Frank W. Streng, Esq.

McCarthy Fingar LLP

11 Martine Avenue

White Plains, NY 10606-1934

914‑946‑0134 (fax)

914-946-3817 ext. 256 (voice)

e‑mail: fstreng@mccarthyfingar.com

web: www.mccarthyfingar.com

NYSBA CLE

Trusts and Estates Law Section

Estate Planning and Will Drafting – Ethical Issues

May 19, 2005 – Tarrytown, NY

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

A. Canons of Ethics; Ethical Considerations and Disciplinary Rules

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.

Attorney Fee Issues

· Factors for the Fixation of Fees

o DR 2-106(a) prohibits entering into an agreement to charge or collect an excessive fee

o DR 2-106(b) lists the factors to be considered in determining prohibits entering into an agreement to charge or collect an excessive fee

· The time, labor, difficulty and skill involved;

· The likelihood that the employment will preclude other employment;

· The customary fee charged in the locality;

· The amount involved and the results;

· The time limitations imposed;

· The length and nature of the relationship with the client;

· The experience, reputation and ability of the lawyer

o Matter of Freeman, 34 N.Y.2d 1 (1974)

o Matter of Potts, 213 A.D. 59, 62 (4^th Dep’t 1925), aff’d, 241 N.Y. 593, where the Appellate Division said:

In general the court, in determining the justice and reasonableness of an attorney’s claim for services, should consider the time spent, the difficulties involved in the matters to which the services were rendered, the nature of the services, the amounts involved, the professional standing of the counsel, and the results obtained.

o Application for Attorney Fees under SCPA 2110

o Rule 207.45:

§ Petition;

§ Affidavit of services;

§ State

· when by and by whom the attorney was retained;

· terms of retainer;

· amount requested;

· whether the client has been consulted as to fee requested;

· whether client has consented to fee requested; if not, the extent of disagreement and nature of controversy;

· period in which services rendered;

· services rendered;

· the time spent;

· method or basis of compensation;

· whether fee includes services to be rendered through decree and distribution; and

· whether hearing is waived;

o Attorney/Fiduciary Issues

o SCPA 2111 (an attorney who is also a fiduciary must obtain court approval to received advance legal fees).

o See balance of outline under Canon 5, including SCPA 2307-a

· Written Letters Of Engagement In Civil And Criminal Matters With Fees Of $3,000 Or More

o Part 1215 to Title 22 of the Official Compilations of Codes, Rules and Regulations of the State of New York

· Effective March 4, 2002, all attorneys must have a written letter of engagement before commencing representation OR within a reasonable time after commencing representation of a client if it is impracticable at the time of commencement or if the scope of services cannot be determined at the time of the commencement of representation.

· For purposes of Part 1215, where an entity (such as an insurance carrier) engages an attorney to represent a third party, the term "client" shall mean the entity that engages the attorney.

· Where there is a significant change in the scope of services or the fee to be charged, an "updated letter of engagement" must be given to the client.

· Part 1215 does not apply:

o if legal fees are expected to be less than $3,000

o where the attorney's services "are of the same general kind as previously rendered to and paid for by the client" [i.e., regularly existing clients]; or

o to domestic relations matters which are still subject to Part 1400 of the Joint Rules of the Appellate Division.

· Contents of Letters of Engagement

o Letters of Engagement Must Include:

§ scope of legal services;

§ attorney's fees to be charged, expenses and billing practices; and

§ where applicable, notice of the client's right to arbitration of fee disputes under Part 137.

o Letters of Engagement May Include:

§ Under §137.1(b)(2), an attorney may make fee arbitration apply to disputed amounts less than $1,000 or more than $50,000 "if the parties have consented. ..." Without the client's consent, fee arbitration does not apply to sums less than $1,000 or more than $50,000.

§ Under §137.2(b), an attorney may make fee arbitration mandatory for the client by obtaining the client's written consent in "a retainer agreement or other writing..." If not included in the retainer agreement, fee dispute arbitration commenced by a client is mandatory for the attorney but is not mandatory for the client if commenced by the attorney.

§ Under §137.2(c), an attorney can make the arbitration award final, instead of subject to a de novo review, by obtaining the client's written consent.

§ Under §137.2(d), an attorney can select a different arbitral forum for fee dispute arbitration, by obtaining the client's written consent.

· What if there is no retainer agreement?

· Fee Dispute Arbitration v. Determination of Fees by Surrogate’s Court

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.

EC 4-1: Both the fiduciary relationship existing between lawyer and client and the proper functioning of the legal system require the preservation by the lawyer of confidences and secrets of one who has employed or sought to employ the lawyer. A client must feel free to discuss anything with his or her lawyer and a lawyer must be equally free to obtain information beyond that volunteered by the client. * * * *

DR 4-101: Preservation of 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.

* * *

B. 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.”

· Clients under Disability

· Attorney client privilege

ABA Model Rule 1.6(a)

Do not reveal client confidence, unless you will:

· Prevent death/harm

· Prevent financial injury

· secure legal advice

· establish lawyer claim

· 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:

This court is of the opinion that a fiduciary has an obligation to disclose the advice of counsel with respect to matters affecting the administration of the estate (2A Scott, Trusts § 173 [4^th ed]). This is subject to the limitation that the fiduciary should have the protection of the privilege when litigation has commenced or is anticipated (2A Scott, Trusts § 173 [4^th ed]); see, In re LTV Sec. Litig., 89 FRD 595). Certainly, the fiduciary is entitled to the benefit of counsel in the preparation of his defense in a contested accounting or other proceeding.

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.

Can you take a case if you will be a witness?

DR 5-102: Lawyers as witness

A. A lawyer shall not act, or accept employment that contemplates the lawyer’s acting, as an advocate on issues of fact before any tribunal if the lawyer knows or it is obvious the lawyer ought to be called as a witness on a significant issue on behalf of the client, except that lawyer may act as an advocate and also testify:

(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.