent advice; • (3) Settlor’s sophistication; • (4) Trustee reasons for inserting provision; and • (5) Scope of the provision. • Full Disclosure Required: • “In no event should the drafting attorney casually dismiss as mere boilerplate an exculpatory provision - neither in practice nor in response to client inquiry. That practice is unacceptable .” Loring and Rounds, A Trustee’s Handbook , §7.2.6 (7 th ed. 1994) Outline Pages 19-21

15 Heckscher, Teillon, Terrill & Sager, P.C. Standard of Care & Exculpatory Clauses • Takeaways and Best Practice: • (1) Anticipate higher standard of care for trust and estate attorney- fiduciary • (2) As a general rule, the attorney-scrivener should not seek the inclusion of or benefit from an exculpatory provision; an exculpatory provision is not boilerplate • (3) However, if special circumstances warrant an exculpatory provision ( e.g. , risky assets; complex, difficult or contentious family relationships; etc.) , the clause may be included if it is adequately communicated to the settlor, it is fair, and the lawyer advises that the client may seek independent advice • (4) Attorney-fiduciary should expect to have the affirmative burden of proving the provision is enforceable Outline Page 23

16 Heckscher, Teillon, Terrill & Sager, P.C. DUAL FEES FOR ATTORNEY- FIDUCIARIES – LEGAL FEES AND FIDUCIARY COMMISSIONS Outline Pages 24-34

17 Heckscher, Teillon, Terrill & Sager, P.C. Dual Fees • Model Rules: • Rule 1.5 – Fees • Rule 1.7 – Conflict of Interest: Current Clients • Rule 1.5 (Legal) Fee Factors: • (1) Whether fee is fixed or contingent; • (2) Time & labor required, novelty/difficulty of issue, skill involved; • (3) Likelihood that acceptance of matter will preclude other employment; • (4) Customary fee for similar services in a given locale; • (5) Amount involved and results obtained; • (6) Time limitations imposed by client or circumstances; • (7) Nature and length of relationship with client; and • (8) Experience, reputation, and ability of lawyer. Outline Pages 24-26