Ethical Dilemmas Inherent in a Trusts and Estates Practice
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ETHICAL DILEMMAS INHERENT IN A TRUSTS AND ESTATES PRACTICE VICTORIA L. D'ANGELO, ESQ. BARCLAY DAMON, LLP Clarence, NY 363 364 ETHICAL DILEMMAS INHERENT IN A TRUSTS AND ESTATES PRACTICE I. BRIEF INTRODUCTION A. STANDARD OF CARE 1. The New York Rules of Professional Conduct, effective April 1, 2009, were a combination of the ABA Model Rules and the New York “prior” Lawyer’s Code of Professional Responsibility. The new rules have been amended several times since then, the last time on March 28, 2015. 2. New York State Bar Association Committee on Professional Ethics renders opinions periodically. 3. Various Courts render ethics decisions. II. FIDUCIARY-CLIENT RELATIONSHIP A. WHOM DO YOU REPRESENT? 1. Fiduciaries of the estate vs. the estate An attorney may say he or she represents the estate, but what he or she really means is he or she represents the fiduciaries of the estate. An estate cannot retain an attorney or make decisions for itself, only the fiduciaries of the estate can. (Ordover and Gibbs, Fiduciaries, Attorneys and Duty to Beneficiaries, N.Y. L. J., Feb. 25, 1999, p.3.) 2. Conflicts of interest There is no rule, ethical or otherwise that prevents a lawyer from representing an executor who has a potentially adverse individual interest against the estate. In re Dix, 11 A.D.2d 555, 199 N.Y.S.2d 958 (3d Dep't 1960): Appellate Division, Third Department, denied a motion to disqualify an attorney based on the potential of a conflict of interest. - 2 - 11782093.1 365 Representation when there is an actual conflict of interest is not advisable, or ethical, without full disclosure and a waiver. A client can waive his or her right to conflict-free representation in writing after full disclosure of the risks and benefits. Conflicts extends to partners and associates of the primary attorney. Avoid any appearance of “turncoat representation” (representing the other side - other executor or beneficiary.) A lawyer should avoid even the appearance of impropriety B. FIDUCIARY EXCEPTION TO THE ATTORNEY/CLIENT PRIVILEGE 1. Attorney client privilege, under CPLR §4503, deems communications between an attorney and his or her client as confidential unless it falls under very specific exceptions. These exceptions include communications made in the presence of a third party, communications that do not pertain to legal representation, the underlying factual situation, the existence of a retainer agreement or any communications in which privilege has been waived. 2. In 2002, CPLR §4503 was amended to add that a beneficiary shall not be treated as a client of the attorney for the fiduciary solely by reason of his or her status as a beneficiary. It also was amended to provide that there is no waiver of the privilege for confidential communications between the attorney and fiduciary. 3. Under CPLR §4503 (b), in a probate action, an attorney shall disclose information as to preparation, execution and revocation of any Will, but not privileged information that would disgrace the memory of the decedent. 4. The fiduciary exception to an attorney client privilege allows communications by a fiduciary to his or her attorney which are sought by a beneficiary. This exception has been enforced because of the fiduciary's obligation to disclose information about the administration of an estate or trust. 5. Rule 1.6(a) further protects the attorney-client privilege by prohibiting the revelation of client confidence or the use of that confidence against the client unless the client has given consent after full disclosure or unless the attorney is bound by law, court order or professional code. This includes confidences related to a client's intent to commit a crime (Matter of King, - 3 - 11782093.1 366 NYLJ, 9/25/97 at 33, col 6 [Surr. Ct. Westchester Co.]) or perpetrate a fraud or confidences necessary to exonerate an attorney from accusations of wrongdoing or to collect attorney's fees. A lawyer may reveal: (a) Confidences or secrets with the consent of the client or clients affected, but only after full disclosure to them. (b) Confidences or secrets when permitted under Disciplinary Rules or required by law or court. (c) The intention of a client to commit a crime and information necessary to prevent the crime. (d) Confidences and secrets necessary to establish or collect the lawyer's fee or to defend the lawyer or his or her employees or associates against an accusation of wrongful conduct. 6. In relation to our chosen field, privilege survives our clients and not even an Executor can waive it unless the confidences can effectuate the decedent's intentions. No disclosure should be made which would “disgrace the memory of the decedent”. C. DISPOSITION OF ORIGINAL WILLS ON DEATH, DISABILITY OR RETIREMENT OF THE ATTORNEY 1. Status quo Currently, there is no universal standard of care for the disposition of original wills maintained by attorneys who are, for one reason or another, no longer in practice. Some are handled with care and passed on to another attorney to be kept safe from fire and mildew. Others are pitched into a dark, damp basement to be forgotten for years. A proceeding to admit a lost Will to probate should be avoided since it is not only costly and an embarrassment to the attorney, but has unethical trappings. 2. Proposed suggestions At the top of the list was the suggestion to amend the Rules of Professional Conduct to require all attorneys who possess the original wills of clients to make provisions for those documents after they discontinue their practice. - 4 - 11782093.1 367 Also suggested was passing a statute or issuing a court order to require the fiduciary of a deceased lawyer's estate to make a reasonable effort to return any original wills in the estate's possession to the clients. The Executive Committee has suggested depositing the remaining wills with the Surrogate's Court in the county in which the attorney maintained his or her practice. This of course, is to be avoided as a primary option to prevent an overflow of wills being filed for safekeeping. Many counties are already running out of room and some charge for such storage. III. MULTIPLE FIDUCIARIES A. ADVANTAGES OF MULTIPLE REPRESENTATION 1. The estate and the beneficiaries are frequently part of a single family and have common goals and priorities. 2. Financially, the estate is only responsible for one reasonable legal fee and using a single attorney may help lessen the estate expenses. B. ATTORNEY MUST HAVE UNDIVIDED LOYALTY 1. Rule 1.7 provides that a lawyer shall not represent a client if “the representation will involve the lawyer in representing differing interests” or if there is a “significant risk that the lawyer’s professional judgment on behalf of a client will be adversely affected by the lawyer’s own financial, business, property or other personal interests.” The lawyer may represent a client if he or she will be able to “provide competent and diligent representation to each affected client,” or the clients have given informed written consent. 2. Aim for conflict-free representation to insure loyalty and if each fiduciary wants or needs his or her own attorney, that is fine. C. ATTORNEY AS INTERMEDIARY 1. Clients with potentially conflicting interests in an estate may seek an attorney to act as an intermediary to preserve their more important common goals. 2. According to the American College of Trust and Estate Counsel, “A lawyer may act as an intermediary between clients if (1) the lawyer consults with each client concerning the implications of the common representation, including the advantages and risks involved, and obtains - 5 - 11782093.1 368 each client's consent to the common representation (2) the lawyer reasonably believes that the matter can be resolved on terms compatible with the clients' best interests, that each client will be able to make adequately informed decisions in the matter and that there is little risk of material prejudice to the interests of any of the clients if the contemplated resolution is unsuccessful (3) the lawyer reasonably believes that the common representation can be undertaken impartially and without improper effect on other responsibilities the lawyer has to any of the clients.” 3. As the acting intermediary, the lawyer has a responsibility to consult with each client regarding the decisions to be made to prevent uninformed decisions. D. MATTER OF SACKLER 1. In re Sackler, N.Y.L.J., May 16, 1989 (Sur. Ct. Nassau Co.) - In his last will and testament, Dr. Arthur M. Sackler named his third wife, his four children, his first wife and his attorney as co-executors. Each had their own attorney and the group decided to retain a “general counsel” to represent them all. The firm of the general counsel had each executor sign a written agreement that the firm would not face a conflict in defending the estate's position and representing other executors in any claim a co-executor brought against the estate in an individual capacity. 2. Clients may waive their right to conflict-free representation upon full disclosure. 3. A firm may apply to the Surrogate for advice and direction E. FORCED WITHDRAWAL 1. A lawyer should withdraw if any of the clients request it or if he or she cannot carry out his or her legal duty. Upon such withdrawal, the lawyer should not continue to represent any involved client in relation to the matter at hand. F. REFERENCE ARTICLES 1. Two excellent articles titled “Estates with Multiple Fiduciaries Pose Ethical and Practical Issues For Attorneys and Clients Alike” and “Early Detection of Possible Pitfalls In Fiduciary Obligations Can Prevent Later Problems” were written by John R.