How Ethical Rules Govern the Conduct of Estate Planners

Transcription

1 How Ethical Rules Govern the Conduct of Estate Planners 19TH ANNUAL SALVATION ARMY ESTATE AND CHARITABLE GIFT PLANNING INSTITUTE September 14, 2011 By: Charles A. Redd of Stinson Morrison Hecker LLP St. Louis, Missouri 7700 Forsyth Boulevard Suite 1100 St. Louis, Missouri (314) (Telephone) (314) (Facsimile) DB04/ /

2 Table of Contents Page A. Joint Representation, Conflicts and Confidentiality Introduction Model Rule Disclosure of Confidences Engagement Letters Representing Families Lawyers Conflicts of Interest Give Rise to Fraud Lawsuit In re Aoki, 913 N.Y.S.2d 152 (April 21, 2010)...8 B. Disclosures To Beneficiaries By Trustee s Lawyer C. Obligations Of Lawyer When Maintaining Original Documents In General Implied Understanding Obligation to Inform Beneficiaries or the Executor Additional Obligations...12 D. Continuing Obligations of Lawyer After Representation Ends In General Duty to Monitor Affairs of Client to Ensure That Estate Plan is Not Frustrated by Subsequent Actions Lawyers Beware Model Rule 1.4 and Dormant Representation Newsletters Creating a Duty to Provide Services Effect of Provision That Limited Clients Ability To Amend Or Revoke Dunn v. Patterson, 919 N.E.2d 404 (Ill. App. November 18, 2009)...16 E. Clients Under a Disability General Ethical Standards Recommending Appointment of Guardian Drafting Estate Planning Documents for a Client With Marginal Capacity...20 F. Ethical and Fiduciary Liability Consequences That May Arise When Execution of Documents is Delayed G. The Interrelationship Of Professional Ethics Rules With Malpractice Actions DB04/ /

3 HOW ETHICAL RULES GOVERN THE CONDUCT OF ESTATE PLANNERS By Charles A. Redd Stinson Morrison Hecker LLP St. Louis, Missouri A. Joint Representation, Conflicts and Confidentiality 1. Introduction Perhaps the most ubiquitous ethical issue confronting estate planning lawyers is the subject of joint representations and the obligations of the lawyer to each of the parties. If the lawyer does not specify the capacity in which he or she will serve a husband and wife, joint representation is presumed to exist. Although the most common joint representation involves a husband and wife, this issue can also arise in multi-generational planning, as discussed below. Examples of conflicts of interests in the joint representation of spouses include the following: Blended families often are a source of conflict. A stepparent may not wish to benefit his or her stepchildren, while the other spouse, the biological parent, will feel that the children are entitled to such support. The establishment of a QTIP trust by a spouse with children from a previous relationship generates this same sort of conflict. Another common source of conflict is when only one of the spouses has had a prior engagement with the lawyer. The lawyer will then have to make sure that there is no actual or perceived influence by the spouse with whom the lawyer had the prior engagement. A similar problem may exist in which one spouse makes all the decisions for both spouses, while the other spouse is unable to make decisions and simply defers to the decision-making spouse. In this situation, the lawyer may have great difficulty in making sure that both spouses are treated fairly. Conflicts can arise when including need-based or other restrictions on property held for the benefit of a surviving spouse. While being viewed by the testator spouse as necessary to protect the surviving spouse, the surviving spouse may view it as unjustifiable or manipulative. 2. Model Rule 1.7 The most relevant American Bar Association ( ABA ) Model Rule of Professional Conduct (the Model Rule ) regarding this issue is Model Rule 1.7, which prohibits representation where it involves a concurrent conflict of interest. A concurrent conflict of interest exists if: (1) the representation of one client will be directly adverse to another client; or DB04/ /

4 (2) 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. The lawyer may accept or continue a representation when a concurrent conflict of interest exists if: (1) the lawyer reasonably believes that the lawyer will be able to provide competent and diligent representation to each affected client; (2) the representation is not prohibited by law; (3) the representation does not involve the assertion of a claim by one client against another client represented by the lawyer in the same litigation or other proceeding before a tribunal; and (4) each affected client gives informed consent, confirmed in writing. Model Rule 1.7(b). In light of this safe harbor, many lawyers will routinely disclose the advantages and disadvantages of the joint representation and then seek informed consent in writing to the representation, assuming the other requirements of this safe harbor are met. Informed consent is defined by Model Rule 1.0(e) as an agreement by an affected person after the lawyer has communicated adequate information and explanation about the material risk of and reasonably available alternatives to the proposed course of action. 3. Disclosure of Confidences Among the many problems that can arise are confidences that are revealed to the lawyer by one party that are intended by that party to be kept confidential from the other party. The ABA Comment to Rule 1.7 notes the difficulty that arises if a client in a joint representation asks a lawyer not to disclose information to another client in the joint representation, stating that the lawyer has an equal duty of loyalty to each client, and each client has the right to be informed of anything bearing on the representation that might affect that client s interests and the right to expect that the lawyer will use that information to that client s benefit, as required by Model Rule 1.4, Communication. Presumably withdrawal is required in this circumstance. Under Model Rule 1.16(a)(1), a lawyer must withdraw from the representation of a client if the representation will result in violation of the rules of professional conduct or other law. This issue was presented in A v. B v. Hill Wallack, 726 A.2d 924 (N.J. 1999). In October 1997, the law firm of Hill Wallack was retained jointly to represent a husband and wife in drafting their Wills. The husband and wife each signed a Waiver of Conflict of Interest document and consented to and waived any conflict of interest that may arise. There was no express waiver, however, of the confidentiality of any information that may be disclosed to the lawyers. In January 1998, before the execution by the husband and wife of their Wills, the mother of a nonmarital child of the husband retained Hill Wallack to commence a paternity suit against the husband. At the time of the representation by the mother, the lawyers at Hill Wallack who represented the husband and wife in connection with their estate planning were not aware of the conflict between the husband and the mother. After the paternity suit was filed, the husband and wife signed their Wills. Subsequently, Hill Wallack became aware of the conflict between the mother and husband and withdrew as lawyers for the mother. The firm then wrote to the husband and stated its view that it had an DB04/ /

5 ethical obligation to inform the wife of the existence of the nonmarital child. The husband sued Hill Wallack to prevent it from disclosing any such information to the wife. The court examined the New Jersey rules of professional conduct and concluded that the firm was entitled, but not required, to disclose the existence (but not the identity) of the child. The court arrived at this conclusion because it held that the husband s refusal to disclose to his wife the existence of the child was a fraud on his wife. In addition, the court believed that the husband s child support obligations and other financial responsibilities towards the child could affect distributions to the wife or her estate. The court rejected imposing an obligation on the firm to make any disclosure to the wife, stating that a disclosure was not mandated by New Jersey s version of Model Rule 1.6, which deals with disclosure of confidential information. The court stated that the possible inheritance of the wife s estate by the husband s nonmarital child was too remote to constitute substantial injury to the financial interest or property of another, which would have authorized disclosure under Model Rule 1.6(b). The court went on to suggest that a lawyer commencing the joint representation of co-clients should explicitly agree with the clients regarding the sharing of confidential information. (a) Lawyer Not Entitled to Disclose. The court in A v. B v. Hill Wallack noted the contrary positions taken by New York and Florida whereby both ethics committees prohibited the disclosure of confidential information obtained during the course of a joint representation. In New York State Bar Ass n. Comm. on Prof l Ethics, Op. 555 (1984), A and B employed a lawyer to represent them in connection with the formation and operation of a partnership. B then told the lawyer in confidence that he was actively breaching the partnership agreement. The Committee decided that the lawyer could not disclose the confidential communication to A in the absence of B s consent. In Florida State Bar Ass n. Comm. on Prof l Ethics, Op. No (1997), a lawyer represented both husband and wife in a range of personal matters, including estate planning. Several months after the husband and wife s Wills were executed, the husband informed the lawyer that he had executed a codicil prepared by another law firm that made substantial provisions for a woman with whom he was having an extramarital relationship. The Committee held that, not only was the lawyer not obligated to inform the wife of the new information, he did not have the discretion to do so. The lawyer was then required to withdraw as lawyer for both parties. (b) Lawyer Obligated to Disclose. Some states have modified their rules to require a lawyer to reveal confidences in certain joint representation situations. For instance, Hawaii Rule of Professional Conduct 1.6(b) provides, in pertinent part, that [a]n attorney shall reveal information which clearly establishes a criminal or fraudulent act of the client in the furtherance of which the lawyer s services had been used, to the extent reasonably necessary to rectify the consequences of such act, where the act has resulted in substantial injury to the financial interests or property of another. In New Jersey, a lawyer is required to reveal such information, to the extent the lawyer believes necessary, to prevent the client or another person from committing a fraudulent act that the lawyer reasonably believes is likely to result in substantial injury to the financial interest or property of another. NJ Rules of Professional Conduct 1.6(b)(1). DB04/ /

6 (c) ACTEC Position Lawyer Entitled to Disclose. The ACTEC Commentaries on the Model Rules of Professional Conduct (4th ed. 2006) (the ACTEC Commentaries ) on Model Rule 1.6 give the lawyer discretion in determining how to respond. The ACTEC Commentaries then provide the following possible courses of action: (1) take no action with respect to communications regarding irrelevant (or trivial) matters; (2) encourage the communicating client to provide the information to the other client or to allow the lawyer to do so; or (3) withdraw from the representation if the communication reflects serious adversity between the parties. The lawyer should not take any action in accordance with one spouse s request or direction if such action would violate the lawyer s duty of loyalty to the other client, unless the other client gives informed consent. The lawyer is also encouraged to advise the client voluntarily to reveal the confidence and to make the client aware of the possible consequences of not revealing the confidence. If the client refuses to reveal the confidence, the lawyer should use his or her discretion to determine if the lawyer should reveal the confidence and whether the lawyer should withdraw from representing one or both clients. 4. Engagement Letters (a) Conflicts of Interest. Assuming the lawyer, after performing a conflicts of interest analysis, determines that joint representation of two or more clients is appropriate, or presents a conflict that can be waived by informed consent by the clients, the lawyer is strongly encouraged not to commence any representation of multiple clients without first fully disclosing to them the potential conflicts to each client and having the clients sign an engagement letter that carefully details the relationship among and obligations of each of the parties. Conflicts of interest may arise between spouses, parent and child, a client and entities owned by the client, a fiduciary and beneficiary, or any combination of the above. An engagement letter should discuss the potential for these conflicts to arise and include either the clients waiver of the conflicts or specific direction as to how conflicts will be resolved should they arise. Two examples of how these conflicts might be dealt with in an engagement letter are as follows: Option 1: If a conflict of interest should arise between you, ethical considerations would prohibit me as the lawyer for both of you from representing either one of you against the other. I would not be able to advocate the position of either of you against the other, and I may then be required to withdraw as the lawyer for both of you. Option 2: If a conflict of interest should arise between you, ethical obligations would require me to withdraw as the lawyer for both of you jointly. If otherwise permitted by applicable ethical rules, I may then elect to continue to represent Mary as a client, but John would be required to retain another lawyer to represent him. By signing the enclosed copy of this letter, John agrees under such circumstances to my continued representation of Mary. DB04/ /

7 The lawyer may have each party execute an engagement letter that states there will be joint representation and that clearly specifies that the lawyer may reveal all confidences to either (or any) party and that no information may be withheld. This type of representation is often referred to as a show and tell approach. The engagement letter should seek the waiver of any present or subsequent conflicts and the parties consent to this form of representation. Alternatively, the lawyer may represent the parties jointly (or separately) but be specifically prohibited from revealing any confidences. This approach has been referred to as the priestly approach. The priestly approach is fraught with potential conflicts and may result in the lawyer's having to withdraw as counsel for one, both or all clients if a conflict arises (e.g., one spouse informs the lawyer of his intention to withdraw all funds held as joint tenants). The Commentary to Model Rule 1.7 notes the difficulty that arises if a client in a joint representation asks a lawyer not to disclose information to another client in the joint representation that the attorney s duty of loyalty and the duty of disclosure under Model Rule 1.4 would normally require the attorney to disclose. Presumably, withdrawal is required in this circumstance. Model Rule 1.16(a)(1). Planning Point: Because the engagement letter is seeking the parties consent to the relationship therein described, the lawyer must make full disclosure of possible conflicts and his or her procedure for dealing with conflicts should they arise. This procedure may include (depending on the circumstances): (1) withdrawal by the lawyer as counsel to one, some or all of the parties; (2) one, some or all of the parties obtaining new counsel; or (3) the lawyer serving as an intermediary under Model Rule 2.2. Planning Point: Even if the lawyer obtains the consent to the joint representation as outlined above, the lawyer cannot assume that joint representation will be appropriate indefinitely. Rather, the lawyer must be vigilant about identifying new conflicts arising in the future or the escalation of existing conflicts that might cause the ongoing joint representation to be inappropriate or require additional disclosures and consents from the individuals involved. Furthermore, in the event a dispute among two or more of the individuals involved arises in connection with the matter, absent the consent of the individuals involved (which is unlikely), the lawyer cannot take sides in the matter and represent one individual against one or more others or the entity. Each would need to retain different legal counsel. (b) Other Important Issues to Address. Model Rule 1.2 provides with respect to the scope of the representation that a lawyer may limit the objectives of the representation if the client consents after consultation. The most effective way of limiting the objectives of the representation is to define the scope of the representation in an engagement letter. DB04/ /

8 (c) Discussing Fees and the Scope of Services in the Engagement Letter. Among other advantages, the engagement letter will create a written description of the work that the attorney agreed to undertake in case a dispute arises later concerning the lawyer s duties to the client. Such a description will also the help client have more accurate and realistic expectations regarding the scope of the representation and the time within which the services will be performed. Otherwise, some clients, or their successors, may expect the lawyer to perform other, additional services. The Model Rules of Professional Conduct, Section 1.5, Comment [2], points out that a written statement concerning the terms of the engagement reduces the possibility of misunderstanding. Price, 801 T.M., Conflicts, Confidentiality, and Other Ethical Considerations in Estate Planning. With regard to attorney s fees, Model Rule 1.5 further provides, in subsection (b), that [T]he scope of the representation and the basis or rate of the fee and expenses for which the client will be responsible shall be communicated to the client, preferably in writing, before or within a reasonable time after commencing the representation except when the lawyer will charge a regularly represented client on the same basis or rate. Any changes in the basis or rate of the fee or expenses shall also be communicated to the client. In addition, Restatement (Third) of the Law Governing Lawyers, 38(1), similarly requires the lawyer, in most instances, to inform a client of the basis or rate of the fee before, or within a reasonable time after, beginning the representation and states that the information should be given in writing when applicable rules so provide. Some states impose additional requirements. For example, if it is reasonably foreseeable that the attorney s fee will exceed $1,000.00, California requires a written contract, which specifies the hourly rate, statutory fees or flat fees, and other standard rates, fees and other charges, the nature of the services to be performed and the responsibilities of the attorney and the client. Cal. Bus. & Prof. Code 6148(a). If these requirements are not met, the agreement is voidable at the option of the client, in which case the attorney is entitled to recover a reasonable fee. Cal. Bus. & Prof. Code 6148(c). Planning Point: As mentioned above, if the attorney s fee is to be based on hourly rates, the engagement letter should state that the rates will, or are likely to, change periodically. Doing so should provide the lawyer with an adequate basis upon which simply to advise the client of the amount of hourly rate changes as and when they occur. The client should be adequately protected by having advance knowledge that the rates could change in the future and the option of either agreeing to future changes as they became effective or terminating the representation. Price, supra. (d) Summary. The engagement letter should clearly set forth: The individuals that will be represented by the lawyer; The nature and extent of the obligations of the lawyer. These obligations should be narrowly described while still being accurate. It is easier subsequently to modify an engagement by adding more obligations than trying to explain why an obligation stated in an engagement letter was not DB04/ /

9 fulfilled. Gadsen, Kendall, et. al., How Engaging Can We Be While Playing by the Ethical Rules? Heckerling Institute on Estate Planning, Special Session (2011); The manner of calculating the lawyer s fees; The circumstances under which the engagement will terminate; That each individual involved is consenting to the representation and waives any potential conflict; and As discussed above, unless the so-called "priestly" approach is adopted, that the lawyer may reveal all confidences to the other party or parties. 5. Representing Families When a lawyer represents members of a family in addition to spouses, the potential bases for conflict are broadened. Even where no conflict exists between spouses, a conflict may arise if the lawyer feels that the spouses proposed estate plan would not benefit the family as a whole. For example, the spouses may not wish to take advantage of tax-saving techniques, such as annual exclusion gifts, and instead wish to retain more assets for their own benefit. (a) Model Rules. In addition to Model Rule 1.7, discussed above, there are many Model Rules directly applicable to this situation. Model Rule 1.9 prohibits a lawyer who has formerly represented a client in a matter from representing another person in the same or substantially related matter in which the person s interests are materially adverse to the former client unless the former client gives informed consent in writing. If the lawyer did not represent the former client, but the lawyer s former law firm did, this rule still applies if the lawyer acquired confidential information regarding the former client. This Model Rule also generally prohibits the lawyer from using information obtained during the prior representation to the detriment of the former client. The facts of the Aoki case, summarized below, provide an example of a situation in which this rule may be implicated. Model Rule 1.4 requires that a lawyer promptly inform the client of any decision or circumstance with respect to which the client s informed consent is required. The lawyer must also keep a client reasonably informed about the status of a matter. Model Rule 1.6 prohibits a lawyer, unless an exception is applicable, from disclosing information relating to the representation without the client s informed consent. This Model Rule applies to all information relating to the representation regardless of its source. See Model Rule 1.6 ABA Comment 3. The duty of confidentiality continues as long as the lawyer has the confidential information, even beyond the death of the client. ABA Informal Opinion 1293 (1974). A lawyer is impliedly authorized to make disclosures about a client when appropriate in carrying out the representation. See Model Rule 1.6 ABA Comment 5; ACTEC Commentaries on Model Rule 1.6. Finally, Model Rule 1.8(b) prohibits a lawyer from using information regarding the representation of a client to the disadvantage of the client without the client s informed consent unless otherwise permitted or required by the Model Rules. (b) Case Law. In Haynes v. First National State Bank of New Jersey, 432 A.2d 890 (N.J. 1981), a lawyer prepared a Will for a client when the lawyer had a pre-existing DB04/ /

10 professional relationship with the principal beneficiary of the Will, who was the client s daughter. The plaintiffs, the client s grandchildren, argued that the lawyer s conflict of interest invalidated the Will under the theory of undue influence. Facts tending to show no conflict of interest and undue influence included the following: (1) the lawyer met with the client alone to review the Will; (2) the lawyer acted in good faith; and (3) the lawyer testified that he believed there was an identity of interests between the client and the beneficiary. Facts tending to show a conflict of interest and undue influence included the following: (1) the client was elderly and lived with the beneficiary; and (2) there was evidence of overreaching by the beneficiary that could have been discovered by the lawyer if he made the appropriate inquiry. The court found that the lawyer did have a conflict of interest and that it was sufficient to raise a presumption of undue influence requiring a significant burden of proof to be rebutted. The court characterized the conflict as irreconcilable and doubted whether disclosure and consent could have removed it. In Will of Man, 490 N.Y.S.2d 213 (1985), a motion was filed to disqualify a lawyer in a will contest case in which the lawyer represented a disinherited child. The lawyer had previously represented the disinherited child s sibling in other matters involving the decedent. In this case, the sibling was accused of procuring the subject Will by fraud, undue influence and coercion. The court felt that these facts warranted disqualification. But see Chase v. Bowen, 771 So.2d 1181 (Fla.Ct.App. 2000) (no conflict of interest existed when a lawyer revised a Will to disinherit a beneficiary whom the lawyer represented on an unrelated matter). Planning Point: When representing families, the lawyer should clearly define whom the lawyer represents and whom the lawyer does not represent. The lawyer should inform the family members that the lawyer does not represent of that fact and recommend that they obtain separate counsel if appropriate. Thomas III, Ethics - What s a Lawyer To Do? Heckerling Institute on Estate Planning, Special Session (2006). 6. Lawyers Conflicts of Interest Give Rise to Fraud Lawsuit In re Aoki, 913 N.Y.S.2d 152 (April 21, 2010) In this case, Rocky Aoki ( Rocky ) was the founder of the Benihana Restaurant chain, comprising approximately 110 restaurants worldwide. The restaurant chain was controlled by Benihana of Toyko, Inc. ( BOT ), which Rocky controlled in its entirety. In 1998, Rocky was convicted of insider trading and resigned from his positions related to the restaurant chain. Rocky s long-time personal lawyer was Darwin C. Dornbush. In 1998, on Rocky s behalf, Mr. Dornbush retained another lawyer named Norman Shaw to draft the governing instrument of an asset protection trust for Rocky called the Benihana Protective Trust (the Trust ). Rocky transferred his interest in BOT to the Trust. Under the Trust instrument, Rocky and six of his children were discretionary beneficiaries. Rocky also held a testamentary limited power of appointment exercisable in favor of any person other than himself, his estate, his creditors or the creditors of his estate. In 2002, Rocky married his third wife, Keiko Aoki ( Keiko ). Rocky s children from his prior marriages became concerned that Keiko may influence Rocky into depriving his children of DB04/ /

11 part or all of the interests that they expected to obtain under the Trust. In September of 2002, two of the children, Kana and Kevin Aoki ( Kana and Kevin ), discussed this issue with Messrs. Dornbush and Shaw. The next day, Rocky met with Kana, Kevin and Messrs. Dornbush and Shaw and signed a document titled a Partial Release of a Power of Appointment under New York Estates, Powers & Trusts Law (the September Release ). The September Release limited the potential donees of Rocky s power of appointment under the Trust to his descendants. The language of the September Release specified that it was irrevocable. However, no one emphasized the irrevocability of the release to Rocky or explained that he could no longer appoint the trust property to his surviving spouse. Nor was it explained to Rocky that a marital deduction of up to approximately $13 million could no longer be claimed for the property that could otherwise have been appointed to his surviving spouse. In December of 2002, Rocky signed another document titled Partial Release of Power of Appointment Under New York Estates, Powers & Trust Law (the December Release ). The December Release further limited Rocky s power of appointment by eliminating as potential donees those descendants who were non-resident aliens. Mr. Shaw testified that this release was executed solely for tax purposes. The court stated that there was no evidence that anyone explained this document to Rocky or that Rocky understood what he was signing. In July of 2003, Rocky retained a new lawyer named Joseph Manson. Rocky then executed a codicil to his Will that changed beneficiaries, removed Mr. Dornbush as executor and exercised the power of appointment by appointing over 25% of the Trust principal in favor of Keiko outright. Mr. Manson then requested that Messrs. Dornbush and Shaw render a legal opinion as to the effect the codicil had on Rocky s original Will. Messrs. Dornbush and Shaw s legal opinion, completed in September of 2003, concluded that the codicil was invalid because of the releases. Rocky testified that it was not until around the time that Messrs. Dornbush and Shaw completed this legal opinion that Rocky first realized that the releases were irrevocable. Rocky testified that he never would have signed the releases had he understood before he signed them that they were irrevocable. In September of 2007, Rocky executed a new Will appointing 25% of the Trust principal to Keiko and the remaining 75% to a trust for her lifetime benefit. The Will further provided that, if the releases were found valid (which, Rocky wrote, was contrary to my desires ), Rocky made an alternative appointment to Keiko to hold the Trust principal in further trust until two of Rocky s other children, Devon and Steven Aoki ( Devon and Steven ), reached 45, at which time such property would be distributed outright to them. Rocky died in July of The Will he executed in 2007 was submitted to probate. Kevin and Kana, as Trustees of the Trust, along with Devon and Steven, objected to the Will, arguing that the releases should be respected. Keiko asserted that the releases were invalid, stating that they were obtained through fraud, and that the Will executed in 2007 should be probated. Devon and Steven then brought a motion for summary judgment. DB04/ /

12 Keiko relied on Rocky s statements that he did not intend irrevocably to limit his power of appointment over the Trust property and argued that Messrs. Dornbush and Shaw had a conflict of interest in representing both Rocky and his children and preparing the releases for Rocky s signature. According to Keiko, the fraud in this case arose from Messrs. Dornbush and Shaw s failure to inform Rocky of the irrevocable nature of the releases and their adverse tax consequences. The court found that Messrs. Dornbush and Shaw owed a fiduciary duty to Rocky, who relied on them. The court further found that Messrs. Dornbush and Shaw had entered into an attorney-client relationship with Kevin and Kana in connection with limiting or denying Rocky s ability to provide for Keiko upon his death. The court stated that Messrs. Dornbush and Shaw had an impermissible conflict of interest and they had failed to inform Rocky of that conflict. The court found that, due to the fiduciary duties owed by Messrs. Dornbush and Shaw to Rocky, it was reasonable for Rocky to have relied on Messrs. Dornbush and Shaw regarding the execution of the releases, even though Rocky failed to read the releases before signing them. According to the court, under New York law, this was a case of constructive fraud, the remedies for which protect a party who, by virtue of an unequal relationship, places his trust and confidence in another and thereby relax[es] the care and vigilance he would ordinarily exercise in the circumstances quoting Brown v. Lockwood, 76 AD2d 721 (NY 1980). The court therefore concluded that there existed triable issues of fact and denied the summary judgment motion. B. Disclosures To Beneficiaries By Trustee s Lawyer The ethical duties of a lawyer who represents a trustee may compel the lawyer to disclose information to the beneficiaries. The ACTEC Commentaries on Model Rule 1.2 ( Scope of Representation and Allocation of Authority Between Client and Lawyer ), addresses this issue. The rule itself 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 representation if the limitation is reasonable. The Commentary states that, although the trustee is primarily responsible for communicating with the beneficiaries, the trustee s lawyer may communicate directly with the beneficiaries regarding the nature of the relationship between the lawyer and the beneficiaries. The Commentary to Model Rule 1.4 ( Communication ) states that the trustee s lawyer should make reasonable efforts to ensure that the beneficiaries are informed of decisions that may substantially affect them. Specifically, the Commentary to Model Rule 1.2 suggests that the lawyer should explain the role that 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. The Commentary goes on to state that the lawyer should provide information to the beneficiaries regarding the trust, but should also warn the beneficiaries that the lawyer does not represent them, and the beneficiaries may wish to retain independent counsel. DB04/ /

13 This Commentary also explains the duties that the 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 fiduciary estate or the beneficiaries. In addition, in some circumstances the lawyer may be obligated to take affirmative action to protect the interests of the beneficiaries. The nature of these duties depends upon the scope of the representation of the trustee. In addition, a lawyer should not enter into an agreement with the trustee that attempts to limit the lawyer s duties to the beneficiaries, unless written notice is provided to those beneficiaries. But see Sullivan v. Dorsa, 27 Cal. Rptr. 3d 547 (Ct. App. 2005); 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). The Commentary to Model Rule 1.6 ( Confidentiality of Information ) explains that these 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 1.6(b), including a disclosure that is required to comply with a law or court order. With regard to situations in which the lawyer believes that his or her 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 potentially expansive nature of the lawyer s duties to the beneficiaries is further illustrated by the Commentaries to Model Rule 4.1 ( Truthfulness in Statements to Others ), which states that if a fiduciary 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 fiduciary must exercise the same candor toward the beneficiaries that the lawyer would exercise toward any court having jurisdiction over the fiduciary accounting. C. Obligations Of Lawyer When Maintaining Original Documents 1. In General It is commonplace for lawyers practicing in the trusts and estates field to maintain in a special vault the original wills and certain other estate planning documents of those clients for whom they have drafted the documents. Absent any express agreement to the contrary, does the lawyer have any obligations when he learns that the client has died? Generally, the obligations of a lawyer who maintains original documents are determined by the agreement between the lawyer and client. As discussed below, these obligations may arise if there are express or implied agreements or understandings between the client and the lawyer regarding the lawyer s duties and responsibilities relating to the estate plan. The lawyer and client may agree that the lawyer will undertake the responsibility to learn of the client s death (e.g., by reading death notices) or that the lawyer, upon learning of the client s death, will file the Will with the appropriate court. DB04/ /

14 2. Implied Understanding An implied understanding may exist if the lawyer has in the past undertaken a greater role in the handling of the client s estate planning matters. This is more likely to occur where the lawyer has regular contact with the client and performs ongoing services, as is often the case with high net-worth clients. 3. Obligation to Inform Beneficiaries or the Executor In New York Eth. Op. 724, N.Y. St. Bar Assn. Comm. Prof. Eth. (November 30, 1999), the Committee concluded that, in the absence of an agreement, if the lawyer has maintained the client s original Will, after the client s death, the lawyer must assure that the executor and/or beneficiaries are aware of its existence, unless the lawyer knows of a later valid Will. The lawyer, however, does not have an obligation to take steps to learn of the client s death or to file the original Will with an appropriate court. 4. Additional Obligations At least one jurisdiction has imposed a greater obligation on the lawyer who drafts a Will and retains the original where the named executor refuses to file the Will. In Pennsylvania Ethics Opinion (1997), the husband, the named executor, refused to probate the Will. The husband, however, provided the lawyer with some information for the inheritance tax return and therefore entered into an attorney-client relationship with the lawyer. The Committee held that an attorney who has drafted a will and is still in possession of it after death has an absolute obligation to take steps to see that the will is given effect. Such an obligation was deemed to fall within the scope of Model Rule 8.4(d) which forbids an attorney from [engaging] in conduct that is prejudicial to the administration of justice. The lawyer was directed to inform all the beneficiaries of the Will of their interests thereunder. In addition, the lawyer was encouraged to warn the husband of the lawyer s actions and to ask the husband to seriously reconsider. If the husband demands that the lawyer give him the Will, the lawyer must decline and either retain it or file the Will with the court. Finally, unless the executor is completely cooperative, it was suggested that the lawyer resign as the lawyer settling the estate. Planning Point: It is advisable for a lawyer who drafts Wills and other estate planning documents and who intends to maintain the originals of such documents for safekeeping to agree with his clients in advance what obligations the lawyer is assuming, such as whether, after the client s death the lawyer must assure that the executor and/or beneficiaries are aware of its existence and, for that matter, whether the lawyer has a duty to inquire as to the health of the client. DB04/ /

15 D. Continuing Obligations of Lawyer After Representation Ends 1. In General A lawyer s obligation to a client once the initial tasks of the representation are completed raises two issues. First, does the lawyer have a duty to monitor the affairs of the client to ensure that the estate plan originally prepared and executed is not frustrated by subsequent actions of the client? Second, does the lawyer have a continuing obligation to advise a client of changes in the law occurring after the initial representation has ended? 2. Duty to Monitor Affairs of Client to Ensure That Estate Plan is Not Frustrated by Subsequent Actions The first issue was addressed in Stangland v. Brock, 747 P.2d 464 (Wash. 1987). In 1979, a lawyer named Norman Brock prepared a Will for Ralph Schalack that left all of his real property to Alvin Stangland and Bruce Kintschi. At the time the Will was signed, Mr. Schalack s farm was the substantial asset of his estate. The residue of the estate was bequeathed to different individuals. In February 1982, Kenneth Carpenter, a real estate lawyer practicing in the same law firm as Mr. Brock, prepared a sales contract for the Mr. Schalack s farm. Mr. Brock was not aware that the property was being sold. Mr. Carpenter stated that he had no knowledge of the terms of Mr. Schalack s Will. Mr. Schalack died on May 7, Messrs. Stangland and Kintschi brought an action against Messrs. Brock and Carpenter and their law firm seeking damages for professional negligence. Specifically, the complaint alleged that Mr. Brock was negligent in not drafting the Will to provide that the farm (or sales proceeds thereof) would ultimately pass to the Messrs. Stangland and Kintschi, as was the intent of the decedent. In addition, the lawyers were alleged to be negligent by not advising Mr. Schalack that entering into the sale of the property would frustrate the intent under his Will. The court found that, notwithstanding that Mr. Brock was a member of the same law firm as Mr. Carpenter, Mr. Brock had no duty to advise the decedent of the contract s possible effect on his estate plan. The court stated: If we held that Brock had such a duty, we would be expanding the obligation of a lawyer who drafts a will beyond reasonable limits. While an individual retains an attorney to draft his will the attorney s obligation is to use the care, skill, diligence and knowledge that a reasonable, prudent lawyer would exercise in order to draft the will according to the testator s wishes. Once that duty is accomplished, the attorney has no continuing obligation to monitor the testator s management of his property to ensure that the scheme established in the will is maintained. The time and expense that would be required for the attorney to follow all of the testator s activities with respect to his property would prevent the attorney from being able DB04/ /

16 to provide reliable and economical services to that client, and would constitute an overwhelming burden on the attorney s practice as a whole. The court further found that Mr. Carpenter had no reason to know of the contents of the Mr. Schalack s Will and could not have foreseen that the sale of the property may harm the respondents. 3. Lawyers Beware It should be noted that the court s holding in Stangland v. Brock should not be read to imply that a lawyer does not have any obligation to monitor a testator s activities with respect to his or her assets where the lawyer has actual knowledge of a subsequent transaction. Further, courts may be more inclined to impose a greater level of implied knowledge in situations where the firm represents the client on an ongoing basis (e.g., high net-worth clients who require legal representation on a regular basis). In addition, courts in other jurisdictions could reach a result that is less favorable to estate planning lawyers. 4. Model Rule 1.4 and Dormant Representation Model Rule 1.4 provides that a lawyer must keep his or her clients reasonably informed about the status of a matter and promptly comply with reasonable requests for information and shall explain a matter to the extent reasonably necessary to permit the client to make informed decisions. The ACTEC Commentaries to Model Rule 1.4 introduced the concept of dormant representation as follows: The execution of estate planning documents and the completion of related matters, such as changes in beneficiary designations and the transfer of assets to the trustee of a trust, normally ends the period during which the estate planning lawyer actively represents an estate planning client. At that time, unless the representation is terminated by the lawyer or client, the representation becomes dormant, awaiting activation by the client.... Although the lawyer remains bound to the client by some obligations, including the duty of confidentiality, the lawyer s responsibilities are diminished by the completion of the active phase of the representation. As a service the lawyer may communicate periodically with the client regarding the desirability of reviewing his or her estate planning documents. Similarly, the lawyer may send the client an individual letter or a form letter, pamphlet, or brochure regarding changes in the law that might affect the client. In the absence of an agreement to the contrary, a lawyer is not obligated to send a reminder to a client whose representation is dormant or to advise a client of the effect that changes in the law or the client s circumstances might have on the client s legal affairs. (emphasis added). DB04/ /

17 The ACTEC Commentaries provide the following examples: Example 1.4-1: Lawyer (L) prepared and completed an estate plan for Client (C). L performed no other legal work for C in the following two years but has no reason to believe that C has engaged other estate planning counsel. L s representation of C is dormant. L may, but is not obligated to, communicate with C regarding changes in the law. If L communicates with C about changes in the law, but is not asked by C to perform any legal services, L s representation remains dormant. C is properly characterized as a client and not a former client for purposes of [Rules] 1.7 and 1.9. Example 1.4-2: Assume the same facts as in Example except that L s partner (P) in the two years following the preparation of the estate plan renders legal services to C in matters completely unrelated to estate planning, such as a criminal representation. L s representation of C with respect to estate planning matters remains dormant, subject to activation by C. Planning Point: For new clients, the issue should be resolved at the beginning of the representation. A lawyer should carefully set out his or her responsibilities in an engagement letter with respect to the actions to be taken by the lawyer and should also include what will not be required of the lawyer (e.g., the obligation to see that a trust is funded, assets properly transferred or designated beneficiary forms properly completed). The engagement letter should clarify whether the lawyer has a continuing duty to advise the client or to take other actions regarding subsequent changes in the law or other circumstances that may affect the client s estate plan. In addition, the lawyer might consider sending an exit letter to the client specifying that the engagement has been completed and that the lawyer assumes no obligation to inform the client of any changes in the law or otherwise that might require a reconsideration of the estate plan. 5. Newsletters Lawyers should be careful when sending out newsletters to clients advising them of changes in the law not to make any implication that the lawyer has assumed the obligation continually to update the client as to future changes in the law or that the lawyer has assumed any obligation to review any client s particular estate plan without first being contacted by the client. If the client has a reasonable belief that the representation has not ended, the lawyer may have a continuing duty to that client. 6. Creating a Duty to Provide Services The above discussion raises the issue of whether, through maintaining contact with a former estate planning client, e.g., by sending newsletters regarding recent developments in trusts and estates law, the lawyer may be suggesting to the client that the lawyer is undertaking a duty to inform the client of changes in the law that may affect the carrying out of the client s DB04/ /

18 intent. Obviously, with fundamental changes in the transfer tax law occurring in 2011 and 2013, if such a duty exists, lawyers would be carrying a heavy burden in consulting all their clients with estate plans that are affected by these changes. Under the ACTEC Commentaries, at least, no such duty arises. In the discussion of Model Rule 1.8, the Commentaries state that sending a client periodic letters encouraging the client to review the sufficiency of the client s estate plan or calling the client s attention to subsequent legal developments does not increase the lawyer s obligations to the client. 7. Effect of Provision That Limited Clients Ability To Amend Or Revoke Dunn v. Patterson, 919 N.E.2d 404 (Ill. App. November 18, 2009) Charles and Charlotte Dunn engaged an attorney named Lawrence F. Patterson to prepare an estate plan for them. Mr. Patterson prepared a joint trust as well as durable powers of attorney and living wills for each of them. The Dunns signed these documents on June 12, Each of these documents contained a qualified amendment and revocation provision, which provided that any amendment or revocation of the documents may only be executed with the written consent of Mr. Patterson or by order of the court. Mr. Patterson would later testify that he routinely inserts a qualified amendment and revocation provision in his clients estate planning documents to prevent his elderly clients from amending or revoking their estate planning documents while under undue influence or when lacking the ability to make reasonable decisions regarding estate planning matters. In November of 2006, the Dunns engaged a lawyer named Timothy J. McJoynt and requested, among other changes, to remove the requirement that Mr. Patterson must approve any revocation of or amendment to the estate planning documents. Mr. McJoynt then called Mr. Patterson to inform him of the Dunns wishes and to request his consent to these amendments. Mr. Patterson then requested a meeting with the Dunns to discuss this issue. The Dunns refused to meet with Mr. Patterson. On February 6, 2007, Mr. Patterson sent a letter to the Dunns requesting that they execute a formal notice of termination regarding his role in any amendment to or revocation of the Dunns estate planning documents. Mr. Patterson never received a response to this request. The Dunns then filed suit seeking a declaratory judgment against Patterson. Specifically, the Dunns sought a court order finding that the Dunns had the absolute authority to amend their estate planning documents and that Rule 1.2(a) of the Illinois Rules of Professional Conduct required Mr. Patterson to follow their directions. In another attempt to determine whether he should consent to the amendments, as part of this suit Mr. Patterson served a notice of discovery on the Dunns. Mr. Patterson never received a response from the Dunns regarding this notice either. The trial court found for the Dunns, holding that the qualified amendment and revocation provision was contrary to public policy and void because the provisions were contrary to Rule 1.2(a). Mr. Patterson appealed to the Illinois Appellate Court. DB04/ /

19 Rule 1.2(a) states, in pertinent part, that a lawyer shall abide by a client s decisions concerning the objectives of representation and, as required by Rule 1.4, shall consult with the client as to the means by which they are to be pursued. The Dunns argued that, pursuant to this Rule, an attorney must follow his or her client s directions as long as the directions given by the client are not contrary to law, unethical, unwise or in violation of an ethical or legal obligation. Mr. Patterson argued on appeal that the amendment and revocation provisions are a proper means for a grantor to limit his or her own future ability to amend or revoke the trust instrument. Mr. Patterson argued that the amendment and revocation provisions are merely third-party consent provisions, which are legal in Illinois. See RESTATEMENT (THIRD) OF TRUSTS, 63(1), cmt j. The Dunns responded by arguing that, relying on Rule 1.2(a), the limitations in the document are not permissible when the consent required is that of the drafting lawyer. The court, however, agreeing with Mr. Patterson, stated that giving a lawyer the authority to grant consent such as in this case is actually consistent with the fiduciary duty that a lawyer owes to a client. The Dunns relied on Sherman v. Klopfer, 336 N.E.2d 219 (1975), in which the court found that a lawyer who ran a business with his aunt and drafted various documents for her breached his fiduciary duty by failing to give the aunt sufficient control of the business so as to permit her to sell its assets and by refusing to consent to the sale of the business. The court in this case, however, distinguished Sherman by pointing out that the Sherman court came to its decision because the lawyer misled the aunt and the lawyer stood to gain from the provisions of the documents he drafted. Neither of these facts were present in this case. The court explained that [w]here, as here, the lawyer is given no financial stake in an estate by virtue of his capacity as a fiduciary, we see no reason why the family lawyer cannot act in such capacity simply because he is drafting a trust document. The court also believed that the amendment and revocation provisions are not inconsistent with the duty of a lawyer to follow his clients instructions under Rule 1.2, and that the Dunns executed the estate planning documents containing the amendment and revocation provisions with an understanding of these provisions. The court also believed that Mr. Patterson s refusal to consent to the Dunns changes to the estate planning documents was appropriate, stating that a meeting with the plaintiffs, at a minimum, was necessary so that Patterson could assess competency and any possible undue influence. E. Clients Under a Disability 1. General Ethical Standards (a) Model Rule Model Rule 1.14(a) makes it clear that the lawyer s duty to the client does not end simply because the client may be disabled. Specifically, the Model Rule provides that the lawyer should as far as reasonably possible, maintain a normal client-lawyer relationship with the client. This includes maintaining adequate communication with the client to determine the client s objectives and goals and the ways in which to achieve them. If the lawyer determines that a normal attorney-client relationship cannot be maintained, Model Rule 1.14(b) permits the lawyer to take steps to protect the client s interests. This may, DB04/ /

20 depending on the circumstances, include seeking guidance from medical diagnosticians or others to ascertain the client s mental state or petitioning a court for the appointment of a guardian. Model Rule 1.14, ABA Comments 5 & 6. (b) Revealing Confidences of a Disabled Client. Most state ethics opinions have espoused relaxing the confidentiality requirements of the lawyer if the lawyer determines it to be in the client s best interests. Various jurisdictions, however, have expressed different opinions as to the point at which the lawyer may reveal the confidence and to whom the confidence may be revealed. See Illinois State Bar Ass n, Op (2000) (lawyer may not reveal confidences to parent unless lawyer is of the opinion that the adult client is disabled to the extent a guardian should be appointed; however, lawyer may consult with physician); Oregon Op (1991) (lawyer authorized to disclose confidential communications to family members to avoid more extreme protective actions); Pa. Bar Ass n Comm. on Legal Ethics and Prof l Responsibility, Informal Op (1990) (confidentiality should be protected at least until the lawyer determines that it is necessary to seek appointment of a guardian). In 2002, the ABA added an additional paragraph to Model Rule 1.14 stating that [i]nformation relating to the representation of a client with diminished capacity is protected by Rule 1.6. When taking protective action pursuant to paragraph (b), the lawyer is impliedly authorized under Rule 1.6(a) to reveal information about the client, but only to the extent reasonably necessary to protect the client s interests. Model Rule 1.6 provides that: (a) (b) A lawyer shall not reveal information relating to the representation of a client unless the client gives informed consent, the disclosure is impliedly authorized in order to carry out the representation or the disclosure is permitted by paragraph (b). A lawyer may reveal information relating to the representation of a client to the extent the lawyer reasonably believes necessary: (1) to prevent reasonably certain death or substantial bodily harm; (2) to prevent the client from committing a crime or fraud that is reasonably certain to result in substantial injury to the financial interest 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; (4) to secure legal advice about the lawyer s compliance with these Rules; (5) to establish a claim or defense on behalf of the lawyer in a controversy between the lawyer and the client, to establish a defense to a criminal charge or civil claim against the lawyer based upon conduct in which the client was involved, or to DB04/ /