Ethical Considerations for  Estate Planning Lawyers Drafting Trusts[1]

Preamble

Virginia lawyers are bound by the Virginia Code of Responsibility [“DR”]; Rules of Professional Conduct [“Rules”] and Professional Guidelines [“Guidelines”][2] and relevant ethical opinions [“LEO”]. 

The Preamble to the Rules[3] states:[4]

….In all professional functions, a lawyer should be competent, prompt and diligent. A lawyer should maintain communication with a client concerning the representation. A lawyer should keep in confidence information relating to representation of a client except so far as disclosure is required or permitted by the Rules of Professional Conduct or other law…

I.                   The Attorney-Client Relationship

 A.                Competency 

Estate planning, especially trusts, is a complicated practice area involving the confluence of the laws, inter alia, of trusts, fiduciaries, tax, asset protection.  Competency is the sine qua non of practicing in the field of trusts; especially irrevocable trusts in which second chances to correct scriber mistakes are limited.

Legal knowledge, skill, thoroughness and preparation necessary to the representation are necessary before undertaking accepting an estate-planning client.[5] 

New entrants into estate planning may consider taking relevant CLE courses; independent study of the law and practice using the Virginia Estate Planning handbook; use of a mentor; and seeking the assistance of experienced lawyers on select legal issues[6] or co-counseling with permission of the client with an experienced estate planner.[7]

B.                 The Engagement Letter

The client interview is an integral part of the representing a client to prepare a revocable or irrevocable trust.  Most lawyers request the client bring a financial statement or completed questionnaire to the first meeting. Client goals, wealth, family and other relevant information is gleaned from the interview with the client. A good faith estimate of the cost for the legal services is also provided once the lawyer understands the scope of the representation. The terms of the representation are embodied in an engagement letter. See Representative Engagement Letter at end of this section.

Not all prospective clients become actual clients. The questionnaire and information from the prospective interview process triggers the attorney-client privilege; the lawyer can’t disclose what prospective clients reveal in confidence[8] even if the lawyer never ends up representing them.[9] This information may be scanned and be preserved consistent with your firm’s record’s retention policy. Challenges by downstream beneficiaries to the validity of trusts occur, often many years after a lawyer’s drafting of the trust. Maintaining the engagement letter for your files protects the drafting lawyer and may aid conflict avoidance with disgruntled beneficiaries who are attempting to understand a deceased relative-grantor’s estate planning objectives under the terms of the instrument.

C.                Who is the Client-Single and Married Status        

The grantor of a trust is typically the lawyer’s client for purposes of estate planning. For a single individual, the duty of fidelity from lawyer to client is straight forward. Married and unmarried coupled raise threshold issues:

Married couples present several threshold issues: 

In the interview process the lawyer determines the stability and harmony of the marriage. A lawyer faces a potential conflict of interest in representing both spouses in a non-stable marriage. Lawyers are not in the business of marriage counselling or for that matter assessing the stability of marriages, or probability of separation or divorce.  A lawyer can, with the clients consent  represent two people whose interests are potentially opposed to each other’s[10] if each client’s consent is obtained in writing[11] after full disclosure of the ethical issues to the clients. The writer, after evidence of significant friction between spouses during the client interview, has declined to represent either party in order to protect the interests of both parties.  The issue is more clear-cut when a couple who have a “friendly” separation wish to plan together for the benefit of minor children. This conflict is not waivable and each party requires separate counsel.

Married couples with stable marriages, especially with minor children, are one of the most common to plan.  Each spouses is a client and the lawyer has an equal duty to fully and fairly represent the interest of each. Representation of married couples raises the issues of client confidentiality and privilege.[12]  Anything disclosed by one spouse is disclosable to the other spouse, and waives client privilege.  The engagement letter reflects representation of a married couple, waiver of attorney client privilege and the agreement of each party for the lawyer to share information obtained from either spouse with the other spouse.

Unmarried Couples, irrespective of sexual orientation, are a growing segment of the estate planning populations. The lawyers should disclose to the clients unmarried status does not contain the same tax advantages as marital status at this point in time. The conflicts of interests are explained and if agreeable to the clients waived to engage in orderly estate planning for each partner. Generally the partners shall waive confidentiality as between the two of them, and the estate planning proceed for their mutual benefit. Key ancillary instruments include powers of attorney for disability and medical emergency planning as in many states the partner would not have those powers of control of decision-making the partners consider essential to their plan. Unmarried status, under most laws in Virginia, will deprive the partners of tax advantages, such as the unlimited marital deduction. The law is rapidly changing in planning for unmarried couples, and should be checked for updates.

D.                Legal Fees Paid by Third Party      

The general rule does not vary when a third party pays for the estate plan of another.  Comment 13 of Rule 1.7 in both the Virginia Professional Guidelines and the Model Rules of Professional Conduct allows another person or entity to pay for legal services as long as the client is consulted on the arrangement and consents to it.  The attorney’s “loyalty and independent judgment are essential elements in the lawyer’s relationship to a client.”[13] 

Third party payment of legal fees must “not compromise the lawyer's duty of loyalty to the client;”^[14], and a lawyer should decline any arrangement in which the non-client payer of legal fees attempts to dictate the terms of the estate plan.[15] This situation arises on occasion when an adult child pays for a parent’s estate plan; or vice versa the parent pays for the child. Clearly set forth in the engagement letter a third party is paying the fees but has not control or access to information involving the representation by virtue of payment of legal fees.

II.                Confidentiality and Third Party Communications

A.                Confidentiality of Information

A lawyer shall not reveal information protected by the attorney-client privilege under applicable law or other information gained in the professional relationship that the client has requested be held inviolate or the disclosure of which would be embarrassing or would be likely to be detrimental to the client unless the client consents after consultation, except for disclosures that are impliedly authorized in order to carry out the representation, and except as stated in paragraphs (b) and (c).[16] 

A safe rule. A lawyer treats all information gleaned in the estate planning representation as confidential unless written permission is obtained from the client(s) within in the engagement letter, see limited confidentiality release in paragraph “Communications with Non-Lawyer Professionals of illustrative Engagement Letter” at end of this section or A Release For Counsel to Speak with Identified Individuals and Instructions for Limited Individuals to Communicate with Counsel, an illustrative instrument follows this section. Waiver of Confidentiality and Instruction to Share Information Release is prepared.

 

B.                 Permissive Disclosure

The permissive disclosure rule permits a law firm to reveal otherwise client protected information in several contexts that might arise in an estate planning practice, without the client’s consent[17]  such as upon receiving a subpoena from the Commonwealth Attorney or IRS;  defend against an ethical claim or professional malpractice suit; or to prevent a client committing a fraud on a bank or other financial institutions; and very importantly, to preserve the file in case it is needed after the lawyer disabled or dies;, and to provide a sense of security in having law firm personnel work on the file without staff violating a client’s confidences.

 

C.                Mandatory Disclosure

Disclosure of confidential information is mandatory when[18]:

The client intends to commit a crime and revealing the information is necessary to prevent the crime

Revealing the information would clearly show that the client has during representation perpetrated a fraud on the tribunal which relates to the subject matter of the representation (the attorney should first ask the client to reveal the information themselves)[19]

The information regards the conduct of another attorney.  The attorney must first consult with the client and obtain consent[20]

In any situation other than the ones above where attorneys may or must reveal confidential information, the attorney must have consent to make the disclosure. 

Consent does not always have to be express.  There are some situations where the client’s consent is implied.  The admission of facts that are not in contention in litigation can be to the clients benefit as can admission of facts in negotiation.[21]  

To competently represent their clients’ interests, attorneys need to consult with the colleagues from time to time.  This is allowable provided that the attorney makes sure they are revealing the absolute minimum of confidential information and has made sure the attorney they are seeking advice from does not have a conflict.[22]  If the attorneys are working in the same firm the attorneys may disclose information regarding the representation unless the client has stated they want the information to only be known by certain lawyers.[23]

 

III.             Clients with Impairment

 

The very nature of an estate planning practice brings the lawyer into contact with potential and actual clients with different degrees of impairment arising from age, medical infirmities and disorders, and serious accidents.  A “…lawyer shall, as far as reasonably possible, maintain a normal client-relationship with the client” and treat the person with “attention and respect.”[24]

 

Some flags of impairments are obvious, such as slurred speech, hearing disabilities, and cognitive functioning. Others impairments are more subtle; such as older adults starting to make decisions uncharacteristically contrary to their life long held beliefs and values. The lawyer has a duty to protect an older adult’s or otherwise impaired person interest zealously. The ethical caring lawyer can be a last line of defense in our society for the less fortunate individual.

 

If a lawyer believes the client is “at risk of physical, financial or other harm unless action is taken…the lawyer may take protective action…” including determining who can provide protection for the impaired person [e.g. a family member] and in cases warranting court intervention move for a guardianship.[25]  Urgent action by a lawyer in these circumstances calls for judgment and skill to protect the impaired person from self or others.

 

Many estate planning lawyers practices include contested and uncontested Guardianships while many lawyers provide a value service to the community acting as Guardian Ad Litem and factually investigating these type of cases for the Court.

 

Some of more usual cases that arise with estate planning lawyers involved clients in various phases of dementia. Initially the client is competent and preparing for impairment caused by this debilitating progressive neurological disorder. As the disorder progresses the client may be in the “grey zone” where it is unclear about the extent that the disorder is interfering with the client’s decision-making. Securing a medical opinion by the client’s specialized physician may help clarify whether the client is capable of making critical life decisions. Where possible the lawyer should look to the client’s representative [preferably a family member serving under a valid power of attorney or court appointment as a guardian] for decision-making.

 

IV.             Avoiding Fraudulent Transfers

 The profile of a client raising the ethical and substantive law issue of fraudulent transfers typically has debt or a “financially toxic asset” whose value exceeds their ability or willingness to pay this financial obligation.  Attempts at fraudulent conveyances find their way into estate planning offices due to the fact the conveyance into certain types of trusts and between trusts or use of select types of tax planning can better disguise the transaction than mere gifts and make them more difficult to untangle upon discovery. A trust conveyance [or any other conveyance] that transfers an asset out of the control of a debtor can be a fraudulent transfer if the transfer is made with the “intent to delay, hinder, or defraud creditor.”^[26]    Fraudulent transfers can be set aside if the creditor asks the court to do so.[27] 

The provision in the Rules for Professional Conduct that governs this situation is Rule 1.2 (c) which states:

A lawyer shall not counsel a client to engage, or assist a client, in conduct that the lawyer knows is criminal or fraudulent, but a lawyer may discuss the legal consequences of any proposed course of conduct with a client and may counsel or assist a client to make a good faith effort to determine the validity, scope, meaning, or application of the law.

Comment 6 provides contours of Rule 1.2 (c):

A lawyer is required to give an honest opinion about the actual consequences that appear likely to result from a client's conduct. The fact that a client uses advice in a course of action that is criminal or fraudulent does not, of itself, make a lawyer a party to the course of action. However, a lawyer may not knowingly assist a client in criminal or fraudulent conduct. There is a critical distinction between presenting an analysis of legal aspects of questionable conduct and recommending the means by which a crime or fraud might be committed with impunity.

The fact picture in LEO 1771 involves a client requesting a lawyer transfer a client’s only asset from sole ownership to tenancy by the entirety with the client’s spouse for the purpose of placing the asset out of reach of the client’s creditors.

The main ethics rule drawn from LEO 1771, reproduced at the end of this section, follows:

A lawyer may ethically explain to a client that a transfer meant to protect an asset by putting itself the reach of creditors is void as to the creditor being evaded and may subject the client. The lawyer is however barred by Rule 1.2 (c) from either recommending or assisting the client in the conveyance.

A word to wise should be enough to the estate planner that the use of trusts to defeat current creditor is unethical.

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Memo to Client(s): ___________________________________

From: Richard Mayberry      Date: May 12, 2014

 

This is to confirm that you have retained us to represent you with respect to your estate plan.

Description of Our Services and Legal Fees

The flat fee is $____,000 for assessing your estate planning needs, designing and drafting your trust-based estate plan, explaining it to you, and overseeing the execution of the documents. 

Specifically, documents prepared for you and presented in an estate plan portfolio include:

Ø  Locator listing of safe-storage sites for your estate plan documents

Ø  Confirmation of names of fiduciaries

Ø  Short summary of your trust

Ø  Your living trust   

Ø  Affidavit of trust evidencing you have a trust

Ø  Personal property memorandum to transfer personal property

Ø  Funding roadmap for transferring assets into your trust

Ø  Pour-over will for probate of assets you don't title into your trust

Ø  Health care power of attorney for agent to make health decisions when you are unable

Ø  Living will re your choice on life-prolonging procedures with terminal condition

Ø  Limited durable power of attorney assists disability trustees to act on financial matters

Ø  Memorial instructions for you to complete expressing your burial wishes

 

Duty of Client to Cooperate in Scheduling Meetings & Providing Information

If you fail to cooperate in our scheduling process or to provide requested information, we reserve the right to bill hourly for our time to refresh ourselves with your file and matter, re-assemble plan documents, and take other action to timely complete our services.

We deliver our services at a reasonable cost, and rely on your cooperation in scheduling the delivery meeting, funding meetings and other conferences with us to timely implement your estate plan as well as information and documents necessary for us to do our job. Substantial delays in scheduling and failure to provide necessary information causes and increase in cost and reduces our ability to maintain current pricing levels.

In extreme cases, we reserve the right to withdraw our representation should you fail to cooperate in providing requested information or in timely scheduling the presentation ceremony, funding meeting, or any other conference.  Fees are payable in the case of our withdrawal as set forth in the section Fees Payable In The Case Of Discharge or Withdrawal of Representation. 

Changes in Design after Planning Conference

Factors affecting my design recommendations to you and the flat fee include, among others, whether you have a taxable estate, the classes of assets you own, details of your life and family circumstances, your estate planning goals, and the time it takes to draft, present, and explain your estate plan to you.

 

If you omit material information affecting your estate plan or substantially change your goals after our planning conference or request explanations outside our normal course for similar plans, I am happy to undertake the additional work for you at my prevailing hourly rates and the fees will be adjusted upward.

 

Fees Payable In The Case Of Discharge or Withdrawal of Representation or Non-Payment

If you choose to discharge us for any reason, or we withdraw from representing you, you agree to compensate us for all services rendered through the effective date of discharge or withdrawal at our agreed-upon flat rates referenced within, or $ __00 per hour, whichever is less. 

Presentation of Plan Documents

Duty to Ask Questions and to Understand Estate Plan

 The legal instruments we prepare may be complex to read and understand. Collective experience has shown that client review of drafts before reviewing them with counsel may lead to confusion and often delay in implementing the plan.

 

Therefore, we thoroughly review the estate plan documents with you at the presentation and signing ceremony at which time we explain each document generally article by article and as thoroughly as you desire. Do not be passive in this process, it is your estate plan.  In signing this agreement, you affirmatively represent that you will ask questions when in doubt as to the meaning of any part of the presentation you don’t understand. I will endeavor to make non-design changes you request during the presentation prior to your signing and provide a trust summary and list of fiduciaries to you prior to the delivery meeting for your review.

 

If you desire to review draft documents prior to the delivery meeting, ask me and I will provide them to you. The remainder of your fee is payable prior to the delivery of such drafts and you alone are responsible for an unsigned estate plan caused by delay in your not promptly scheduling a delivery meeting.

 

 

30 Day No-Cost Guarantee  to Read, Further Explain and Make Changes

 

With my presentation protocol, the duty to read every instrument, every page, thoroughly, occurs with most clients after the delivery meeting. By signing this engagement agreement, you agree you will read and review the legal instruments thoroughly, and timely notify me if any do not conform to your estate planning objectives or if you don't understand any part of it.

 

Remember, no attorney is error-proof. Your thorough review is important to ensure that I have followed your directions and objectives and that we have properly recorded all essential information. Also, despite our best efforts, from time to time, glitches, such as typographical errors, occur in lengthy documents.  Any changes made due to our error you timely notify me of will be made without cost to you.

 

Also, this is a window of opportunity for you to timely notify me of any minor, non-substantive word processing changes that are not design changes you wish to make.

 

Communications with Non-Lawyer Professionals

You are best served when your lawyer can coordinate with your non-lawyer professionals, e.g. accountants, financial advisors, insurance agents, banking institutions, and other advisors.  We do not disclose any non-public personal information about you to anyone except as permitted by law, or as authorized by you.

By signing this letter you authorize me to disclose non-public personal information to unrelated third parties, such as your financial advisor, insurance professional, stockbroker, stock transfer agent, CPA, banker or other similar professional any information regarding you to aid in the coordination and implementation of your estate, financial and retirement planning and to government authorities in connection with any tax returns prepared by us, supervised by us or at my direction. 

We restrict access to non-public personal information about you to those agents of my law firm who need to know the information in order to provide legal services to you.  We maintain physical, electronic, and procedural safeguards that comply with Federal Regulations and our rules of ethics to guard your non-public personal information.

 Joint Representation and Confidentiality for Married Couples [If Applicable].

It is common for a husband and wife to employ the same lawyer to assist them in planning their estates.  You have taken this approach by asking me to represent both of you in your planning.

We are entering into this representation with the understanding that you have a stable marriage, commonly agreed to estate planning objectives, including but not limited to, choice of trustees and the distribution of assets at death, and can legally be represented by my law firm.  If this is not the case, please promptly inform me.

It is important that you understand that because I will be representing both of you, each of you is considered our client.  By signing this agreement you waive a conflict of interest in this joint representation to the extent one may exist.

 

We will not treat any information one of you provides to us as confidential from the other.  If we withhold information given to us by one of you, it destroys the effectiveness of our representation of the client from whom that information is withheld.  Accordingly, any information we receive from one of you pertaining to your estate plan will be available to the other spouse. 

 

We may, from time to time, make suggestions that one or the other of you perceives to be inimical to your interests.  Should that occur, either of you would be free to retain another lawyer to complete the part of the estate plan pertaining to you.

 Joint Representation and Confidentiality for Unmarried Couples [If Applicable].

It is common for two persons, or partners, irrespective of sexual orientation to live with each other unmarried and ask the same lawyer to assist them in planning their estates.  You of course have the right to separate lawyers instead of a joint representation. You have taken the joint representation approach by asking me to represent both of you in your planning.

 

We are entering into this representation with the understanding that you have a stable relationship and are in agreement of your common estate planning objectives, including but not limited to, choice of trustees and the distribution of assets at death, and can legally be represented by my law firm.  Unmarried couples do not at this point in time enjoy the same tax benefits, such as the unlimited marital deduction, as married couples.

 

It is important that you understand that because I will be representing both of you, each of you is considered our client.  By signing this agreement you waive a conflict of interest in this joint representation and waive any confidentially as between the two partners.

 

You have directed us and we shall comply in sharing all information one of you provides to us as available to the other partner.  If we withhold information given to us by one of you, it destroys the effectiveness of our representation of the client from whom that information is withheld.  Accordingly, any information we receive from one of you pertaining to your estate plan will be available to the other spouse.  Understand we may, from time to time and where justified by law, inform one of you as to legal recommendations that the other may view as inimical to their interests. Should that occur, either of you would be free to retain another lawyer to complete the part of the estate plan pertaining to you.

 

***

A photocopy of this retainer shall have the same force and affect as any original, and may be used for any purpose the original could be used. If you have any questions on the terms of our engagement, call me and please do not hesitate to promptly ask them.  We are honored to represent you in this important matter.

  

Seen and Agreed:

 

 

 

Date:                                                                                                                             ________________________________

Client [Spouse, Partner]                                             

 

 

 

 

 

 

Date:                                                                                                                              _______________________________

Client [Spouse, Partner] 

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Illustrative General Release for Client(s) Lawyer and Non-Lawyer Advisors

 to Communicate Re Estate Plan                                

Richard Mayberry

Attorney and Counsellor At Law

 

We, ________________ and ______________ authorize our attorney Richard Mayberry to communicate with our accountant(s), financial advisor(s), insurance agent(s), banking institution(s), and any and all other financial institution(s) in connection any and all information relevant to the preparation of our estate plan.

 

We authorize and instruct our accountant(s), financial advisor(s), insurance agent(s), banking institution(s), and any and all other financial institution(s) to commutate with our attorney Richard Mayberry to communicate with any information he requests for the preparation of our estate plan.

 

This Release shall expire six (6) months from the date below.

 

Dated:

 

_____________________________                                                                                                                                    Client

 

_____________________________                                                                                                                                    Client

Legal Ethics Opinion 1771

Duty of Attorney When Assisting Client in the Issuance of a Fraudulent and Voluntary Conveyance

You have presented a hypothetical in which a client comes into the lawyer's office seeking legal assistance regarding the client's plan to render herself insolvent by transferring her only asset from sole ownership to ownership with her husband in the form of tenants by the entirety with survivorship. The transfer would not include any consideration. The client clearly expresses to the attorney that the client's purpose in making this conveyance is to place her one asset outside the reach of her creditors and, thereby, rendering herself insolvent. Your hypothetical presumes that the conveyance would be void under the Fraudulent Conveyance Act, Va. Code §55-80, and voidable under the Voluntary Conveyance Act, Va. Code §55.81.

The provision in the Rules for Professional Conduct that governs this situation is Rule 1.2 (c) which states:

A lawyer shall not counsel a client to engage, or assist a client, in conduct that the lawyer knows is criminal or fraudulent, but a lawyer may discuss the legal consequences of any proposed course of conduct with a client and may counsel or assist a client to make a good faith effort to determine the validity, scope, meaning, or application of the law.

Nothing in your hypothetical suggests that determination of "the validity, scope, meaning, or application of the law" is at issue. Rather, the question posed in your scenario requires making a distinction between counseling or assisting a client in fraudulent conduct and merely discussing the legal consequences of proposed conduct. Comment 6 discusses that determination as follows:

A lawyer is required to give an honest opinion about the actual consequences that appear likely to result from a client's conduct. The fact that a client uses advice in a course of action that is criminal or fraudulent does not, of itself, make a lawyer a party to the course of action. However, a lawyer may not knowingly assist a client in criminal or fraudulent conduct. There is a critical distinction between presenting an analysis of legal aspects of questionable conduct and recommending the means by which a crime or fraud might be committed with impunity.

This committee has previously applied this test to a number of situations. In most of those situations, the committee concluded that the question rested on a substantive legal question outside the purview of the committee. For example, in LEO 782, the committee addressed whether it was permissible for an attorney to tell a spouse separated from, and divorcing, her husband to enter the jointly owned home, now occupied solely by the husband, for the purposes of removing items of personal property. The committee concluded that whether such entry was legal was outside the purview of the committee; the committee just noted that if the conduct was illegal, the attorney could not advise the client to do it. See, LEO 782. The committee took a similar approach in several subsequent opinions. See, LEO 1219 (regarding whether an attorney could arrange for one client to loan a second client money for litigation expenses in light of the statutes addressing champerty and maintenance), LEO 1222 (regarding whether an attorney could assist in a settlement involving secrecy about criminal acts in light of the statutes addressing misprision of a felony), and LEO 1227 (regarding whether an attorney could assist potential parents in certain steps toward a private adoption). In each of these LEOs, the committee declared that a substantive legal question regarding the legality of particular conduct was outside the purview of the committee and concluded only that should the attorney determine the conduct in question to be illegal, he should not counsel his client to take that action.

The committee concludes that the present hypothetical presents a similarly limited issue within the committee's purview. A definitive conclusion as to whether the attorney in this hypothetical can assist this client without violating Rule 1.2(c) would require an analysis of whether a transfer described by Va. Code §§55.80 and/or 55.81 constitutes fraud.⁽¹⁾ Interpretation of those statutes is outside the purview of this committee. Accordingly, this committee must limit its conclusion regarding this matter by opining only that if this attorney determines that the proposed transfer constitutes fraud, he cannot recommend that transfer, nor assist his client in that conveyance. Rather, if the attorney does determine that the proposed transfer constitutes fraud, Rule 1.2(c) would only permit the attorney to explain the legal consequences of the client's proposal, namely, that the transfer would be void with regard to those creditors this client wishes to evade.

This opinion is advisory only, based only on the facts you presented and not binding on any court or tribunal.

Committee Opinion November 27, 2002

¹The committee notes that the Rules of Professional Conduct use a unique definition of "fraud." "Fraud" is defined in the Rules as "conduct having a purpose to deceive and not merely negligent misrepresentation or failure to apprise another of relevant information."