Ethical Considerations for the Estate Attorney Trusts and Estates Practice is Difficult to Categorize Clients are generally older, but many younger people are planning for retirement and family members. Clients often are concerned about family members and want you to plan for them, as well. Older clients may rely to heavily on their children leaving the lines blurred as to who represent Basic Ethical Issues and the "New Rules" New Rules of Professional Conduct were promulgated as Joint Rules of the Appellate Divisions of the Supreme Court, Effective April, 2009. 22 NYCRR Part 1200 The Appellate Division has not enacted the Preamble, Scope and Comments, which are published solely by the New York State Bar Association to provide guidance for attorneys in complying With the Rules. Where a conflict exists between a Rule and the Preamble, Scope or a Comment, the Rule controls. Preamble states: Some of the Rules are imperatives, cast in the terms "shall" or "shall not." These Rules define proper conduct for purposes of professional discipline. Others, generally, cast in the term "may" are permissive and define areas under the Rules in which the lawyer has discretion to exercise professional judgment. No disciplinary action should be taken when the lawyer chooses not to act or acts within the bounds of such discretion. 1
The Three Golden Rules Confidentiality of Information Diminished Capacity Conflict of Interest Confidentiality of Information, Rule 1.6 (a)a lawyer shall not knowingly reveal confidential information, as defined in this Rule, or use such information to the disadvantage of a client or for the advantage of the lawyer or a third person, unless: (1) the client gives informed consent as defined in Rule 1.00); (2) the disclosure is impliedly authorized to advance the best interests of the client and is either reasonable under the circumstances or customary in the professional community; or (3) the disclosure is permitted by paragraph (b). "Confidential information" consists of information gained during or relating to the representation of a client, whatever its source, that is (a) protected by the attorney-client privilege, (b) likely to be embarrassing or detrimental to the client if disclosed, or (c) information that the client has requested be kept confidential. Confidentiality of Information, Exceptions: To prevent reasonably certain death of substantial bodily harm; To prevent the client from committing a crime; To withdraw a previous opinion relied upon by a 3rd party, or being used to commit crime or fraud; To secure advice about compliance with these rules; To defend the lawyer, or collect a fee. 2
Confidentiality Rule Assumes: Competent client Ability and desire to participate in the Attorney-Client Relationship Ability to communicate instructions to attorney Diminished Capacity: Old Rule If lawyer is compelled in court proceeding to make a decision on behalf of the client, he/ she should take care to "safeguard and advance interests of client." Obtain from client all possible aid. BUT lawyer cannot "perform any act or make any decision which the law requires the client perform or make." Silent on confidentiality. New Rule Model Rules of Professional Conduct 1.14: When a client's capacity to make adequately considered decisions in connection with a representative is diminished, whether because of minority, mental impairment or for some other reason, the lawyer shall, as far as reasonably possible, maintain a conventional relationship with the client. When the lawyer reasonably believes that the client has diminished capacity, is at risk of substantial physical, financial or other harm unless action is taken and cannot adequately act in the client's own interest, the lawyer may take reasonably necessary protective action, including consulting with individuals or entities that have the ability to take action to protect the client and, in appropriate cases, seeking the appointment of a guardian ad litem, conservator or guardian. Information 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 3
information about the client, but only to the extent reasonably necessary to protect the client's interests. New rule differs from old rule. Requires risk and substantiality of harm- old rule required only that the client be "under a disability" and "incapable of making a considered judgment." Gives examples of actions the lawyer may take called "protective action." Specifically allows the lawyer to reveal confidential information, but only to the extent reasonably necessary to protect the client's interest. ABA Informal Opinion 89-1530 Discusses both diminished capacity and confidential information. A lawyer may consult with a client's physician concerning a medical condition which interferes with the client's ability to communicate, or make decisions concerning the representation, even though the client has not consented and is currently incapable of doing so. The committee found that Rule 1.14, which allows the attorney to take protective action when he/she reasonably believes that the client has diminished capacity and is at risk of substantial physical, financial or other harm, implies authority to disclose confidential information. Interestingly, the committee uses the "best interests of the client" standard. Committee reasoned that since the lawyer is specifically permitted to consult with other professionals to make a determination on the presence of diminished capacity disclosure is allowable. Any other conclusion would require attorney to stand by helplessly while the client suffers harm, which is "unacceptable" Conflict of Interest: Current Clients, Rule 1.7 (a) Except as provided in paragraph (b), a lawyer shall not represent a client if a reasonable lawyer would conclude that either: 4
(1) the representation will involve the lawyer in representing differing interests; or (2) there is a significant risk that the lawyer's professional judgment on behalf or a client will be adversely affected by the lawyer's own financial business, property or other personal interests. (b) Notwithstanding the existence of a concurrent conflict of interest under paragraph (1), a lawyer may represent a client if: (1) The lawyer reasonably believes 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 ligation or other proceeding before a tribunal and (4) Each affected client gives informed consent, confirmed in writing. Where to go for Guidance Practitioners seeking guidance can go to the New York State Bar Association Committee on Professional Ethics. www.nysba.org and click on Information for Attorneys. However New York only adopted the ABA model rules as of April, 2009, therefore not many opinions to date. ABA also issues informal opinions ABA Commission on Ethics and Professional Responsibility. ABA Comm. on Law & Aging & Am. Psychological Assn., Assessment of Older Adults with Diminished Capacity: A Handbook for Lawyers (2005)., available at http: // www.apa.org/pi/aging/resources/guides/diminished.-capacity.pdf. Many more opinions available 5
Practical Suggestions Those with diminished capacity may still be able to participate and make decisions. Older clients require more time. Watch for potential for elder abuse. Interview client alone at least once. Get as much information as early in the process. Be aware or age-related sensory losses. Prepare final/termination letter. Fiduciaries Multiple Fiduciaries A. EPTL 10-10.7: a joint power conferred on 3 or more fiduciaries may be exercised by a majority of such fiduciaries Instrument can provide otherwise. Even number of fiduciaries can create deadlock. One resolution is to have the Court appoint an additional fiduciary with limited authority to vote in the event of deadlock. In more severe cases, removal of fiduciaries and appointment of the Public Administrator or person or corporation as fiduciary may be warranted. Fiduciary who is disabled, absent or dissents promptly in writing shall not be liable for consequences of any decisions of the majority, provided, liability for failure to join in administering the estate or trust or to prevent a breach of the trust may not thus be avoided. The written notice of dissent does not eliminate the dissenting fiduciary s duty to the beneficiaries. Therefore, if proposed conduct appears to be a breach, fraudulent or negligent, the dissenting fiduciary should take affirmative action and seek direction from the Court. Otherwise, she may be liable. 6
Case law provides that the majority of fiduciaries may not disregard minority. Joint meetings and consultation with minority is required. In Re Martin, 29 Misc.2d 271 (Surr. Ct., Kings Co. 1961). Examples joint powers: investment decisions, discretionary distributions, sale of real property, tax elections. Several powers may still be exercised by one fiduciary. Several powers are those that are purely ministerial in nature and do not involve the exercise of discretion. Examples: collecting assets, paying debts, compromising a claim, paying of funeral expenses. (Note, practically speaking third party may not act without seeing Letters and requiring majority to act or an opinion from counsel.) B. Attorney has equal duty of loyalty to each client and therefore each client has the right to be advised of anything bearing on the representation. Therefore, consent to multiple representations should include agreement that information will be shared and attorney will need to withdraw if one client decides that some material matter should be kept from others. C. General rule is that each fiduciary has the right to retain counsel and obtain reimbursement for reasonable attorneys fees. (EPTL 11-1.1(b). If attorneys are representing different fiduciaries, they should agree upon a division of services, division of fees and have regular meetings. If accommodation cannot be reached, seek redress with the Court under SCPA 2102(6). This provision requires a fiduciary to comply with such directions as the Court may make whenever two or more fiduciaries disagree with respect to any issue affecting the estate. D. In addition to waiver of conflict required under Rule 1.7 (below) consider: Advising of right to separate counsel. A provision stating that in the event disqualified, if Court does not allow attorneys fees to be paid from the estate/trust, the clients, individually, will be responsible. A provision stating that the clients waive any future claims of conflicts of interest and that allows the attorney to defend the fiduciary against any claims that a client might bring individually. Describing the risks and advantages of multiple representations. 7
A provision explaining that the attorney client privilege will generally not apply as between the multiple clients. Successor Fiduciaries Rule 1.9 provides that an attorney who has formerly represented a client in a matter shall not thereafter represent another person in the same or 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 in writing. Conflict of Interest A. Rule 1.7 permits representation of multiple clients or clients with differing interests if: The attorney reasonably believes that she will be able to provide competent and diligent representation to each affected client; The representation is not prohibited by law; The representation does not involve the assertion of a claim by one client against another client represented by the attorney in the same litigation or other proceeding before a tribunal; Each affected client gives informed consent in writing. B. The reasonableness standard in the context of conflicts of interest: a lawyer acting from the perspective of a reasonable prudent and competent lawyer who is personally disinterested in commencing or continuing the representation. C. Waiver of a conflict of interest when the client gives informed consent an agreement by a person to a proposed course of conduct after the lawyer has communicated information adequate for the person to make an informed decision and after the lawyer has adequately explained to the person the material risks of the proposed conduct and reasonably available alternatives. D. Conflicts Arising During Representation. Frequently, conflicts arise during representation. The attorney must be ever vigilant in identifying the conflicts. 8
Once identified, the attorney must either obtain a waiver, if appropriate and clients are willing, or withdraw. If before a Court, must first get the Court s permission to withdraw. Rule 1.16. Waiving a future conflict is subject to meeting the conditions set forth in Rule 1.7 and the effectiveness of an advance waiver is generally determined by the extent to which the client reasonably understands the material risks that the waiver entails. How to Educate the Fiduciary Client on the Legal Process A. Advise of Fiduciary Duties/Responsibilities: loyalty to beneficiaries (no selfdealing, no commingling); disclosure/account; marshal assets; invest/liquidate; follow intent of testator/grantor; pay debts; file tax returns and pays taxes; distribute. B. Outline specific administration responsibilities and timeline. Summarize in writing. C. Determine specifically what the client is responsible to handle and what the attorney is responsible to handle. D. Regular communication with client. E. Steps to be Taken if Non Cooperation by the Client. 1. Letter to client regarding what is necessary for client to carry out her duties to beneficiaries and date certain by which attorney requires response. 2. Advise if client fails to respond and cooperate, attorney will petition Court for withdrawal. 3. Rule 1.16 sets forth circumstances when an attorney may withdraw, including, when: The client insists upon taking action with which the lawyer has a fundamental disagreement. The client deliberately disregards an agreement or obligation to the lawyer as to expenses or fees, 9
The client insists upon presenting a claim or defense that is not warranted under existing law and cannot be supported by good faith argument for an extension, modification or reversal of existing law, The client fails to cooperate in the representation or otherwise renders the representation unreasonably difficult for the lawyer to carry out employment effectively, the lawyer believes in good faith, in a matter pending before a tribunal, that the tribunal will find the existence of other good cause for withdrawal. F. Steps to be taken if there is Belief of Wrongdoing by Fiduciary/Client. 1. Rule 1.16 provides circumstances under which an attorney must decline representation or withdraw. Comment [2] provides that an attorney must decline or withdraw under such circumstances if the client demands that the lawyer engage in conduct that is illegal or that violates the Rules or other laws. Mere suggestion by the client does not require an attorney to decline or withdraw. 2. If fiduciary plans to breach her fiduciary duty, the attorney must call upon the fiduciary to act as her fiduciary obligation requires her to, decline to assist in the misconduct in any way, and to consider whether the attorney is permitted or required to withdraw if the fiduciary does not agree to act properly. Further, the attorney has a duty not to assist in any conduct or communication which misstates any facts or circumstances. See NYSBA Opinion #477, decided under prior Code. 3. Generally, an attorney cannot disclose confidential information of a client. Rule 1.6 (b) sets forth circumstances under which an attorney may reveal confidential information: To prevent reasonably certain death or substantial bodily harm, To prevent the client from committing a crime, To withdraw a written or oral opinion or representation previously given and believed by the attorney still to be relied upon where the attorney has discovered that the opinion or representation was based on materially inaccurate information or is being used to further a crime or fraud, 10
To secure legal advise about compliance with the Rules or other law, To defend the attorney, attorney s employees and associates against an accusation of wrongful conduct or to collect a fee, When permitted or required under the Rules or to comply with law. CPLR 321 Application for Fiduciary to Withdraw. A. Attorney can withdraw upon a showing of good and sufficient cause and reasonable notice. See Rule 1.16 above. B. CPLR 321 provides that: 1. An attorney of record may be changed by filing with the clerk a consent to change signed by the retiring attorney and signed and acknowledged by the client. Notice of the change must be given to the attorneys for all parties involved or the parties if not represented. 2. An attorney may petition the Court to withdraw upon notice to the client(s), to the attorneys of all other parties or a party if not represented and to such other persons as the Court directs. C. If fee being set as part of the petition to withdraw, persons who are interested parties in an accounting proceeding must be noticed. 1. Part 137 of the Rules of the Chief Administrator of the Courts, Fee Dispute Resolution Program, applies to any civil matter. 2. Section 137.2(a) provides that in a fee dispute between an attorney and client, the client may seek resolution by arbitration. Arbitration is mandatory for an attorney if sought by a client. 3. Section 137.6(a)(1) provides that where the attorney and client do not agree about a fee requested by the attorney, the attorney shall forward a written notice to the client entitled Notice of Client s Right to Arbitrate, by certified mail or by personal service. (See Part 137 for details regarding compliance with the Rule; see Estate of Rose Markel, Surr. Ct., Erie Co., April 12, 2011, Howe, J., File No. 2008-1182, attached). D. Providing evidence of good and sufficient cause may violate duty of confidentiality to client. Comment [3] to Rule 1.16 indicates that a statement by an attorney that professional considerations require termination of representation ordinarily should be accepted as sufficient. 11
E. Attorney has a continued obligation to a former client to hold information confidential. Letters of Engagement A. Part 1215 to Title 22 of the Official Compilations of Codes, Rules and Regulations of the State of New York, Written Letter of Engagement, was added effective March 4, 2002. B. An attorney who undertakes to represent a client and enters into an arrangement for charges or collection of a fee shall provide the client a written letter of engagement. C. The letter of engagement shall address the following: 1. Explanation of the scope of the legal services to be provided; 2. Explanation of attorney s fees to be charged, expenses and billing practices; 3. Where applicable, shall provide that the client may have a right to arbitrate under Part 137 of the Rules of the Chief Administrator. D. The letter of engagement must be done prior to commencing the representation or within a reasonable time thereafter if otherwise impracticable or if the scope of services to be provided cannot be determined at the time of the commencement or representation. E. Where there is a significant change in the scope of services or the fee to be charged, an updated letter of engagement shall be provided to the client. F. Exceptions to requirement of an engagement letter: fee is expected to be less than $3,000; attorney s services are of the same general kind as previously rendered to and paid for by the client; domestic relations matter (see Part 1400); representation by non New York attorney with no office in New York or no material portion of services are rendered in New York. G. Termination Letter/Continuing Duty 12