Ethical considerations in the representation of fiduciaries and beneficiaries

The representation of fiduciary and beneficiary clients in the trusts and estates context requires an attorney to consider various rules contained in the California Rules of Professional Conduct, whether in connection with the subject matter involved in handling the estate or trust and its assets (competence), the potential for additional disclosures under the Corporate Transparency Act (CTA) (bar on assistance in the violation of law), dealing with fiduciaries and beneficiaries as estate counsel (communication), or representation of more than one person or entity (conflicts). As a result, trust and estate practitioners, more so than perhaps any other attorneys, need to always be considering who is the client and what issues might arise that could require additional expertise or create a conflict for the attorney now or in the future.

Rule 1.1 requires that an attorney act competently. In handling matters concerning estate and trusts, an attorney may quickly find the need to advise on tax issues, on corporate governance issues, or on a myriad of other issues – family law when the decedent or a beneficiary is involved in a divorce; entertainment law when the assets of an estate include royalties or name, image or likeness rights; criminal law in the context of a conservatee who has acted inappropriately due to the conservatee’s impairments. Although the rule specifically excludes mere negligence in providing advice from constituting an ethical violation, attorneys should be ready and willing to consult with the necessary experts on areas outside of the attorney’s own expertise or to obtain the necessary expertise themselves. Additionally, attorneys should be aware that competence includes not just legal competence but such things as technological competence – if a court requires remote appearances, or discovery requires an understanding of the various electronic storage methods to be reviewed, an attorney should be prepared to handle these issues in a manner that will protect the client’s interests.

Rule 1.2.1 advises the attorney that s/he cannot assist a client in the violation of the law. In the trust and estate context, regulators increasingly believe that attorneys advising high net worth and business clients who are moving funds or engaged in international transactions may be, even if inadvertently, assisting in illicit transactions. Trusts, which are a routine part of practice in California, are considered suspect as vehicles designed to prevent transparency in many other parts of the world. The CTA, part of a broad campaign to combat terrorist financing, requires substantial disclosures on the part of persons engaged in financial transactions, including the purchase and sale of real property. The Financial Action Task Force publishes a guide to enable real estate professionals to spot potential illegal activity and has other helpful information on their website (https://www.fatf-gafi.org).

Increasingly, there is concern that attorney client confidentiality may protect persons engaged in illicit actions and legislation has even been proposed to obligate attorneys to report suspicious transactions. While such legislation has not passed, it is incumbent upon attorneys to carefully consider Rule 1.2 (limitations on the scope of representation) and 1.2.1 to ensure that clients are advised against any violations and that the attorneys do not assist in any potential violations. Compliance by attorneys with these ethical rules serves as a response to those who would require attorneys to become mandatory reporters.

One of the most common complaints of clients is the failure of attorneys to communicate, but in the trust and estate context, communication takes on a bigger role as an attorney advising a fiduciary frequently is called upon not only to communicate appropriately with the fiduciary, but, also, to interact with beneficiaries the attorney does not represent. Rule 1.4 imposes a duty as to clients, not as to non-clients. However, competent representation of a fiduciary client may very well include adequate and appropriate communications with non-clients so that there is not a concern that the fiduciary is hiding something. At the same time, counsel should be careful to advise non-clients that they are not being represented by the attorney.

Conflicts of interest under Rules 1.7 and 1.9 are one of the ethical issues most frequently arising in the trusts and estates field. Can an attorney represent both parents? (Generally yes.) Parents and then children? (Depends on what task the attorney is performing.) The successor fiduciary appointed in the estate planning documents? (Many, many attorneys do, but there are troubling issues with respect to such representation if there are any conflicts in the family or in the interpretation of the testator or trustor’s wishes.)

It is critical that the attorney analyze existing and potential conflicts and obtain the informed written consent required by the rule. Such informed consent requires that the attorney discuss the specifics of any potential conflict, not merely obtain a blanket waiver. For instance, in multi-generational representation, it might require a discussion of the potential for a falling out among the family. What could then be disclosed and to whom? Would the attorney be able to continue handling estate planning for the various family members? In any situation where the attorney is representing more than one individual, a conflict waiver is likely necessary. In the trust and estate context, such a waiver, may even be necessary when the attorney is representing only one individual, but that individual is acting in different capacities, such as a personal representative and a beneficiary. Apart from the potential damage to the client(s)’ interests, failure to obtain the necessary waivers may result in the attorney being barred from further representation and would certainly bring into question the attorney’s entitlement to fees.

A trusts and estates attorney acts as an advisor, as contemplated by Rule 2.1, which contemplates that an attorney may look to moral, economic, social and political factors in rendering advice to a client. The ethical rules provide a further roadmap for the attorney to ensure that the representation is properly handled, and the client’s needs are met.