WHO IS THE FIDUCIARY?1

© 2014 Anthony L. Barney, Ltd. All Rights Reserved. A. PERSONAL REPRESENTATIVES, TRUSTEES, AND TRUST OFFICERS: POWERS AND DUTIES

1. Duties of a Personal Representative

A personal representative is appointed by the court to care for the estate of the deceased. An individual can name a personal representative through a testamentary instrument; however, the personal representative has no powers prior to being appointed by the court.2 The statutory fiduciary duties of a personal representative include: (a) the duty to take possession of the estate and collect debts;3 (b) the duty to use reasonable diligence;4 (c) the duty to close the estate within eighteen (18) months;5 and (d) the duty to submit periodic accountings to the court.6 Additionally, a personal representative owes a general duty to the beneficiaries of the estate and the court may order the personal representative to perform other specific duties.7 The personal representative must be diligent in administering the estate. In some cases this may include pursuing an action against one or more of the beneficiaries. It is important that the personal representative understand what is expected in their role. The personal representative should also be aware of potential issues that will affect the distribution of the estate. For example, transfers are void if made as the product of duress or undue influence.8 There are a few situations where the transfer itself is sufficient to presume that it was the product of duress or undue influence. These situations include transfers to a caregiver or a person who paid for the transfer instrument.9 Absent a presumption, undue influence is shown when it appears that the influence destroyed the will of the testator.10 As part of the duty to use reasonable diligence the personal representative should be aware of the presumptions of undue influence and should, were applicable, be aware of the circumstances that give rise to such a claim. The main statutory duties of administration include, but are not limited to the following: a. Marshal Assets and Provide Inventory The personal representative should collect the assets of the estate, including real property, cash, and personal property. When applicable, liquid assets should be placed in a blocked account and the personal representative should take other necessary precautions to prevent any

1 The author wishes to give special thanks to his law clerks, Zachary D. Holyoak and Mary L. Martell, for their assistance in his preparation of this outline. 2 NRS 138.010. 3 NRS 143.030. 4 NRS 143.035. 5 NRS 143.037. 6 NRS 150.080-150.115. 7 NRS 143.050. 8 NRS 155.097. 9 NRS 155.097(2). 10 Caraveo v. Perez (In re Estate of Bethurem),313 P.3d 237 (Nev.2013)

1 loss or destruction of estate assets.11 As part of the duty to take possession of the estate the personal representative may have to pursue legal action against anyone who is in possession of estate assets.12 As part of the duty to marshal assets the personal representative must file an inventory with the court within sixty days after appointment.13 The inventory must include the entire estate of the decedent14 and must contain a list of all real and personal property of the decedent.15 The inventory must also contain a statement of all debts owed to the decedent or other interests of the decedent.16 This should include the names of each debtor, the original sum owed, and the sum, which the appraiser believes may be collectible on each debt.17 Additionally, the inventory must identify debts owed by the decedent.18 The inventory should also identify any portion of the estate that is community property.19 Finally, the inventory must provide an account of all money belonging to the decedent that has come into the possession of the personal representative.20

b. Provide Accounting The personal representative is accountable for all the assets of the estate that come into his possession.21 The personal representative is also required to file an accounting of the estate within six months of being appointed.22 The personal representative is then required to provide an annual accounting as well as a final accounting when closing the estate.23 This provides the beneficiaries with information about assets and the handling of those assets. It also provides the court with a chance to review the actions of the personal representative to encourage the proper management of the estate. This is an important duty of the personal representative in that it requires the personal representative to perform their requisite duties with diligence, and subsequently report to the court. c. Timely Administration and Closure Unless otherwise ordered by the court, the personal representative has the duty to close the estate within eighteen (18) months.24 The personal representative may petition the court for the estate to remain open if there is a will contest or other litigation by or against the estate, or if the amount of taxes owed have not yet been determined.25 The court may also order that a portion of the estate remain open in order to cover any potential liabilities and that the rest be distributed.26

11 NRS 142.020. 12 NRS 143.060; NRS 143.070. 13 NRS 144.010. 14 NRS 144.040.1 15 NRS 144.040.2(a). 16 NRS 144.040.2(b). 17 Id. 18 NRS 144.040.2(c). 19 NRS 144.040.3(a). 20 NRS 144.040.3(b). 21 NRS 150.070.1. 22 NRS 150.080. 23 NRS 150.105. 24 NRS 143.037.1. 25 NRS 143.037.2. 26 NRS 143.037.3.

2 d. Additional Non-Probate Administrative Duties Finally, there may be reasons other than the administration of an estate that would require the appointment of a personal representative.27 The court may require the personal representative to perform additional non-probate administrative duties depending on the circumstances. For example, if the decedent owned and ran a business the court may order that the personal representative take over the operation of the business to protect and preserve that asset. There are special circumstances where the court will appoint a personal representative for other reasons. These circumstances may include a situation when a decedent is either involved in a legal proceeding or such a proceeding is pending. In order for the legal action to continue or be commenced, a personal representative is appointed to act on behalf of the deceased. This scenario is illustrated in Brass v. State.28 In Brass, the appellant was convicted of multiple felonies. He died during the pendency of his appeal. The decedent’s attorney filed a motion for abatement. The Supreme Court of Nevada found that the issue was not properly before the court because no one had been substituted as a real party in interest for the deceased. Unless a personal representative is appointed, a legal action involving a deceased party generally cannot proceed. 2. Powers of the Personal Representative The statutory powers of the personal representative include: (a) the power to sue or be sued on behalf of the deceased;29 (b) the power to make certain investments;30 (c) the power to make loans;31 (d) the power to hold stock in the name of the nominee;32 and (e) the power to direct termination of certain electronic accounts.33 (f) Additionally, the personal representative has the power to maintain or commence a cause of action against any person for conversion or trespass.34 a. Power Sue or Defend Suit The personal representative is granted the power to sue on behalf of the deceased or to defend against a suit against the deceased. This power allows a personal representative to seek the best interests of the beneficiaries of the estate. It allows a personal representative to defend the decedent’s estate against claims that could deplete it; and also gives the personal representative the ability to initiate or proceed with legal actions that benefit the decedent’s

27 NRS 143.050 (The court may authorize the personal representative to continue the operation of the decedent’s business to such an extent and subject to such restrictions as may seem to the court to be for the best interest of the estate and any interested persons.) See also NRS 143.060 (Personal representative is the real party in interest for the estate of the decedent. Actions for the recovery of any property, real or personal, or for the possession thereof, or to quiet title thereto, or to determine any adverse claim thereon, and all actions founded upon contracts, may be maintained by and against a personal representative in all cases in which the actions might have been maintained by or against the decedent); See also NRS § 143.070 (A personal representative may commence or maintain an action against any person who has wasted, destroyed, taken, carried away or converted the goods of the decedent. A personal representative may also commence or maintain an action for trespass committed on the real property of the decedent while living). 28 Brass v. State, 306 P.3d 393 (Nev. 2013). 29 NRS § 143.060. 30 NRS § 143.175. 31 NRS § 143.180. 32 NRS § 143.187. 33 NRS § 143.188. 34 NRS § 143.070; See also NRS §143.080(The personal representative can also be sued as the real party in interest for conversion).

3 estate. A personal representative can be appointed for the sole purpose of litigating a cause of action. For example, in Nevada Paving v. Callahan the Supreme Court of Nevada found that the appointment of a personal representative to pursue a wrongful death action was proper, even without any assets to open an estate.35 b. Power To Make Certain Investments The power to make certain investments is defined under two separate categories. First, investments that can be made only after court approval, and second, investments that can be made without court approval. After court approval the personal representative may invest the property of the estate by making loans or accepting security for the property, or exercise options of the estate to purchase property or securities.36 Without court approval the personal representative may invest in: savings account if the account is insured by the FDIC or NCUA or another private insurer; interest bearing instruments that represent obligations of or fully guaranteed by the United States.37 The personal representative may also invest in farm loan bonds.38 c. Power to Make Loans The personal representative has the power to make certain loans with the assets of the estate. These loans include loans that are eligible to be, and are insured by the Federal Housing Administrator.39 This includes making loans that are secured by a mortgage and purchasing notes insured by the FHA.40 This power is limited to loans that are insured by the FHA.41 The limitation protects the estate from loss by prohibiting high-risk loans and by requiring FHA insurance for the loans that are made. d. Power to Hold Stock in the Name of the Nominee The personal representative has the power to hold stock in the name of a nominee.42 Holding stock in the name of a nominee relieves the stockholder of the burden of holding stock certificates in his own name. It also provides anonymity because the stock is actually held in a different name.43 This provides the same convenience and anonymity for the personal representative that is afforded to normal stockholders. The statute allows this only if certain conditions are met. First, the records, reports, and accountings of the personal representative clearly show the holding of the stock and the facts surrounding it. Second, the nominee deposits a signed statement with the personal representative showing the true interest of the stock. Essentially, the personal representative needs written proof to show that the true interest of the stock is in the estate. Inseparable from this power is the fact that the personal representative is personally liable to the estate for any loss based on this type of arrangement.44

35 Nevada Paving v. Callahan, 83 Nev. 208,427 P.2d 383, (Nev.1967) 36 NRS § 143.175.1 37 NRS § 143.175.2 38 NRS § 143.185 39 NRS § 143.180.1(a) 40 NRS § 143.180.1(b-c) 41 NRS § 143.180 42 NRS § 143.187 43 “Rule 14b-2: Does it Actually Lead to the Prompt Forwarding of Communications to Beneficial Owners of Securities?,”23 Iowa J. Corp. L. 155 44 NRS § 143.187.2

4 e. Power to Direct Termination of Certain Electronic Accounts The personal representative has the power to cancel the deceased’s electronic account with any: social networking internet sites; web log internet sites; microblog service internet websites; short message internet websites; email service internet websites; or other similar services.45 The personal representative cannot however unilaterally cancel any financial account of the deceased without court approval.46 This allows the personal representative to remediate any issues regarding the deceased’s internet accounts that are not financial in nature. f. Power to Maintain or Pursue Cause of Action for Conversion or Trespass The personal representative can maintain or pursue a cause of action against any party who has converted estate property or who has trespassed on estate property.47 The statute requires that any judgment for the recovery of the property must be for treble damages.48 The power to initiate or maintain a cause of action is not limited to property taken after the death of the testator; but encompasses conversion prior to the death of the testator. If by fraud or some other method a person has converted what would otherwise be estate property prior to the testator’s death, the personal representative may initiate a cause of action against that person as well.

3. Trustee and Trust Officers The fiduciary duties of a trustee are commonly divided into eight categories, which categories themselves encompass additional duties. Those categories are: (a) the duty to administer the trust in accordance with its terms and applicable law;49 (b) the duty of prudence;50 (c) the duty to act personally, and the related duties with respect to delegation;51 (d) the duty of loyalty;52 (e) the duty of impartiality;53 (f) the duty to furnish information to beneficiaries;54 (g) the duty to keep records and provide reports;55 and (h) the duty to segregate and identify trust property.56 These duties are not mutually exclusive, and overlap with each other so as to strengthen the individual responsibilities each trustee owes to the beneficiaries.57 a. Duties in Administering the Trust The trustee’s general responsibilities in administering a trust include, but are not limited to: “(a) ascertaining the duties and powers of the trusteeship, and identity of the beneficiaries and purposes of the trust; (b) collecting and protecting trust property; (c) managing the trust estate to provide returns or other benefits from trust property; and (d) applying or distributing trust

45 NRS § 143.188 46 NRS § 143.188.2 47 NRS § 143.070 48 NRS § 143.120.3 49 RESTATEMENT (THIRD) OF TRUSTS § 76 (2007). 50 Id. § 77. 51 Id. § 80. 52 Id. § 78. 53 Id. § 79. 54 Id. § 82. 55 Id. § 83. 56 Id. § 84. 57 NRS § 163.260 (Incorporation of the powers contained in NRS 163.265 to 163.410, inclusive, must be in addition to and not in limitation of the common-law or statutory powers of the fiduciary.)

5 income and principal during the administration of the trust and upon its termination.”58 Other duties encompassed within the scope of these broader duties are: (1) creating an inventory of the settlor’s estate; (2) filing and providing the beneficiaries with annual and final inventories; (3) keeping accurate records; (4) filing estate and final income taxes; and (5) distributing trust assets to beneficiaries and creditors of the settlor’s estate.59 Although a trustee can be held liable for failure to comply with any one of these duties, the overriding duties with which a trustee must comport are managing and administering the trust with care and skill and ensuring that he or she remains loyal to the trust beneficiaries in acting for their benefit. b. Duty of Prudence In administering a trust, the trustee has a duty to act as a prudent person, in light of the circumstances, purposes, and terms of the trust.60 Prudence means that the trustee must exercise reasonable care, skill, and caution in administering the affairs of the trust.61 However, where the trustee has advanced skills as compared to an ordinary trustee, the trustee must utilize those skills in the exercise of his or her fiduciary role.62 The care and skill requirements of the trustee are generally not onerous; and thus, they do not disqualify most settlors’ friends and family members from acting as trustee. The care requirement requires that the trustee exercise reasonable effort and diligence in performing the functions of the trustee, always keeping in mind the objectives of the trust and the interests of the beneficiaries.63 As to the trustee’s skill, the trustee must maintain the skills of a person of ordinary intelligence.64 In addition to care and skill, the trustee must exercise caution in administering the trust over which he or she is a fiduciary. Although the trustee is not required to avoid all risks, he or she must exercise caution reasonably appropriate to the circumstances of the trust.65 c. Duties with Respect to Delegation While the care and skill requirements do not prevent most individuals from serving as trustee, certain aspects of trust administration require more skill and expertise than the average person possesses. The Restatement (Third) of Trusts points out that maintaining the necessary skills to administer a trust, and providing the proper level of care to the beneficiaries and the trust or estate generally, often requires advice and assistance from outside sources.66 But, it must be remembered that a trustee is generally prohibited from delegating the balance of his or her responsibilities.67 For example, the California Probate Code states: “The trustee has a duty not to

58 Id. 59 See generally Layne T. Rushforth, Your Duties as Trustee for a Living Settlor: Guidelines for Trust Administration, March 22, 2008, http://rushforth.net/pdf/trustee.incapacity.pdf. 60 RESTATEMENT (THIRD) OF TRUSTS § 77 (2007). 61 Id. 62 Id. 63 Id. § 77 cmt. b. 64 Id. 65 Id. 66 Id. 67 See Meck v. Behrens, 252 P. 91, 94-96 (Wash. 1927) (“It is a general rule that a trustee in whom there is vested discretionary powers involving personal confidence cannot delegate his powers and shift his responsibility to other

6 delegate to others the performance of acts that the trustee can reasonably be required personally to perform and may not transfer the office of trustee to another person nor delegate the entire administration of the trust to a co-trustee or other person.”68 Where, however, the administration of a trust requires additional skills beyond those possessed by the average person, such as in the areas of investing and/or maintaining the corpus of the trust, or where there is an express provision within the trust instrument providing for delegation, a trustee may delegate his or her functions in the same manner as a prudent person69 of comparable skill might delegate his or her duties.70 In selecting an agent to whom duties are to be delegated, the trustee must exercise his or her “fiduciary or prudent discretion,” along with reasonable care and skill, to ensure that the individual or individuals chosen possess the requisite skill and experience necessary to satisfy the fiduciary demands of a trustee.71 Although the trustee may delegate certain ministerial duties, the trustee does not thereby dissolve his or her duties of acting with care and skill, duties which he or she owes to the trust beneficiaries or to the trust generally. Instead, by his or her act of delegation, the trustee acquires the additional responsibility of supervising the agents he or she chooses to assist him or her in fulfilling the fiduciary role.72 In addition to seeking out agents to whom duties may be delegated, it may also frequently become necessary to seek legal advice or representation in the administration of a trust. In retaining such counsel, the trustee does not absolve him or herself of liability for any breach of trust or failures to otherwise preserve and maintain the trust assets. The trustee remains liable for his or her actions regardless of whether counsel has been retained.73 Exercising competence in selecting counsel, however, and following that advice prudently and in good faith, will generally be indicative of the trustee having exercised prudence in administering the affairs of the trust.74

persons . . .” (quoting 39 Cyc. at 304)); see also RESTATEMENT (THIRD) OF TRUSTS § 80(1) (2007) (“A trustee has a duty to perform the responsibilities of the trusteeship personally”). 68 CAL PROB. CODE § 16012 (Deering 2008). 69 R.F.V. Heuston, Salmond on the Law of Torts 56 (17th ed. 1977) (“The reasonable man connotes a person whose notions and standards of behavior and responsibility correspond with those generally obtained among ordinary people in our society at the present time, who seldom allows his emotions to overbear his reason and whose habits are moderate and whose disposition is equable. He is not necessarily the same as the average man—a term which implies an amalgamation of the counterbalancing extremes.”) 70 See, e.g., NRS § 164.770(1) (2008) (“A trustee may delegate functions of investment and management that a prudent trustee of comparable skills could properly delegate under the circumstances.”); RESTATEMENT (THIRD) OF TRUSTS § 80(1) (“A trustee has a duty to perform . . . except as a prudent person of comparable skill might delegate those responsibilities to others.”); Estate of Vail v. First of Am. Trust Co., 309 Ill. App. 3d 435, 722 N.E.2d 248, 242 Ill. Dec. 759, 763 (4th Dist. 1999).( Corporate fiduciaries are required to keep all funds, both principal and income, which are awaiting investment or distribution, to be invested for the beneficiaries “at a rate of return commensurate with that available in trust quality investments.”) 71 NRS § 164.770(1); RESTATEMENT (THIRD) OF TRUSTS § 80(2). 72 See, e.g., NRS § 164.770(1) (The trustee must establish the scope and terms of the delegation, and must also periodically review the agent’s performance.); RESTATEMENT (THIRD) OF TRUSTS § 80(2) (The trustee must exercise fiduciary discretion and act as a prudent person would in supervising and monitoring agents to whom duties have been delegated.). 73 RESTATEMENT (THIRD) OF TRUSTS § 77 cmt. b(2). 74 Id.

7 d. Duty of Loyalty In addition to the duties of care and skill, the trustee owes the beneficiaries a strict duty of loyalty. The trustee must remember that the management and investment of trust property is always to be done “solely in the interest of the beneficiaries.”75 The duty of loyalty prevents the trustee from self-dealing or placing his or her interests above those of the beneficiaries.76 In fact, the laws of many states even prohibit the settlor of a trust from including within the instrument any provision for decreasing or eliminating the liability of a trustee for his or her actions, including deriving profit from the trust.77 One potential for litigation due to a breach of the duty of loyalty arises where the trustee is also a beneficiary of the trust. The trustee chosen could be a close friend, family member, or business partner of the settlor. In these cases, it is wise to counsel the settlor regarding potential conflicts that could arise between the trustee and the beneficiaries.78 If a settlor names a business partner to serve as a trustee of a trust that owns as its primary asset, the stock or membership interests in the company for which the business partner is employed, provisions concerning compensation should be addressed to delineate between overlapping duties of the trustee and those of the employee. This delineation may prevent wasting of trust assets in the form of overcompensation of the business partner for duties that he would normally be required to render as a fiduciary of the company. An overlapping duty may include the requirement of the business partner as chief executive officer to create an annual accounting to the owners of the company and the beneficiaries of the trust, which are the same persons in this example. The settlor(s) of the trust should be counseled to carefully consider their choice for trustee, keeping in mind the inherent risk that that a beneficiary acting as trustee may betray the trust placed in them. The California Court of Appeals held, “[A] trustee cannot purchase or deal with the subject of the trust nor place himself in an attitude antagonistic to the trust. It is against public policy to permit persons occupying fiduciary relations to be placed in such a position that the influence of selfish motives may be a temptation so great as to overpower their duty and lead to a betrayal of their trust. This rule is unyielding....Courts will not permit an investigation into the fairness or unfairness of such a transaction or allow the trustee to show that the dealing was for the best interest of the beneficiaries. It is a trustee’s duty in all things to first consider and always to act for the best interests of the trust.”79 A proper trust document in which a beneficiary

75 NRS § 164.715 (2008). See CAL. PROB. CODE § 16002(a) (2008) (“The trustee has a duty to administer the trust solely in the interest of the beneficiaries.”); N.Y. EST. POWERS & TRUSTS LAW § 11-2.1 (Consol. 2008) (“A trust shall be administered with due regard to the respective interests of income beneficiaries and remaindermen.”); see also UNIF. TRUST CODE § 802 (amended 2004) (“A trustee shall administer the trust solely in the interests of the beneficiaries.”). 76 NRS § 163.160 (2008); RESTATEMENT (THIRD) OF TRUSTS § 78(2); see also Meinhard v. Salmon, 164 N.E. 545, 547 (N.Y. 1928) (“A trustee is held to something stricter than the morals of the market place. Not honesty alone, but the punctilio of an honor the most sensitive, is then the standard of behavior. As to this there has developed a tradition that is unbending and inveterate. Uncompromising rigidity has been the attitude of courts of equity . . . . Only thus has the level of conduct for fiduciaries been kept at a level higher than that trodden by the crowd.”); see also Golden Nugget v. Ham, 95 Nev. 45, 48, 589 P.2d 173, 175 (1979) ("when a party who is relied upon in a fiduciary capacity fails to fulfill his obligations thereunder, and does not tell the other party of his failure, his omission constitutes constructive fraud.") 77 See, e.g., CAL. PROB. CODE § 16461(b) (Deering 2008); NEV. REV. STAT. § 163.160(3)(b). 78 UNIF. TRUST CODE § 802 cmt. 79 Cagnolatti v. Guinn, 140 Cal. App. 3d 42, 49 (Cal. Ct. App. 1983); Toedter v. Bradshaw (1958) 164 Cal.App.2d 200, 208 [330 P.2d 688]; see also Estate of McLellan 8 Cal.2d 49, 5463 P.2d 1120 (1936).

8 also serves as the trustee for the trust should include provisions addressing such potential conflicts.80 Thereafter, a trustee should do everything in his power to avoid a conflict of interest.81

e. Duty of Impartiality The trustee must also administer the trust in a way that is impartial to the various beneficiaries of the trust.82 This duty includes requirements that the trustee invest, protect, and distribute assets of the trust in an impartial manner, and also that the trustee communicate and consult with all beneficiaries equally.83 Not only must the trustee act with loyalty to all beneficiaries and balance their interests equally, he or she must also act with recognition of the needs of any future beneficiaries as well.84 In Nevada, the trustee is required to impartially invest and manage the trust property, “taking into account any differing interests of the beneficiaries.”85 This duty of impartiality in the administration and distribution of the trust is mandatory in absence of a trust provision to the contrary.86

f. Duty to Furnish Information to the Beneficiaries Closely related to the duty of loyalty is the duty to communicate with beneficiaries and to inform them of all material facts with which the trustee has or should have knowledge.87 Specifically, trustees are charged with keeping beneficiaries informed of changes in the trust, or trusteeship, and with promptly responding to any beneficiary requests for information.88 In general, the duty to inform means that the trustee must “inform the beneficiaries fully of all facts which would aid them in protecting their interests.”89 This includes “all material facts in connection with a nonroutine transaction which significantly affects the trust estate and the interests of the beneficiaries.”90 A common example of information that should be provided by the trustee includes the issuance of annual trust accountings, with accompanying schedule K-1 (IRS Form 1040) to each beneficiary receiving distributions from a trust.91

80 UNIF. TRUST CODE § 802 cmt. 81 Riley v. Rockwell, 103 Nev. 698, 701 (1987). 82 NRS § 164.720 (2008); RESTATEMENT (THIRD) OF TRUSTS § 79(1) (2007); UNIF. TRUST CODE § 803 (“If a trust has two or more beneficiaries, the trustee shall act impartially in investing, managing, and distributing the trust property, giving due regard to the beneficiaries’ respective interests.”). 83 RESTATEMENT (THIRD) OF TRUSTS § 79(1) (2007). 84 Id. § 79(2). 85 NRS § 164.720(1) 86 Id. § 164.720(2) 87 RESTATEMENT (THIRD) OF TRUSTS § 78(3) (2007). 88 Id. § 82 89 Allard v. Pac. Nat’l Bank, 663 P.2d 104, 110 (Wash. 1983) (citing Esmieu v. Schrag, 563 P.2d 203 (1977)). 90 Id. 91 Schedule K-1 (Form 1041) provides beneficiaries summarized reporting information for beneficiaries who file Form 1040. Generally, the beneficiary must report items shown on his or her Schedule K-1 (and any attached schedules) the same way that the estate or trust treated the items on its return. If the treatment on beneficiary’s original or amended return is inconsistent with the estate’s or trust’s treatment, or if the estate or trust was required to but has not filed a return, the beneficiary must file Form 8082, Notice of Inconsistent Treatment or Administrative Adjustment Request (AAR), with the beneficiary’s original or amended return to identify and explain any inconsistency (or to note that an estate or trust return has not been filed. If the beneficiary is required to file Form 8082 but fails to do so, the beneficiary may be subject

9 g. Duty to Keep Records and Provide Reports The duty to keep beneficiaries informed of the status and proceedings of estate administration includes the requirement that the fiduciary keep accurate records and provide accountings to the beneficiaries of the trusts over which they serve as fiduciaries.92 For example, trustees must generally submit an intermediate accounting for each year in which the trust is active. This annual accounting is usually filed after the end of each calendar year and must inform the beneficiaries of the status of the trust, including additions, deductions, accounting for investments, and the values of assets, among other requirements.93 In Nevada, an individual trustee must file an inventory of all property of which he or she has come into possession within seventy-five days after obtaining possession of that property.94 Moreover, the trustee must file an annual inventory within sixty days after the end of each calendar year in which the trust is active.95 This accounting must make reference to: (a) The period to which the account applies; (b) The names and addresses of any living or other potential beneficiaries known to the trustee; (c) Additions to, investments of, and deductions from the trust principal during the accounting period with the dates and sources of such acquisitions, investments, and deductions; (d) A description of the trust income and distributions for the accounting period; (f) A statement of unpaid claims, including a statement as to whether any taxes have become due with regard to the trust property; (g) A brief summary of the account; and (h) Such other facts as the courts may require.96

A trustee’s failure to provide an accurate accounting of the trust assets to the beneficiaries may result in multiple breaches of a trustee’s fiduciary duty, due to the informational and record keeping requirements.

h. Duty to Segregate and Identify Trust Property The duty to segregate trust property includes the duty to keep trust property completely separate from the trustee’s own property, as well as from other property not subject to the trust.97 The duty to keep trust property separate from other property means that, for purposes of money,

to the accuracy related penalty. This penalty is in addition to any tax that results from making the beneficiary’s amount or treatment of the item consistent with that shown on the estate’s or trust’s return. Any deficiency that results from making the amounts consistent may be assessed immediately. See Schedule K-1 (Form 1041) 2006 Instructions for Beneficiary Filing Form 1040 at http://www.irs.gov. 92 Golden Nugget v. Ham, 95 Nev. 45, 48, 589 P.2d 173, 175 (1979) ("when a party who is relied upon in a fiduciary capacity fails to fulfill his obligations thereunder, and does not tell the other party of his failure, his omission constitutes constructive fraud."); RESTATEMENT (THIRD) OF TRUSTS § 83 (2007). 93 NRS § 165.040; See, e.g., CAL. PROB. CODE § 16062 (Deering 2008) (“[T]he trustee shall account at least annually, at the termination of the trust, and upon a change of trustee, to each beneficiary to whom income or principal is required or authorized in the trustee’s discretion to be currently distributed”). 94 NRS § 165.030 (2008). 95 Id. § 165.040(1) 96 Id. 97 Id.

10 stock, and other liquid assets, the trustee must maintain separate accounts or physically keep the assets separated. For example, a fiduciary may not place money from the trust in his or her own personal bank account, even if the trustee keeps accurate records and makes an effort to ensure that the funds are kept separate on paper.98 This prohibition against commingling also applies to property held in separate trusts. Thus, a trustee that administers multiple trusts is prohibited from commingling the property of the individual trusts.99 Part of the trustee’s duty of loyalty is the duty to ensure that trust property is designated or identified as trust property.100 The fiduciary must take control of the assets of the trust upon the settlor’s death, and must make a diligent effort thereafter to create an inventory of the trust property.101 Trustees must also ensure that trust property is properly designated as an asset of the trust to eliminate any confusion concerning ownership issues.102 A trust officer acting in the role of personal representative or trustee must comply in the same manner as any other individual acting in these roles, and they will likely be held to a standard commensurate with their profession. B. HELPING CLIENTS PICK THE FIDUCIARY(IES)

In choosing a proper fiduciary, an individual should choose someone that they trust, but someone who also has good management and accounting skills. An individual should consider independence as well as cost (what they can afford in a professional fiduciary). Compensation for a professional fiduciary is about one to two percent of the value of the assets in the trust. Clients may want to use family members or paid advisors, however an inference can be made that such a person is not independent. For example, if a person appoints his personal CPA as the trustee that choice will create an inference that the CPA is not independent. The CPA already owes a fiduciary duty to the settlor personally and therefore the trustee cannot act in the best interests of both the settlor and the trust where the trust’s interests are conflicting with the interests of the settlor. C. YOUR CONTACT WITH THE PERSONAL REPRESENTATIVE/TRUSTEE

1. Discuss the Duty of the Personal Representative/Trustee As legal counsel for either the personal representative, estate and/or trust it is important that you discuss the duties of the office with the client serving in either or all of these capacities. The official appointment of personal representative comes when the court official appoints the personal representative by order of the court and the personal representative signs their oath to perform their duties.103 The official appointment of trustee comes as soon as the designated trustee has complied with the terms of the trust, which typically involves the acknowledgement and consent to perform their duties as trustee in the form of a certificate of incumbency, which is

98 Id. comment b. 99 Id. comment c. 100 RESTATEMENT (THIRD) OF TRUSTS § 84. 101 UNIF. PROB. CODE § 3-706 102 RESTATEMENT (THIRD) OF TRUSTS § 84 comment d. 103 NRS § 138.016

11 signed and filed with the county recorder.104 In Nevada, a trustee can be confirmed by order of the Court pursuant to statute.105 The duty of both the personal representative and trustee is to marshal or collect the assets belonging to the estate/trust, inventory and manage the assets in accordance with the terms of the trust, pay debts, obligation, and taxes as required by law and terms of the trust, and then ultimately to distribute the estate and/or trust proceeds to the chosen beneficiaries. The personal representatives/trustee needs to understand their fiduciary duties, especially those actions that are impermissible. These include but are not limited to mismanagement of estate and/or trust assets, comingling of estate/trust and their personal funds, making loans without adequate collateral or documentation, investing in speculative investments, or making unauthorized distributions of trust property. A personal representative and/or trustee must also provide both notice to creditors106 and notice to beneficiaries.107 A personal representative and/or trustee must value the assets of the estate/trust and provide an inventory and accounting to the beneficiaries. During the period of administration, the personal representative and/or trustee must safeguard the assets of the estate/trust, and hire necessary advisors to assist in the administration of the estate/trust. Upon final distribution, the personal representative and/or trustee should collect all necessary distributees’ receipts. 2. Prepare Written Instructions for Duty of Personal Representative/Trustee Preparing a memorandum of duties and responsibilities for the personal representative and/or trustee that describes their office and outlines their statutory powers and responsibilities is vital to a successful administration, and avoids unnecessary ethical complaints. This memorandum should include both the actions the personal representative should and should not take, and the attendant liabilities connected with those actions. Notice requirements and accounting requirements should also be discussed. A section on compensation and a suggested timeline of events is also important to a successful administration. It is important to explain why your legal services are necessary in light of the common practice of pro se advocacy in the probate court for estates.108 D. TRUST PROTECTORS AND ADVISORS

1. Trust Protector The concept of a trust protector sprang from need to have additional safeguards with offshore asset protection trusts; and it received little attention until Alaska adopted its legislation for domestic asset protection trusts. Nevada and other states soon followed with their own similar legislation that brought the concept of a trust protector to the forefront of asset protection

104 RESTATMENT (SECOND) OF TRUSTS §102 comment b-c 105 NRS § 164.010 106 NRS § 164.025. 107 NRS § 155.010 et seq.;NRS 164.021. 108 Salman v. Newell, 110 Nev. 1333, 1336, 885 P.2d 607, 608 (1994) (The Nevada Supreme Court held that “no rule or statute permits a [non-lawyer] to represent any other person, a company, a trust or any other entity” in either the district court or the Nevada Supreme Court.). Guerin v. Guerin, 116 Nev. 210, 214, 993 P.2d 1256, 1258 (2000) (Additionally, an entity such as a trust may not proceed in proper person before this court).

12 planning in the United States.109 A trust protector is typically given powers over the trustee to safeguard the interests of beneficiaries. These powers are created primarily as a mechanism to adjust to changing circumstances that might affect the trust and the beneficiaries without the cost of court intervention. The role of the protector can be invaluable if understood and approached properly. a. Powers of a Trust Protector The major function of the trust protector is to oversee the duties of the trustee; however some practitioners have provided additional powers to the trust protector. The Nevada legislature codified a non-exhaustive list of the duties a trust protector may exercise on behalf of the trust. A trust protector may exercise the powers provided in the trust instrument in the best interests of the trust. The powers exercised by a trust protector are at the sole discretion of the trust protector and are binding on all other persons. The powers granted to a trust protector may include, without limitation, the power to: (i) Modify or amend the instrument to achieve a more favorable tax status or to respond to changes in federal or state law, (ii) Modify or amend the instrument to take advantage of changes in the rule against perpetuities, restraints on alienation or other state laws restricting the terms of a trust, the distribution of trust property or the administration of the trust, (iii) Increase or decrease the interests of any beneficiary under the trust, (iv) Modify the terms of any power of appointment granted by the trust. A modification or amendment may not grant a beneficial interest to a person, which was not specifically provided for under the trust instrument, (v) Remove and appoint a trustee, trust adviser, investment committee member or distribution committee member, (vi) Terminate the trust, (vii) Direct or veto trust distributions, (viii) Change the location or governing law of the trust, (ix) Appoint a successor trust protector or trust adviser, (x) Interpret terms of the instrument at the request of the trustee, (xi) Advise the trustee on matters concerning a beneficiary, (xii) Review and approve a trustee’s reports or accounting.110 As a practitioner, you can incorporate these duties into your estate planning documents in whole or in part by reference to statute.111 A trust protector may be granted limited or broad powers over the trust and trustee. This can be extremely useful in either situation depending on the particular conditions with which you are presented. For example, a trust protector may be used to settle issues that would typically require expensive litigation. This could save the trust unnecessary costs in litigation and would make the administration of the trust much more effective. The drafter of the trust should be prudent in extending those powers to the trust protector so that it does not become a hindrance to the administration of the trust by the successor trustee. b. Duties of the Trust Protector In Nevada, the duties of the trust protector are commensurate with the powers provided by the settlor.112 Many commentators suggest that the trust protector should be shielded from

109 NRS § 163.5547 “Trust protector” means any person whose appointment is provided for in the instrument.

110 NRS § 163.5553 111 NRS § 163.5553 112 NRS § 163.554

13 fiduciary responsibility in one way or another. The laws regarding trust protectors are all scattered and diverse. For example, the Alaska legislature provides that a protector is not liable as a fiduciary,113 while the Nevada legislature provides that a protector may only be liable if performing fiduciary responsibilities.114 Arizona provides that a protector is not a fiduciary unless the trust declares otherwise.115 The goal of many practitioners is to provide as much power to the office of the trust protector without exposing the trust protector to the added duties of a fiduciary. However, providing power to a trustee that may affect the rights of a trust beneficiary without providing the reciprocal right to the beneficiary to hold that trust protector accountable under duties of a trustee presents both practical and administrative concerns. In many circumstances, the trust protector’s primary powers include removing or replacing the trustee. The removal power allows the protector to maintain significant control over the trustee in the event of a dispute over the interpretation and administration of the trust. Many states provide statutory cover for the trustee if he is acting pursuant to a recommendation from an advisor or protector.116 In Nevada this is called the excluded fiduciary statute, which protects a trustee or other fiduciary from liability for “any action taken at the direction of a trust protector.”117 If a trust protector is shielded from fiduciary liability, it is not hard to conceive of a scenario where a trust protector that has significant power and uses that power to influence the trustee to take an action, which then ultimately harms the beneficiaries of the trust. In this scenario what recourse would the beneficiaries have? First, the trust protector is not a fiduciary so an action to find breach of fiduciary duty would be foreclosed. Second, the trustee is shielded from those acts under the excluded fiduciary statute, because his actions were taken at the direction of the trust protector. This leaves the beneficiaries without a remedy and may even defeat the settlor’s intent. Commentator, Alexander Bove, Esq., illustrates this point by asking whether any practitioner or settlor would be comfortable with the following language included in his trust.118 “It is the settlor’s intention that in exercising this power the protector shall not be deemed a fiduciary, shall not be required to monitor the trustee’s performance, and shall not be bound by or required to consider any particular standards of trustee performance. He shall not be required to act upon notice that a trustee is in breach if(sic) its fiduciary duty, and in the event of appointment of a successor trustee, the protector shall not be required to consider whether any such successor trustee has any experience in or knowledge of trust administration, or is a suitable person or entity to act as trustee. The protector may exercise

113 ALASKA STATUTE §13.36.370 114 NRS § 163.554 “Fiduciary” means a trustee or custodian under any instrument, or an executor, administrator or personal representative of a decedent’s estate or any other person, including an investment trust adviser, trust protector or a trust committee which is acting in a fiduciary capacity for any person, trust or estate. (emphasis added) 115 ARIZONA REVISED STATUTES § 14-10818(Any provision of this title to the contrary, but except to the extent otherwise provided by the trust instrument, a trust protector is not a trustee or fiduciary and is not liable or accountable as a trustee or fiduciary because of an act or omission of the trust protector when performing or failing to perform the duties of a trust protector under the trust instrument.) 116 NRS § 163.5549 117 NRS § 163.5549 118 The Case Against The Trust Protector by Alexander A. Bove Jr. ACTEC Law Journal Vol.37:77 at pg. 89

14 or refrain from exercising such power in a capricious or whimsical manner at his total discretion, without liability therefor.”119 Trust protector’s themselves may also be harmed if they enter a relationship for little or no compensation because they believe that they have no duty to act, and later a court finds that they did have a duty to act. A trust protector in this situation loses on both accounts, because the trust protector has all the responsibility of a fiduciary with none of the benefits. Finally, the drafter may be exposed if he or she has advised a client that using a trust protector without requiring fiduciary responsibilities is proper, and the client is subsequently harmed by this recommendation. Notwithstanding the potential pitfalls inherent with a trust protector, the role of a trust protector can provide a number of useful benefits to the trust. First, a protector can remove and replace an incompetent or malicious trustee without the expense of court action. Second the protector can be given the power to make certain changes to the trust. This is a very effective way for the trust to adapt and avoid problems from changes in the law or benefit from new tax provisions. Finally a protector can be given the power to interpret the trust provisions. This provides an added safeguard to ensure that the settler’s intent is upheld, and again avoids the expense of unnecessary litigation. 2. Trust Advisor a. Powers of Trust Advisor Under Nevada law, there are two defined trust advisors, an investment trust adviser and a distribution trust adviser. 120 The investment advisor may exercise the powers provided to the investment trust adviser in the instrument in the best interests of the trust. The powers exercised by an investment trust adviser are at the sole discretion of the investment trust adviser and are binding on all other persons. The powers granted to an investment trust adviser may include, without limitation, the power to: (a) Direct the trustee with respect to the retention, purchase, sale or encumbrance of trust property and the investment and reinvestment of principal and income of the trust. (b) Vote proxies for securities held in trust. (c) Select one or more investment advisers, managers or counselors, including the trustee, and delegate to such persons any of the powers of the investment trust adviser.121 b. Duties of Trust Advisor An investment trust adviser will be imputed with fiduciary duties in most cases, if the investment trust advisor’s powers are defined in the trust as fiduciary duties or deemed as fiduciary duties under statutory or common law.122

119 Id 120 NRS § 163.5557(1) 121 NRS § 163.5557(2)(a-c). 122 NRS § 163.004 (A trust may be created for any purpose that is not illegal or against public policy. Except as otherwise provided by a specific statute, federal law or common law, the terms of a trust instrument may vary the rights and interests of beneficiaries in any manner that is not illegal or against public policy, including, without limitation, specifying: (a) The grounds for removing a fiduciary; (b) The circumstances, if any, in which the fiduciary must diversify investments; and (c) A fiduciary’s powers, duties, standards of care, rights of indemnification and liability to persons whose interests arise from the trust instrument.) See also NRS 163.554(“Fiduciary” means a trustee or custodian under any instrument, or an executor, administrator or personal

15

a. Powers of Distribution Trust Advisor A distribution trust adviser may exercise the powers provided to the distribution trust adviser in the instrument in the best interests of the trust.123 The powers exercised by a distribution trust adviser are at the sole discretion of the distribution trust adviser and are binding on all other persons.124 b. Duties of Distribution Trust Advisor The distribution trust adviser will be imputed with fiduciary duties in most cases, if the investment trust advisor’s powers are defined in the trust as fiduciary duties or deemed as fiduciary duties under statutory or common law.125 Both the trust protector and trust advisor automatically submit to the jurisdiction of the Nevada court by accepting an appointment to serve as a trust protector or trust advisor of a trust subject to the laws of the state of Nevada.126 E. FIDUCIARY LIABILITY

An attorney acting as a fiduciary to a trust or an estate127 should only consider doing so if he or she is given the ability to nominate and appoint a successor in the event it becomes necessary to safeguard the client’s interests. This allows the attorney to be selective and avoid potential conflicts. Also attorneys should check their malpractice insurance to make sure they have coverage to serve as a trustee, and are covered in the event of a breach of fiduciary duty. In the event that there is a breach of fiduciary duty the remedies may include personal liability, constructive trust, equitable lien, and surcharge of a trustee. A fiduciary’s duty is to act in the best interest of the beneficiary or beneficiaries. When the fiduciary takes an action that places his interests above those of the fiduciary he has breached his duties. In Pantazis v. Tsourides, the trustee used trust assets to finance her personal business without consent from the beneficiaries.128 Quoting an earlier decision the court stated “that no person holding trust funds can be allowed to derive any personal gain or advantage, either directly or indirectly from the use (or sale) thereof.”129 The trustee was ordered to return not only the trust funds used but also a sizeable portion of the profits from the business, including future profits. One remedy for breach of fiduciary duty is that the fiduciary may be held personally liable to the beneficiaries. In addition to personal liability for breach of fiduciary duty, constructive trust is another available remedy. A constructive trust is a remedy available where the property in question would have gone to a beneficiary except for the fraudulent acts of another. In this scenario the court may order that the property be held in trust for the person who was meant to be the beneficiary. For example, in Bemis v Estate of Bemis the deceased father, as part of his divorce,

representative of a decedent’s estate or any other person, including an investment trust adviser, trust protector or a trust committee which is acting in a fiduciary capacity for any person, trust or estate.) 123 NRS 163.5557(3). 124 Id. 125 Id. 126 NRS § 163.5555 127 NRS § 132.145 (“Fiduciary” includes a personal representative, guardian and trustee.) 128 Pantazis v. Tsourides,2009 Mass. Super. LEXIS 210,2009 WL 2603147(Mass. Super. Ct.July 2, 2009) 129 Bowen v. Richardson,133 Mass. 293,1882 Mass. LEXIS 212(Mass.1882)

16 made an agreement to create a trust for the children. After the father’s death the children discovered that, in fact, no trust had been created. The court ordered the creation of a constructive trust for the benefit of the children.130 With this remedy the property is immediately transferred to the judicially created trust for the benefit of the beneficiaries. An equitable lien is different from a constructive trust in a number of ways. An equitable lien is meant to secure a debt or provide redress for unjust enrichment. For example, if a person attempted to fraudulently transfer assets to avoid a creditor the creditor could ask for an equitable lien. The lien then becomes a priority lien but the assets are not immediately transferred. An equitable lienholder must foreclose on the lien in order to gain ownership of the property. Another remedy for breach is to surcharge the trustee. This remedy allows compensation for a loss resulting from the trustee's breach or to prevent unjust enrichment by the trustee.131 "If a breach of trust causes a loss, including any failure to realize income, capital gain, or appreciation that would have resulted from proper administration, the beneficiaries are entitled to restitution and may have the trustee surcharged for the amount necessary to compensate fully for the consequences of the breach."132 This remedy does not extend to a breach that causes no loss to the trust.133 Depending on the circumstances a breach of fiduciary duty may result in personal liability against the fiduciary, the creation of a constructive trust, the assignment of an equitable lien, or surcharge against the trustee.

130 Bemis v. Estate of Bemis,114 Nev. 1021,967 P.2d 437,1998 Nev. LEXIS 132(Nev.1998) 131 Restatement (Third) of Trusts § 95 and comment a 132 Id. 133 In Re McFadden, Pl. LEXIS 320 (Pa. C.P. 2011). (The court refused to provide the remedy of surcharge where the plaintiffs failed to show that the trustee's breach caused a loss to the trust.)

17

ETHICAL CONSIDERATIONS

© 2014 Anthony L. Barney, Ltd. All Rights Reserved. A. Defining Who Your Client is from the Start

1. Who Do You Represent? In order to properly determine the duties owed by an attorney to his client, the client and those in privy with the client must first be identified. One case which has swept the nation since its decision in the early 1960s, and which addresses this issue is Lucas v. Hamm.134 In that case, the drafter of a trust was sued when the beneficiaries were informed that they were going to receive $75,000 less than they should have received under the trust because the drafting attorney made a mistake in writing the will. The California Supreme Court recognized a right of action on the part of the beneficiaries under the will, and held him liable for his breach, which breach was determined to be a failure to draft the will in conformity with the testator’s wishes.135 In reaching this conclusion, the court stated:

Since . . . the main purpose of the testator in making his agreement with the attorney is to benefit the persons named in his will and this intent can be effectuated, in the event of a breach by the attorney, only by giving the beneficiaries a right of action, we should recognize, as a matter of policy, that they are entitled to recover as third-party beneficiaries.136

Therefore, in considering potential conflicts that could arise in multigenerational estate planning situations, the estate-planning attorney should never forget that the beneficiaries of the instruments he is drafting are additional parties to whom he may be held accountable. It should also be noted that this liability arises from the fiduciary relationship between the attorney and his original client. The court in Lucas went on to state:

The general rule with respect to the liability of an attorney for failure to properly perform his duties to his client is that the attorney, by accepting employment to give legal advice or to render other legal services, impliedly agrees to use such skill, prudence, and diligence as lawyers of ordinary skill and capacity commonly possess and exercise in the performance of the tasks which they undertake.137

The Nevada Supreme Court distinguished Hamm in Hartford Accident & Indemnity Co. v. Rogers.138 There, the plaintiff insurance company sought recovery from the attorney originally hired to represent the insured. The attorney received an insurance payment that he was to apply to the insured’s medical bills. The attorney’s relationship with the insured was

134 Lucas v. Hamm, 56 Cal. 2d 583 (Cal. 1961). 135 Id. at 591 136 Id. at 590 137 Id. at 591 138 Hartford Accident & Indemnity Co. v. Rogers, 96 Nev. 576 (1980)

18 terminated shortly thereafter, and the attorney told his client (the insured) that he would return the check to the insurance company after he received compensation for his services. The client (insured) never paid, and his attorney subsequently retained the money. The insurance company then sent another payment to the insured’s new attorney and filed an action against the original attorney to recover the double payment.

The Court held that the insurance company did not have standing to assert a claim against the attorney because it was not an intended beneficiary of the attorney’s services. In so holding, the Nevada Supreme Court stated, “[t]he dispositive fact in this case is that appellant and respondent where not in a professional relationship. . . . Appellant was . . . not an intended beneficiary of any of respondent’s services.”139

Furthermore, the Nevada Supreme Court held that a professional negligence claim requires a proximate causal connection between the negligent conduct and the resulting injury.140

Therefore, the key factor in holding an attorney liable to third-party beneficiaries is that there must be privity between the attorney and the parties claiming to have been wronged by the attorney’s actions. The third parties must be intended beneficiaries and the attorneys negligence was the proximate cause of the resulting injury suffered by the intended beneficiaries.

The Nevada legislature established the duties owed by an attorney that represents another fiduciary.141 An attorney who represents a fiduciary does not, solely as a result of such attorney- client relationship, assume a corresponding duty of care or other fiduciary duty to a principal.142 Under these circumstances, an attorney may represent another attorney that owed duties to the trust’s beneficiaries without owing those same duties that his attorney client owes to the trust’s beneficiaries. This protection doesn’t negate the fiduciary duty of the attorney to his attorney client or prohibit his attorney client from raising appropriate claims against the attorney resulting from the negligent or intentional acts of the attorney .143

2. Multiple Representation Two potential areas in which future conflicts may arise occur where clients keep secrets from family members and where clients claim to have stable familial relationships, but where future conflicts lie on the horizon.144 The possible conflict scenarios could include future conflicts among family members, secretive clients who keep secrets from the family members they refer to an attorney, and multigenerational representation.145 Under these circumstances, it

139 Id. at 580 140 Fin. Am. Group, LLC v. CH Montrose, LLC, 2011 Nev. Unpub. LEXIS 1366, 5-6 (Nev. 2011) citing Charleson v. Hardesty, 108 Nev. 878, 883-84, 839 P.2d 1303, 1307 (1992). 141 NRS § 162.020 (1)(b) (“Fiduciary” includes a trustee under any trust, expressed, implied, resulting or constructive, executor, administrator, guardian, conservator, curator, receiver, trustee in bankruptcy, assignee for the benefit of creditors, partner, agent, officer of a corporation, public or private, public officer, or any other person acting in a fiduciary capacity for any person, trust or estate). 142 NRS § 162.310(1); See also NRS § 162.020 (1)(c) (“Principal” includes any person to whom a fiduciary as such owes an obligation.). 143 NRS § 162.310(2). 144 Joseph M. Hartley, Hidden Conflicts of Interest, GPSOLO, vol. 19, no. 5, July/August 2002. 145 Id.

19 is appropriate to make an initial disclosure that the attorney will be unable to represent the clients if a conflict arises.146

Problems may arise between married couples when children from prior marriages are involved, the spouses have significantly different sizes of estates, or where the spouses simply have different goals, due to age differences or other factors. In addition, problems may arise where children are involved, especially where one or more children are becoming involved in a family business. In each of these cases, separate representation may be advisable so as to avoid potential conflicts.147

A lawyer may represent multiple potential clients (i.e., husband and wife or parent and child), but should review the terms and potential problems with the representation and should also consider holding separate interviews with the clients in which potential conflicts could more easily surface. However, a lawyer should not take on an inherently adversarial contract not subject to rescission by one party without the consent and joinder of the other. A lawyer may wish to urge a joint client who unilaterally imparts confidential information to make an effort to communicate confidences to the other party.148

One means of ensuring that the representation of multiple potential clients preserves client confidences is through the use of a confidentiality waiver in which certain conflicts may be waived, because the rules of confidentiality continue to apply with multiply representations unless otherwise waived by the clients.149

B. Handling Clients with Diminishing Mental Capacity

Mental capacity is different from testamentary capacity. A client may be facing diminished mental capacity yet still have testamentary capacity to execute a valid will. In a noted case from Colorado the Supreme Court of Colorado defined the test for testamentary capacity as: “(1) the testator understands the nature of her act; (2) she knows the extent of her property; (3)

146 Id. 147 36 Modern Estate Planning § 36.04. 148 ACTEC Comments on Rule 1.6. 149 NEVADA RULE OF PROFESSIONAL CONDUCT 1.6 (a) A lawyer shall not reveal information relating to 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 paragraphs (b) and (c). (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 criminal or fraudulent act in furtherance of which the client has used or is using the lawyer’s services, but the lawyer shall, where practicable, first make reasonable effort to persuade the client to take suitable action; (3) To prevent, mitigate, or rectify the consequences of a client’s criminal or fraudulent act in the commission of which the lawyer’s services have been or are being used, but the lawyer shall, where practicable, first make reasonable effort to persuade the client to take corrective action; (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 respond to allegations in any proceeding concerning the lawyer’s representation of the client; or (6) To comply with other law or a court order. (c) A lawyer shall reveal information relating to the representation of a client to the extent the lawyer reasonably believes necessary to prevent a criminal act that the lawyer believes is likely to result in reasonably certain death or substantial bodily harm.

20 she understands the proposed testamentary disposition; (4) she knows the natural objects of her bounty; and (5) the will represents her wishes.”150 In this case the testator executed a holographic will, prior to his suicide, wherein he devised everything to a close friend. In challenging the will the family presented evidence of paranoid delusions and extensive drug use. The court found however that the testator had testamentary capacity because he met the elements of the above test. This shows that a person may have diminished mental capacity and yet still have testamentary capacity. The court also analyzed whether his insane delusions could have limited his testamentary capacity. The court found that in order for an insane delusion to destroy testamentary capacity the delusions must materially affect the disposition in the Will.151

Testamentary capacity is a requirement to create a valid testamentary instrument.152 A significant number of will challenges involve the claim that the testator lacked capacity. This is especially true if the instrument is executed later in life or if the person has signs of diminished mental capacity. In situations where a client may be losing mental capacity or where a will challenge seems likely a doctor’s evaluation should be provided for any execution or change to a testamentary instrument. The burden to show a lack of capacity lies with the party challenging the will, however providing a doctor’s evaluation of competency will make a challenge based on capacity very difficult.

A person suffering from diminishing mental capacity is not necessarily incapable of executing a valid testamentary instrument.153 There may be certain times of the day that the

150 Breeden v. Stone (In re Estate of Breeden),992 P.2d 1167, 1170, (Colo.2000) 151 Id. at 1172 152 In re Estate of Mallas v. Mallas, 2012 Nev. Unpub. LEXIS 1481, 4-7 (Nev. 2012) (In California and elsewhere, "[t]estamentary capacity is always presumed to exist unless the contrary is established." Moore v. Anderson Zeigler, 109 Cal. App. 4th 1287, 135 Cal. Rptr. 2d 888, 900 (Ct. App. 2003); see also 79 Am. Jur. 2d Wills § 93 (2002) ("The requisite mental capacity to execute a will is presumed by law . . . ."). Thus, to rebut the presumption of capacity and to survive summary judgment, appellant needed to present evidence that called into question at least one of the three testamentary-capacity elements. See generally Cuzze v. Univ. & Cmty. Coll. Sys. of Nev., 123 Nev. 598, 602-03, 172 P.3d 131, 134 (2007) (indicating that summary judgment is proper when the party with the burden of persuasion fails to produce evidence to support his or her case). As for the first element, appellant points to Scott's suicide and emotional instability as evidence of Scott's inability to comprehend that he was creating a will. While such evidence may be relevant, "standing alone[,] it is insufficient to show an insanity so complete as to destroy testamentary capacity." In re Lingenfelter's Estate, 38 Cal. 2d 571, 241 P.2d 990, 997 (Cal. 1952). As for the second capacity element, appellant relies solely on Scott's failure to mention a mobile home that he evidently kept on leased land in Mexico. However, a testator's failure to reference every portion of his estate does not equate to an inability to understand the nature of his property. Lingenfelter, 241 P.2d at 998 (indicating that the testatrix did not need to have a perfect recollection of her property in order to possess the necessary capacity); see also 1 William J. Bowe & Douglas H. Parker, Page on the Law of Wills § 12.22, at 701 (rev. ed. 2003) ("It is generally said that it is not necessary that [the] testator should be able to keep in mind at one time the whole of his estate . . . ."). Finally, appellant relies on an expletive directed at him in the last sentence of the Note to establish that Scott could not rationally appreciate his family affiliation. However, the Note references all of Scott's heirs, and the record on appeal demonstrates that appellant's relationship with Scott had deteriorated significantly in the decade leading up to Scott's death. Given this deterioration, the Note's expletive directed at appellant in no way suggests that Scott misunderstood the extent of his familial relations. Appellant failed to present evidence sufficient to rebut the presumption of Scott's testamentary capacity.) 153 In re Estate of Peterson, 77 Nev. 87, 102-104 (Nev. 1961) (The Nevada Supreme Court stated, “Appellant devotes some 80 pages of her brief to a review of the testimony having to do with the physical and mental condition of the testator. She reviews at length the testimony of her witnesses as to the testator's age of 83 years, his blindness, his inability to feed or clothe himself, his senility in general, his hallucinations of little horses flying around the

21 client is more lucid. For instance, sun-downing syndrome is thought to cause those suffering from dementia to become more confused and agitated during the late evening hours. This is due to lower levels of cortisol being produced. Typically the body has peak levels of cortisol in the morning hours.154 Therefore, early morning hours are when clients with dementia are likely to be the most lucid. Meet with clients during those periods of optimum lucidity in order properly understand their intent. If you are uncomfortable with the client’s mental state it is a good idea to have a doctor meet with the client and issue an opinion regarding the client’s testamentary capacity.

When a client’s capacity to make adequately considered decisions in connection with a representation is diminished, whether because of minority, mental impairment or for some other reason, the attorney must, as far as reasonably possible, maintain a normal client-lawyer relationship with the client.155

Remember that 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 room and wrinkling their noses at him, and his chasing them away by spitting at them, the limitation of his conversations to business deals of his early days in Sparks, and other similar habits and characteristics, his admission to the hospital for "senility and catarrhal deafness, partial blindness," with admitting diagnosis of "senility with accompanying weakness" according to the hospital records, the further notation in the hospital report upon his discharge that his condition was not improved, the necessity for restraining him while he was in the hospital, the necessity for admission of nasal oxygen to him while in the hospital, etc. She notes that the testator's hospitalization occurred only 15 days after the execution of the will. Again we may note that our task is not to measure the weight of this evidence against the evidence of his mental competency, which the jury found to exist. Our task, as addressed to the other factual issues, is again to determine whether the jury's verdict of competency is based on substantial evidence. The three subscribing witnesses, though not making a "specific examination" of the testator, testified to his competency. The respondents produced many lay witnesses, some of whom knew the testator only casually and for relatively brief periods and some who had known him for a great many years, some of whom saw him infrequently and some frequently. These witnesses testified by using varying expressions, but agreeing in general that the testator was competent. It is unnecessary to review such testimony. Two doctors who had attended the respondent in the hospital, while agreeing to Peterson's senility, and the fact that he was hard of hearing and blind, considered that he was mentally competent. The third doctor, an ophthalmologist, attended the testator only with reference to the latter's blindness due to glaucoma, but expressed the opinion that Peterson was "extremely competent." A special nurse attending Peterson while he was at the hospital from June 6 to June 11, 1955 and who had several lengthy conversations with him, testified that he was "perfectly competent." Appellant, in her oral argument and in her voluminous opening and closing briefs categorically asserts that the testator was, over a considerable period of time, including the time of the execution of his will in May 1955 and his hospitalization, suffering from senile dementia. She makes much of the fact that the death certificate indicated that he died on August 2, 1955, something over two months after the execution of the will by cerebral accident, "due to generalized arteriosclerosis." Nowhere, however, is there any direct testimony that Peterson was suffering from senile dementia. Although appellant vigorously attacks the testimony of all the respondents' witnesses, asserting contradictions, discrepancies, insufficient opportunity for observation, personal interest in the result of the litigation, etc. (and we may say that respondents just as vigorously attack the testimony of the appellant's witnesses), these were all matters for the consideration of the jury, which apparently accepted as true the testimony of the respondents' lay and professional witnesses. That such testimony amounted to substantial evidence in support of the jury's verdict of competency seems to us beyond dispute. This is as far as we need go on this issue.”)

154 See Diurnal Variation of Cortisol in People with Dementia: Relationship to Cognition and Illness Burden. By Christine R. Kovach, Dianne Lynn Woods, Brent R. Logan, and Hershel Raff. At http://www.ncbi.nlm.nih.gov/pmc/articles/PMC3060946/ 155 NEVADA RULE OF PROFESSIONAL CONDUCT 1.14(a).

22 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.156

Information relating to the representation of a client with diminished capacity is protected by duties of confidentiality. When taking protective action, the lawyer is impliedly authorized to reveal confidential information about the client, but only to the extent reasonably necessary to protect the client’s interests.157

C. Lawyers Acting as Fiduciaries Attorneys owe fiduciary duties to their clients.158 Attorneys are to zealously represent their client’s interests and work for their client’s benefit. There may be a conflict if an attorney represents a client and acts as trustee or personal representative for that client’s trust or estate. There are a number of issues that may arise from this dual relationship. First, acting as an attorney and fiduciary may eliminate an attorney’s ability to represent the trust in court. An attorney acting as a personal representative or trustee on a contested matter regarding formation or execution of the estate plan is typically going to be a witness in a trust proceeding.159 This means that the client generally would need to hire independent counsel to represent the trust. Another issue is that an attorney acting as both a personal representative and as counsel can only collect fees as one or the other but not both.160 The statutory fees for a personal representative are typically lower than those allowed for an attorney. From a business perspective, the logical role for an attorney is to continue to act in the role of the attorney. Even if you both represent the client and act as a fiduciary in a dual role, you should only be paid for a single role for any overlapping duty. There may be circumstances that require an attorney to act in both roles, but the author generally recommends avoiding such a dual role.

The attorney-client relationship on it own creates a fiduciary duty for the attorney to act on behalf of the client and for their best interest. It is important to understand that this relationship requires the attorney to make ethical judgments. An attorney has the duty to inform and counsel clients about the effects of their decisions and in certain instances to refuse to facilitate unethical or illegal decisions. In Iowa, an attorney narrowly escaped ethical sanctioning after his clients deceived him into helping them conduct fraudulent transfers to avoid a judgment.161 A wealthy client became subject to a judgment for wrongful death. The client and

156 NEVADA RULE OF PROFESSIONAL CONDUCT 1.14(b). 157 NEVADA RULE OF PROFESSIONAL CONDUCT 1.14(c). 158 Mainor v. Nault, 120 Nev. 750, 101 P.3d 308 (2004). 159 NEVADA RULE OF PROFESSIONAL CONDUCT 3.7(a) A lawyer shall not act as advocate at a trial in which the lawyer is likely to be a necessary witness unless: (1) The testimony relates to an uncontested issue; (2) The testimony relates to the nature and value of legal services rendered in the case; or (3) Disqualification of the lawyer would work substantial hardship on the client. (b) A lawyer may act as advocate in a trial in which another lawyer in the lawyer’s firm is likely to be called as a witness unless precluded from doing so by Rule 1.7 or Rule 1.9. 160 NRS § 150.025 161Iowa Supreme Court Attorney Discipline Board v. Ouderkirk, 845 N.W. 2nd 32 (Supreme Court of Iowa, March 28, 2014). See also LISI Asset Protection Planning Newsletter #249 (June 23, 2014) at http://www.LeimbergServices.com Copyright 2014 Leimberg Information Services, Inc. (LISI).

23 his wife then approached the attorney in an attempt to draft a trust to which they could transfer much of their property in order to avoid a legal judgment. The attorney explained to them that this was neither legal nor ethical, and the clients verbally agreed not to form the trust. However, the clients returned a week later explaining that they had a buyer for the property and that they needed the attorney to draft the transfer documents to the new buyer. The buyer was a trust that unbeknownst to the attorney was recently established with relatives of the clients, who served as fiduciaries and beneficiaries. Eventually the client’s subterfuge was discovered, but the attorney was left facing an ethics complaint for assisting in a fraudulent transfer.

The Iowa ethics commission found the attorney to have committed an ethical violation by assisting a fraudulent transfer. The commission reasoned that the attorney should have known that the transfer was fraudulent. Fortunately for the attorney, there was sufficient evidence for the Supreme Court of Iowa to determine that the attorney had been tricked into assisting the clients with the fraudulent transfer.162 The court recognized a number of facts that revealed that the attorney was innocent of intentional misconduct.163 The Court’s findings included but were not limited to the fact that the attorney had a long-standing relationship with the clients, and had drafted many real-estate transactions for them. The attorney confirmed in writing that he advised them against transferring property into a new trust and the clients acknowledged this fact in agreement. The clients also had been trying to sell the property since before the judgment. Finally, the court recognized that the clients deliberately concealed the ownership of the trust from the attorney. The court reasoned that given the circumstances the attorney could have reasonably believed that the clients had a legitimate buyer for the property; however, this attorney ended up spending a great deal of time and money to defend this disciplinary action. Had he exercised an added measure of investigation or diligence in investigating this matter, he might have avoided the hassle for himself and the additional problems to which his clients were left.164

It is important to remember that attorneys who file a pleading “without conducting independent legal research and examining the facts that give rise to a complaint do so at their own peril.”165 A lawyer may only rely upon his client’s statements when it is reasonable to do so.166 If, for example, a client’s statements could be readily corroborated or investigated but the attorney fails to do so, this conduct could be sanctionable.167 “When an attorney must rely on his client, he should question him thoroughly, not accepting the client’s version on faith alone.”168

D. Estate Status Updates for Clients

Estate planning documents should be reviewed periodically by the client and their respective attorney. Periodic status updates for clients can be very helpful for the client, and a

162 Id. 163 Id. 164 Id. 165 Clement v. Public Service Electric & Gas Co., 198 F.R.D. 634, 636 (D.N.J. 2001) [Lawyers are not automatons. They are trained professionals who are expected to exercise independent judgment]. 166 Apostol v. Landau, 1994 U.S. Dist. LEXIS 3772, *5 (N.D. Ill. 1994). 167 Id. 168 Nassau-Suffolk Ice Cream, Inc. v. Integrated Res., Inc., 114 F.R.D. 684, 689 (S.D.N.Y. 1987) [overturned on other unrelated grounds].

24 source of continuing business for the attorney as the needs of the client change. An estate plan may exist for sixty (60) years or more before it is necessary to administer. During those decades many of the client’s needs may change. Major life events such as births, deaths, marriages, divorces, bankruptcies or other significant changes in a client’s net worth generally require, at a minimum, reevaluation of the client’s estate plan.

One opportunity to provide future updates is to explain the need for review at the time the estate planning documents are executed. Another option is provide a periodic letter to the client concerning them of potential updates if major life events require estate-planning changes. These periodic letters should also inform clients of changes in the law that may impact their estate plan. For instance the estate tax exemption has increased dramatically during the past decade. Some of the tax strategies used in an estate plan from ten years ago may now be ineffective or unnecessarily cumbersome to administer. The information that you provide to your client can be invaluable in protecting your clients from unnecessary hassle and burdens, and will likely win the respect of even a difficult client. E. Getting Paid: Reasonable Fees and Retainer Agreements Attorneys’ fees are generally not regulated so long as the fees are reasonable.169 The Nevada legislature outlined the fees that a probate attorney in Nevada is permitted to collect.170 For a probate attorney, the statutory rate is based upon the value of the estate with rates beginning at 4% of the first $100,000.171 For smaller estates, valued at less than $100,000, the court may order reasonable attorneys fees and costs to be paid from the estate.172 Previously, there was a long-standing local practice in Clark County, Nevada, in which district court judges routinely awarded attorneys’ fees in probate matters based upon the gross value of the estate173 so long as the fee was statutorily reasonable.174 However, in Cris v Am. Cancer Society, attorneys’ fees of 5%, based upon an agreement between an estate’s executors and the law firm that handled probate, was challenged as unreasonable.175 Attorneys for the estate argued that the fee arrangement was reasonable per se.176 However, the Nevada Supreme Court held that 5% was unreasonable per se and that all fees must be reasonable.177 In Cris, the court explained that attorneys’ fees must be independently reviewed to determine their

169 NRS § 7. 170 NRS § 150.060. 171 NRS § 150.060(4): If the attorney is requesting compensation based on the value of the estate accounted for by the personal representative, the allowable compensation of the attorney for ordinary services must be determined as follows: (a) For the first $100,000, at the rate of 4 percent; (b) For the next $100,000, at the rate of 3 percent; (c) For the next $800,000, at the rate of 2 percent; (d) For the next $9,000,000, at the rate of 1 percent; (e) For the next $15,000,000, at the rate of 0.5 percent; and (f) For all amounts above $25,000,000, a reasonable amount to be determined by the court. 172 NRS § 150.0605. 173 Cris v. Am. Cancer Soc'y (In re Estate of Bowlds),120 Nev. 990,102 P.3d 593 (2004). 174 NRS § 150.060.1. 175 Id. 176 Id. 177 Id.

25 reasonableness.178 The court based its opinion, in part, on factors laid out in Nevada Supreme Court Rule 155.179 That rule states that A lawyer’s fee shall be reasonable. The factors to be considered in determining the reasonableness of a fee include the following: (a) The time and labor required, the novelty and difficulty of the questions involved, and the skill requisite to perform the legal service properly; (b) The likelihood, if apparent to the client, that the acceptance of the particular employment will preclude other employment by the lawyer; (c) The fee customarily charged in the locality for similar legal services; (d) The amount involved and the results obtained; (e) The time limitations imposed by the client or by the circumstances; (f) The nature and length of the professional relationship with the client; (g) The experience, reputation, and ability of the lawyer or lawyers performing the services; and (h) Whether the fee is fixed or contingent.180

The Nevada State Legislature has since revised the statute governing attorneys fees in probate matters to its current sliding scale from 4% to 0.5% based upon the value of the estate.181 The fees must be reasonable and must be approved by the court.182 If an attorney is requesting fees based upon the value of the estate the attorney must obtain a written agreement that is signed by the estate’s representative and that includes the method for calculating the fees as well as the fact that the agreement is subject to approval by the court.183 Alternatively, an attorney may request fees based upon his regular hourly rate.184 If seeking fees based upon his hourly rate, the attorney must provide the court with detailed references as to time and hours, the nature and extent of service performed, claimed ordinary and extraordinary fees, the complexity of work performed and any other relevant information.185 Even where based upon the attorney’s regular hourly rate, the fees must be reasonable and are subject to court approval.186

F. Preventing Unauthorized Practice of Law by Legal Staff

The unauthorized practice of law is addressed in the Nevada Revised Statutes (“NRS”). NRS § 7 limits those who can practice law to only those who are active members of the state bar and are not suspended or disbarred. The statute also defines the penalties for unauthorized practice of law including a category E felony for the third offense within a 7-year period.187 Two

178 Id. 179 Id. 180 NEVADA SUPREME COURT RULE 155(1); see also Cris v. Am. Cancer Soc'y (In re Estate of Bowlds) at 102 P.3d 596 (2004). 181 NRS § 150.060.4. 182 NRS § 150.060. 183 Id. 184 Id. 185 NRS § 150.060.8. 186 Id. 187 NRS § 7.285; See also NEVADA RULE OF PROFESSIONAL CONDUCT 5.5 (A lawyer shall not: (1) Practice law in a jurisdiction where doing so violates the regulation of the legal profession in that jurisdiction; or (2) Assist another person in the unauthorized practice of law.)

26 cases help clarify what constitutes the unauthorized practice of law in Nevada. First, in Pioneer Title Ins. And Trust Co., the court stated, “If advice or judgment is professionally given by one not a party to the transaction and not an attorney, a problem in unauthorized practice is presented.”188 In Pioneer Title, the company provided clients with standardized forms prepared by its attorney. The company engaged in the unauthorized practice of law by informing its clients that the company’s attorney would review the signed documents to ensure legitimacy. The court found that even though an attorney reviewed the documents the company still engaged in the unauthorized practice of law because the attorney reviewed the documents for the company and not for the clients. This means that the attorney was not concerned with the clients’ legal rights, but only with company’s rights. This was a major factor that led the court to determine that the company had engaged in the unauthorized practice of law. Even when an attorney gives advice or applies judgment it must be done within the attorney-client relationship where the attorney is in fact alert to the client’s legal rights. The Nevada Supreme Court further defined the unauthorized practice of law in In re Lerner.189 Lerner provides specific activities that the court equates with the practice of law. The court first restates what it considers the practice of law as being an “activity that requires the exercise of judgment in applying general legal knowledge to a client’s specific problem.”190 In Lerner, an attorney who was not licensed in Nevada frequently conducted initial client consultations, negotiated client claims, made legal arguments on the client’s behalf. The attorney served as the only contact between the firm and the client; and as a result was found to have engaged in the unauthorized practice of law.191 The court also found that where the attorney’s actions were in compliance with the law firm’s policies, the law firm assisted with the unauthorized practice of law.192 This case provides a list of activities that non-attorneys should avoid. It also demonstrates the need for policies that discourage these activities by non-attorneys within law firms.

G. Potential Conflicts of Interest and Disclosure to Client

Nevada Rule of Professional Conduct (“NRPC”) 1.7(a) states that a “lawyer shall not represent a client if the representation involves a concurrent conflict of interest.” “A concurrent conflict of interest exists when: (1) the representation of one client will be directly adverse to another client; or (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.”193 Where an attorney sits on the board of directors of a company or charitable foundation, a potential conflict of interest exists because there is a significant risk that the “lawyer’s ability to consider, recommend or carry out an appropriate course of action for the client will be materially

188Pioneer Title Ins. & Trust Co. v. State Bar,74 Nev. 186, 191,326 P.2d 408, 410, (Nev.1958) 189In re Lerner,124 Nev. 1232, 1234,197 P.3d 1067, 1069, (Nev.2008) 190 Id. at 1234. 191 Id. at 1242. 192 Id. at 1246. 193 State Bar of Nevada Standing Committee on Ethics and Professional Responsibility (“Ethics Committee”), Formal Opinion No. 47, issued October 27, 2011; see also NEVADA RULE OF PROFESSIONAL CONDUCT 1.7.

27 limited as a result of the lawyer’s other responsibility or interests.”194 In Maryland, that State’s Bar Association Committee on Ethics (“Committee”) determined that an attorney’s offer of pro bono estate planning services to church parishioners in exchange for bequests to the church was a violation of the attorney’s ethical responsibilities because the attorney was a member of that church’s legacy committee.195 The Committee found that the attorney’s “‘role as a Legacy Committee Chair and or [his] own interest in advancing the church’s financial interest would be the sorts of responsibilities to a third person and/or personal interest that are governed by [ABA Model] Rule 1.7(b).’”196 Is an attorney, who is a member of a board of directors, faced with a conflict of interest dilemma when asked by a client to prepare an estate plan in which that foundation or company is named as a beneficiary? The State Bar of Nevada Standing Committee on Ethics and Professional Responsibility (“Ethics Committee”) states that “[a]lthough the lawyer does not represent the company and therefore there is no attorney-client relationship, the lawyer does have a fiduciary duty to the company. Through the lawyer’s work with the company’s board of directors, the lawyer may obtain confidential information about the company’s financial structure and may have an interest in advancing the economic goals of the company that could limit the lawyer’s ability to remain independent and loyal toward the estate planning client.”197 Therefore, an attorney who sits on the board of directors of a company may not render estate- planning services to a client that is interested in naming the company as a beneficiary.198 While the attorney’s position on the board of directors may not appear to be directly adverse to the attorney’s estate planning client, the attorney’s professional judgment could be affected by the attorney’s knowledge and loyalty to the company or foundation.199 Therefore, the attorney must disclose to the client that the attorney is associated with the company and that there may be a conflict of interest.200 Even if “the lawyer determines that a conflict exists, the lawyer may still seek to obtain the written consent of both parties to proceed with representation, but only if the lawyer reasonably believes that the representation will not be adversely affected.”201 Regardless of the existence or lack of existence of an actual conflict, the client should be apprised of any potential conflict, which may arise from the attorney’s position on the board of directors, thus assisting the client in making an informed decision to either proceed using the attorney or seek other counsel.202 In order to demonstrate the fact that the client has or has not waived any potential conflict, the attorney should always have written documentation that has been signed by the client after the client has been given the opportunity to properly review and consider the potential conflict.

194 Id. [quoting Comment 8 to American Bar Association (“ABA”) Model Rule 1.7 (upon which NRPC 1.7 is based)]. 195 Maryland State Bar Association, Inc., Committee on Ethics, Docket 2003-09 (2003). 196 Ethics Committee, Formal Opinion No. 47, issued October 27, 2011 [quoting Maryland State Bar Association, Inc., Committee on Ethics, Docket 2003-09 (2003)]. 197 Ethics Committee, Formal Opinion No. 47, issued October 27, 2011. 198 Id. 199 Id. 200 Id. 201 Id.; see also NEVADA RULE OF PROFESSIONAL CONDUCT 1.8. 202 Ethics Committee, Formal Opinion No. 47, issued October 27, 2011.

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