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Frank W. Streng, Esq. Partner 11 Martine AvenueWhite Plains, NY 10606-1934 McCarthy Fingar LLP 914‑946‑0134 (fax) 914-946-3817 ext. 256 (voice) e‑mail: fstreng@mccarthyfingar.com web: www.mccarthyfingar.com |
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Lorman Education Services
Exploring
Probate Issues
October 5, 2004
Ethical Issues
for Trusts and Estate Lawyers
A.
Introduction – Source
Materials
·
Introduction:
·
Our
goal: to try to raise some issues for Surrogate’s Court practitioners so we are
better able to work with the ethics rules and to become effective lawyers for
our clients
·
What
is professionalism? How does a lawyer
maintain professionalism and a successful business?
·
What
are lawyers selling? Knowledge,
competence and experience in solving a client’s problem?
·
In
the wake of the internet, how can you, the lawyer, compete in this market
place? How do you compete in market in
which, following a community based seminar on estate planning, someone asks you
if you could recommend (1) books or periodicals on estate planning or (2) good
web sites
·
Have
you ever talked to anyone who attending a “lawyer bashing” revocable trust
seminar?
·
Canons
of Ethics: Code of Professional Responsibility
·
Ethical
Considerations (ECs) (aspirational standards)
·
Disciplinary
Rules (DRs) (black letter rules)
·
American
Bar Association’s Model Rules of Professional Conduct (adopted by 4/5ths of
states) (black letter rules, with commentary)
·
Bar
Association Opinions
·
New
York State Bar Association Committee on Professional Ethics
·
Association
of the Bar of the City of New York
·
New
York County Lawyers Association
·
Court
decisions
Introduction: Take us through the Canons
of Ethics and to focus on particular ECs and DRs relevant to Surrogate’s Court
practice
Canon 1: A Lawyer Should Assist in Maintaining the Integrity
and Competence of the Legal Profession.
Canon 2: Lawyer Should Assist the Legal Profession in
Fulfilling its Duty to Make Legal Counsel Available.
Canon 3: A Lawyer Should Assist in Preventing the
Unauthorized Practice of Law.
Canon 4: Lawyer Should Preserve the Confidences and Secrets
of a Client.
* * *
B. Except
when permitted under DR 4-101(C), a lawyer shall not knowingly:
1. Reveal a confidence or secret of a client.
* * *
C.
A
lawyer may reveal:
*
* *
4.
Confidences
or secrets necessary to establish or collect the lawyer’s fee or to defend the
lawyer or his or her employees or associates against an accusation or wrongful
conduct.
CPLR 4503(a) “[U]nless the
client waives the privilege, an attorney . . . shall not disclose, or be
allowed to disclose such communication . . . .”
CPLR 4503(b) “in any action
involving the probate, validity or construction of a will, an attorney or his
employee shall be required to disclose information as to the preparation,
execution or revocation of any will or other relevant instrument, but he shall
not be allowed to disclose any communication privileged under subdivision (a)
which would tend to disgrace the memory of the decedent.”
·
Reconciling
the traditional attorney-client privilege rules with the attorney-client
relationship between a lawyer and a fiduciary of an estate. What is different about trusts and estates
clients? In theory, estate planning
clients are no different than any other client whose confidence we must
uphold. But see CPLR 4503(b) (will exception) (“tend to disgrace” the
decedent’s memory; concerned about how the decedent will be seen)
·
After
the client’s death, who does the lawyer represent:
·
the
estate?
·
the
executor(s)?
·
specific
legatees of tangible personal property
·
cash
or pecuniary legatees
·
the
independent trustee of residuary trust?
·
permissible
lifetime beneficiaries of residuary trust?
·
remainderman
of residuary trust?
·
the
outright residuary beneficiaries?
·
all of the above?
·
In
Hoopes v. Carota, 74 N.Y.2d 716
(1989), the Court of Appeals held that, since the trustees of a trust were
acting in a fiduciary capacity, the privilege is not absolute and may be set
aside on a showing of “good cause” by the beneficiaries. The Court also noted that “some courts have
held that the privilege does not attach at all.” Id. at 717. The Court upheld the Appellate Division’s
finding of “good cause” and concluded that “the communications are not
privileged in any event.” Id.
But see AMBAC
Indemnity Corp. v. Bankers Trust Co., 151 Misc. 2d 204 (Sup. Ct., N.Y. Co.
1991) (good cause not shown for indentured trustee)
·
What
does it mean to “act in a fiduciary capacity”
Is it different to “act in a representative capacity”? No; you are acting “in behalf” of someone
else – the beneficiaries.
·
In
Matter of Baker, 139 Misc. 2d 573
(Surr. Ct., Nassau Co. 1988), Surrogate Radigan, after analyzing the various
cases and issues as to whether a privilege can be asserted by a fiduciary of an
estate, compelled the fiduciary to turn over a sensitive document in the estate
that pertained to distributions from the estate. Surrogate Radigan held as follows:
Id.
at 577 (Emphasis Supplied)
·
When
does a lawyer advise the fiduciary that “litigation . . . is anticipated”? For purposes of privilege, should we be
identifying areas where litigation might be “anticipated”?
·
The
answer: tell executors and trustees that, with few exceptions, they cannot be
expected to have a true privilege. As
in the case of Justice Stewart’s famous definition of pornography – you’ll know
that the subject is “privileged” when you see it
·
How
about:
·
Conflicts
between beneficiaries of estate and fiduciary/beneficiary of nonprobate assets
·
Estate
tax penalty issues
·
Noninterest
bearing funds and possibility of surcharges
·
A
“blown deal” for the sale of estate assets on the part of the executor, with
clear fault/imprudence on the executor’s part; communications with executor
before and after the blown deal
·
Retention
by client to represent executor in contested estate accounting proceeding, and
objectant seeks surcharges against the executor
·
Is
there risk in asserting privilege for trusts and estates lawyers whose fee
applications may need to be determined by the Court; and the lawyer is
considered, more than in other areas, to be “officers of the Court”?
·
Do
lawyers have conflicts of interest as to potential privilege issues when the
lawyer’s fee may be compromised if the lawyer becomes an “advocate” on a
privileged issue?
·
New
amendments to CPLR 4503 re eliminating fiduciary exception
Canon 5: A Lawyer Should Exercise Independent Professional
Judgment on Behalf of a Client.
(1) If the testimony will relate
solely to an uncontested issue.
(2) If the testimony will relate
solely to a matter of formality and there is no reason to believe that
substantial evidence will be offered in opposition to the testimony.
(3) If the testimony will relate
solely to the nature and value of legal services rendered in the case by the
lawyer or the lawyer’s firm to the client.
·
Witness Advocacy Rule. When can a lawyer:
·
Act
as the sole advocate?
·
Act
as “co-counsel” and use a trial counsel?
· Examples:
· Will contest. Answer: Get trial counsel for probate proceeding; and represent estate if the fiduciary wants you. In many instances, it might be advisable to have a different lawyer acting as counsel of record; and not simply as a trial counsel.
·
Estate Litigation seeking
surcharges. Likelihood that your
fiduciary is the person in control.
However, when there is estate litigation, you may have estate counsel
giving testimony; and it may be helpful or harmful to fiduciary
·
Estate Litigation dealing
with nonprobate assets payable to fiduciary. Keep
in mind who you represent.
·
Possible Waiver of Conflict
by Clients: If there is a conflict, the attorney must
determine whether the conflict may be waived by both clients. Specifically, both clients can waive the
conflict, provided “it is obvious that the lawyer can adequately represent the
interests of each” client. DR 5-105(C).
·
Disclosure before Obtaining
Waivers: If the attorney concludes that, upon waiver,
he or she can still adequately represent client, the attorney can obtain waiver
from both clients only “after full disclosure of the possible effect of [the
joint] representation on the exercise of the lawyer’s independent professional
judgment on behalf of each.” DR
5-105(C).
· Representing multiple clients with potential conflicts of interest is a common theme for many trusts and estates lawyers, particularly since a substantial part of trusts and estates practice is considered to be “nonadversarial.” Examples of some problems follow.
· Lifetime Planning: Can you represent both clients in these scenarios? Does it matter whether husband and/or wife are on second or third marriages and have children of prior marriages?
·
Husband and Wife in
preparation of Wills and Trust Agreements and Related Estate Planning.
·
Husband and Wife in
Execution of Spousal Waivers of Elective Share. Bad Idea
· Husband and Wife in Husband’s or Wife’s creation of Irrevocable Life Insurance Trust.
·
Husband and Wife in
Husband’s or Wife’s execution of spousal waiver of Qualified Plan accounts.
·
Husband and Wife who cannot
agree on who the “ultimate” beneficiaries of estate will be.
·
Both fiancées in prospective
marriage in the preparation and execution of prenuptial agreements.
· Multiple Fiduciaries. Inform fiduciaries of the consequences of representing all of them. In the event of a conflict, you may continue to represent one of them, with the consent of the other fiduciary. See discussion below on representing fiduciaries and beneficiaries.
· Fiduciary and Surviving Spouse in Will with Q-Tip trust with issues as to Whether Spouse Files Elective Share. Husband and Wife make reciprocal wills creating Credit Shelter outright bequests and Q-Tip trusts. Husband predeceases and an issue exists as to whether the wife will get “more money” by an elective share. Must there be independent representation for the wife?
·
Communications with
Beneficiaries. Can a lawyer represent one
or more of the beneficiaries of the estate and the fiduciary of the
estate? No, not in the proper sense,
and the beneficiaries would need to engage separate counsel to represent their
interest. But, to the extent that the
fiduciary of the estate is considered to be acting in a representative capacity
(as the representative of the residuary beneficiaries of the estate), then the
lawyer for the fiduciary arguably has a duty to such beneficiaries (see Matter
of Clarke, 12 N.Y.2d 183, 187 (1962) (“An attorney for the fiduciary has the
same duty of undivided loyalty to the cestui
as the fiduciary himself”). That duty
is sometimes discharged by the lawyer having necessary communications with such
beneficiaries in the proper representation of the fiduciary as the client. See discussion above for issues
arising out of attorney-client privilege.
Indeed, pursuant to SCPA 2102(1), a fiduciary has a duty to respond to
written requests for information concerning an estate, and the attorney for the
estate will frequently provide to such beneficiaries copies of important
documents in the estate, such as Federal and New York estate tax returns and
related papers, even prior to an accounting.
·
Representing Fiduciary in
Individual and Representative Capacities.
Can
a lawyer represent a fiduciary both in his or her capacity as a fiduciary and
his or her capacity as a beneficiary.
Yes, and it happens all the time.
But, what if the fiduciary/beneficiary has offered a will for probate
and substantial litigation and/or controversies take place in the estate, such
as a will contest and other similar problems for which your client is the
target? The answer is still yes, but
the lawyer needs to evaluate all of the consequences in these difficult
scenarios.
·
Consider: Retainer agreement. Who do you represent and who pays the bill?
·
Representing Multiple
Objectants in Will Contest with Different Interests. Can you represent multiple objectants in will contest even though
their interest are different? Examples:
·
multiple
classes of distributees/beneficiaries (distributees, with no interest in prior
will; distributees with interest in prior will;
·
clients
with differing goals in will contest (distributees with interest in challenging
will; distributees with interest in sustaining a claim against the estate for
debt.
Canon 6: A Lawyer
Should Represent a Client Competently.
· If a lawyer does not have prior experience in a particular legal matter, he or she can still be engaged. For example, a lawyer who has no experience even in litigation in the Surrogate’s Court involving sophisticated tax issues can be engaged, provided that lawyer commits himself or herself in becoming competent or associates with a lawyer who is competent on the tax issues.
· For lawyers with insufficient experience in this area, consult and pay out of your own pocket someone who is. Ethically, professionally and economically required. The alternative: your very sophisticated client sees your lack of experience in working on the tax aspect of the litigation; and your client either gets bum work or fires you.
·
Before
mandatory CLE, maintaining your skills and ability, through CLE, permitted us
lawyers to satisfying our ethical obligations.
·
The
use of legal assistants by trusts and estates lawyers brings on ethical
obligations. Assuring proper oversight
and training is necessary to assure that competent legal work is carried out in
behalf of a client.
·
Performing
legal work effectively, and expeditiously, is an important component of
carrying out competent legal work.
·
Communicate, Communicate,
Communicate!!!! The single biggest criticism
of lawyers is their failure to return phone calls or otherwise communicate with
their clients.
Canon 7: A Lawyer Should Represent a Client Zealously Within
the Bounds of the Law.
·
Dilemma: When does
your duty of advocacy end and your relationship to the Surrogate’s Court and
its personnel begin?
·
Dilemma: When does
your duty of advocacy end and your relationship with your adversary, a
long-time friend, begin?
Canon 8: A Lawyer Should Assist in Improving the Legal
System.
Canon 9: A Lawyer Should Avoid Even the Appearance of
Professional Impropriety.
· Full compliance with DR 9-102 in dealing with client escrow accounts is essential to assure that a lawyer maintains his or her license to practice.
· Proper record keeping is the key.
· Should you use escrow accounts in the management of estates and trusts?
· DR 9-102 goes beyond the management of escrow accounts; it goes to the core of the lawyer’s business records. DR 9-102(D.) requires retention for 7 years many business records, including, but not limited to, all escrow account records, special account records, retainer and compensation agreements, client disbursement records and bills.
· What are the stakes in proper management of escrow accounts: Tarrytown lawyers, Robert J. Ponzini, Robert W. Spencer and Thomas W. Maroney know that the stakes were their licenses (since modified by the Second Department).
·
Balances
fell below 0, through inadvertence
·
Obligation
of bank to inform Central Registry at the Lawyers’ Fund for Client Protection
within 5 days when negative balance takes place
·
Bookkeeping
errors
·
Failed
efforts in curing bookkeeping problem
·
Lessons:
·
Control
your bookkeeper
·
Instruct
your bookkeeper
·
Exercise
control over your bookkeeper
·
Develop
strict procedures to assure that, under no circumstances, are escrow accounts
over drafted
·
What
about check fees, for example, certified check fees? Either know, with certainty, what they are if you permit them to
be charged against the escrow account.
Or, do what my firm does, and have such charges assessed against our
firm’s business account.
(The paragraphs below are reprinted with permission from McQuaid,
Streng and LaPiana, NEW YORK WILLS AND
TRUSTS (3rd Ed. Lexis, 1998))
Persons who are in a confidential relationship to a
testator, and who receive legacies or
other benefits under a will, have a special burden to explain the circumstances leading to such benefit. The principle
leading to this rule was enunciated by
the Court of Appeals in 1931 in Matter
of Putnam,21 in which the Court said: "Attorneys for clients who intend to leave them or
their families a bequest would do well
to have the will drawn by some other lawyer. Any suspicion which may arise of improper influence used under the
cover of the confidential relationship
may thus be avoided."22
Under the Putnam Rule, a legacy in
favor of a person who is in a
confidential relationship to the testator may be excised from a will if
the Surrogate finds that the legacy was
the product of undue influence. While the
Putnam Rule is an offspring of the objection of
undue influence,23 the Surrogate can allow the probate of the
will but expunge the legacy.24 In applying
the rule, the court either requires the submission of an affidavit
or schedules a hearing to explore the
circumstances that led to the legacy.
The Putnam Rule has its most
obvious application to an attorney- drafter, but it has been applied to
individuals who share different
confidential relationships with the testator, including, but not limited
to, relatives of the attorney-drafter,25 doctors,26 nurses,27 nursing home
personnel,28 accountants and financial advisors,29 and clergy.30 If another attorney is selected to prepare a will in which the testator's
primary attorney, or a member of his or
her family, is a beneficiary, the attorney who is selected must be independent of the control or interest of the initial
attorney.31
In a developing area of the law, the
Putnam Rule has been used by
Surrogates to review the propriety of the designation of an attorney- drafter
as an executor or trustee under the will. In Matter of Weinstock,32 the
Court of Appeals reinstated a Surrogate's decree in which letters
testamentary had been denied to
attorneys, a father and a son, who were named as executors in a will prepared by the father, but who
had had no previous professional
relationship with the testator. Noting that the attorneys were aware of
the testator's intention to avoid
executor's commissions, the Court held that the testator's confidential relationship with the attorneys required
that the attorneys disclose the effect
of a joint designation to the testator.33
The designation of attorneys as
fiduciaries, which is illustrated by Weinstock , has led to close supervision
by Surrogate's Courts over compensation
to the attorney-fiduciary for both legal services and statutory commissions.
In Matter of Laflin ,34 the
Appellate Division, Second Department, held that objections to multiple
executors' commissions may be made by the beneficiaries in the final accounting proceeding. And in view of the
"fact that an attorney draftsman of
a will is uniquely situated to selfishly gain additional
employment"35 as counsel for a testator's estate,
Surrogates generally are giving strict
scrutiny to attorney fees for the attorney-fiduciary.36
·
The
Putnam rule: Almost needs no
introduction: It started with an attorney, in which, in 1931, the Court of
Appeals held that, in the absence of an acceptable explanation, a jury would be
justified in drawing an inference of undue influence as to a bequest drafted by
the drafting attorney to the drafting attorney. Court advised: have someone else draw the Will under these
circumstances.
·
Hearing
v. Affidavit
·
Even
when attorney did not draft, court can hold hearing
·