A lawyer who represents a trustee may initially believe he has a straightforward attorney-client relationship. The existence of beneficiaries, however, makes the engagement more complicated, and potentially more hazardous, than many other types of work a lawyer may undertake. The Model Rules of Professional Conduct adopted by the American Bar Association’s House of Delegates in 1983 (the Model Rules) set forth a comprehensive compilation of standards that members of the bar in enacting jurisdictions1 are required to follow. The Model Rules contain a number of provisions to which a lawyer advising a trustee should pay particularly close attention. A trustee who retains a lawyer should also be acutely aware of the unique limitations the Model Rules may impose on his lawyer.
Model Rule 4.3
Model Rule 4.3, entitled “Dealing With Unrepresented Person,” states that, when dealing on behalf of a client with a person who isn’t represented by counsel, a lawyer shouldn’t state or imply that the lawyer is disinterested. The lawyer should make reasonable efforts to correct a misunderstanding when the lawyer knows or should know that an unrepresented person misunderstands the lawyer’s role. This is because individuals not frequently involved with legal matters may assume the lawyer is a disinterested authority on the law even when the lawyer is representing a particular client.2
Furthermore, Model Rule 4.3 prohibits a lawyer from giving legal advice to an unrepresented person, other than recommending separate counsel, if the lawyer knows or reasonably should know such person’s interests conflict or could conflict with the client’s interests. However, Model Rule 4.3 doesn’t prohibit a lawyer from negotiating the terms of a transaction or settling a dispute with an unrepresented person. So long as the lawyer has explained that he represents an adverse party and isn’t representing the person, the lawyer may inform the person of the terms on which the lawyer’s client will enter into an agreement or settle a matter, prepare documents requiring the person’s signature and explain the lawyer’s own view of the meaning of the document or the lawyer’s view of the underlying legal obligations.3
The ACTEC4 Commentaries on the Model Rules of Professional Conduct (5th ed. 2016) (the ACTEC Commentaries) say that a lawyer is required to comply with Model Rule 4.3 when the lawyer represents a fiduciary and is communicating with beneficiaries or protected persons in the guardianship/conservatorship context. The ACTEC Commentaries state specifically that “The lawyer shouldn’t permit the beneficiaries to believe that the lawyer is the lawyer for the parties interested in the matter if the lawyer is representing only the fiduciary.”
Model Rule 1.2
Model Rule 1.2, entitled “Scope of Representation and Allocation of Authority Between Client and Lawyer,” states, in pertinent part, that a lawyer must follow the client’s decisions concerning the objectives of the representation and that the lawyer may take such action as is impliedly authorized to carry out the representation. With the client’s informed consent, a lawyer may limit the scope of representation if the limitation is reasonable.5 Thus, it would appear that, as a general rule, a trustee’s engagement of a lawyer could properly include a condition that the lawyer not communicate with the beneficiaries without the trustee’s consent and, as a general rule, that a lawyer could properly condition his acceptance of an engagement by a trustee on the lawyer’s having no obligation to communicate directly with the beneficiaries.
The ACTEC Commentaries, however, articulate a number of exceptions to the general rules suggested above. The Commentary relating to Model Rule 1.2 states that, although the trustee6 is primarily responsible for communicating with the beneficiaries regarding the trust, the trustee’s lawyer may communicate directly with the beneficiaries regarding the nature of the relationship between the lawyer and the beneficiaries. The Commentary on Model Rule 1.4, entitled “Communication,” states that the trustee’s lawyer “should make reasonable efforts” to ensure the beneficiaries are informed of decisions that may have a substantial effect on them.
Additionally, the Commentary on Model
Rule 1.2 recommends that a lawyer in the estate-planning context should explain to his client the role the lawyer for the trustee usually plays in the administration of a trust, including the possibility that the trustee’s lawyer may owe duties to the beneficiaries. That Commentary also provides that the lawyer for the trustee should consider informing the beneficiaries that: (1) the lawyer has been retained by the trustee regarding the trust; (2) the trustee is the lawyer’s client; (3) while the trustee and the lawyer will, from time to time, provide information to the beneficiaries regarding the trust, the lawyer doesn’t represent them; and (4) the beneficiaries may wish to retain independent counsel to represent their interests.
The Commentary on Model Rule 1.2 also explains the duties the trustee’s lawyer owes to the beneficiaries. These duties “are largely restrictive in nature” and:
prohibit the lawyer from taking advantage of his or her position to the disadvantage of the [trust] or the beneficiaries. In addition, in some circumstances [e.g., where the Trustee is engaged in self-dealing, is embezzling assets or engaged in other wrongdoing] the lawyer may be obligated to take affirmative action to protect the interests of the beneficiaries.
The nature of these duties depends on the nature and extent of the lawyer’s representation of the trustee.
The same Commentary also provides that a lawyer representing a trustee shouldn’t enter into an agreement with the trustee that attempts to diminish or eliminate the lawyer’s duties to the beneficiaries unless written notice is provided to those beneficiaries. For example, without first giving notice to the beneficiaries, the trustee’s lawyer shouldn’t agree with his client not to disclose to the beneficiaries any acts or omissions on the part of the trustee that the lawyer would otherwise be permitted or required to disclose to them.7
Model Rule 4.1
The potentially expansive nature of a trustee’s lawyer’s communications-related duties to beneficiaries is further illustrated by the Commentary on Model Rule 4.1, entitled “Truthfulness in Statements to Others,” which provides that:
if a [trustee] is not subject to court supervision and is therefore not required to render an accounting to the court but chooses to render an accounting to the beneficiaries, the lawyer for the [trustee] must exercise the same candor in statements made to the beneficiaries that the lawyer would be required to exercise toward any court having jurisdiction over the [] accounting.
Model Rule 1.6
The Commentary on Model Rule 1.6, entitled “Confidentiality of Information,” explains that the trustee’s lawyer’s duties to the beneficiaries, although limited, may qualify the lawyer’s duty of confidentiality with respect to the trustee. Model Rule 1.6 itself states, in pertinent part, that a lawyer shall not reveal information relating to the representation of a client unless informed consent is given, the disclosure is impliedly authorized or the disclosure is permitted by one of several exceptions listed in Model Rule 1.6(b), including a disclosure that’s required to comply with a law or court order. Regarding situations in which the lawyer believes his services are being used by the trustee to commit a fraud resulting in substantial injury to a beneficiary’s financial interests, the Commentary states that the lawyer usually may disclose confidential information to the extent necessary to protect such beneficiary’s interests.
The duties of the trustee’s lawyer to trust beneficiaries may differ depending on the capacity in which the lawyer represents the trustee. A lawyer may represent a trustee in his fiduciary capacity and/or in his individual capacity. The trustee’s duties to the beneficiaries may be far more limited in the latter case than in the former. The former typically involves “fulfillment of the client’s fiduciary responsibilities and not the client’s individual goals” while the latter is focused on “the limited purpose of advancing the interests of the [trustee] and not necessarily the interests of the [trust] or the persons beneficially interested in the [trust].”8
The laws of some states recognize a “fiduciary exception” to the attorney-client privilege that’s generally afforded by Model Rule 1.6. The fiduciary exception generally provides that a trustee’s lawyer may not withhold attorney-client communications from trust beneficiaries if the communication relates to administration of the trust and the lawyer’s services are paid for using trust funds.9 Other states have expressly rejected or limited the fiduciary exception by statute, essentially rejecting the idea that the beneficiaries are automatically clients of the lawyer.10
The ACTEC Commentaries acknowledge that some jurisdictions explicitly permit a lawyer to disclose client confidences (in conformity with Model Rule 1.6, regarding confidentiality, and Model Rule 1.8, entitled “Current Clients: Conflict of Interest: Specific Rules,” regarding use of confidences to the disadvantage of a client) if a potential breach of trust has been committed. The ACTEC Commentaries suggest that a lawyer consider conditioning representation of a trustee on being able to make this disclosure in jurisdictions whose laws don’t require or permit this disclosure to beneficiaries. In the event a lawyer agrees to represent a trustee in both a fiduciary and an individual capacity, the ACTEC Commentaries suggest informing the beneficiaries of that fact.
Endnotes
1. All 50 states, except California and the District of Columbia.
2. See Model Rule 4.3, Comment [1].
3. Model Rule 4.3, Comment [2].
4. The American College of Trust and Estate Counsel (ACTEC) is a non-profit association of over 2,500 members, consisting of lawyers and law professors, skilled and experienced in the preparation of wills and trust instruments, estate planning, probate procedure and the administration of trusts and estates of decedents, minors and incapacitated individuals. See www.actec.org.
5. Model Rule 1.2(c).
6. The ACTEC Commentaries on the Model Rules of Professional Conduct (5th ed. 2016) use the more inclusive term “fiduciary” instead of “trustee” and “fiduciary estate” instead of “trust.”
7. But see Sullivan v. Dorsa, 27 Cal. Rptr. 3d 547 (Ct. App. 2005) and Wells Fargo Bank v. Superior Court, 990 P.2d 591 (Cal. 2000) (both holding that the trustee’s lawyer owes no duty to the trust beneficiaries).
8. See Commentary on Model Rule 1.2.
9. See David L.J.M. Skidmore and Laura E. Morris, “Whose Privilege Is It, Anyway? The Fiduciary Exception to the Attorney-Client Privilege,” 27 Prob. & Prop. 21 (September/October 2013); United States v. Jicarilla Apache Nation, 131 S.Ct. 2313 (2011); Hammerman v. The Northern Trust Company, 329 P.3d 1055 (Ariz. App. 2014); Riggs Nat’l Bank of Washington, D.C. v. Zimmer, 355 A.2d 709, 712-13 (Del. Ch. 1976).
10. See, e.g., Fla. Stat. Section 90.5021 (stating, in part, that “A communication between a lawyer and a client acting as a fiduciary is privileged and protected from disclosure … to the same extent as if the client were not acting as a fiduciary”); N.Y.C.P.L.R. Section 4503(a)(2) (“in the absence of an agreement between the attorney and the personal representative to the contrary, [n]o beneficiary of the estate is, or shall be treated as, the client of the attorney solely by reason of his status as beneficiary”; personal representative defined to include a trustee); Ohio Rev. Code Ann. Section 5815.16(B) (“Any communication between an attorney and a client who is acting as a fiduciary is privileged and protected from disclosure to third parties to whom the fiduciary owes fiduciary duties to the same extent as if the client was not acting as a fiduciary”).