Maintaining An Ethical Practice

Maintaining an Ethical Practice
Charles C. Bratton, II
Attorney at Law
Sharp Bratton Attorneys at Law
www.SharpBratton.com

Estate planning attorneys face a number of significant ethical issues when undertaking representation of a client. Some significant questions must be posed such as ... What is the role of the attorney, who does the lawyer represent, what fees are allowed. Certain determinations must be made from the outset in order to avoid conflicts of interest, address questions of confidentiality and thus appropriately define to whom the duty of loyalty is owed.

Many estate planning transactions do not involve adversarial relationships, at least at the outset. Neither litigation nor negotiation plays a factor in most cases. Typical matters which may be handled by an estate planning attorney are establishing an arrangement for transfer of assets to another person or group of persons, tax reduction or asset protection planning as well as representing parties in the estate administration process. Since the goals and interests of the individuals involved may not seem to be adverse or divergent, many choose to utilize a single attorney in light of the significant cost savings that can be recognized.

In evaluating the ethical implications of a lawyer's actions, he or she may consider a number of sources including state ethical rules, malpractice and breach of fiduciary cases and state ethics opinions.

A useful starting point is the New Jersey Rules of Professional Conduct (RPC) which adopted in modified form the most recent version of The American Bar Association Model Rules of Professional Conduct.

Recognizing that the Model Rules do not adequately address the unique set of problems faced by estate planning attorneys, the American College of Trust and Estate Counsel (ACTEC) Foundation published the "Commentaries on the Model Rules of Professional Conduct." The Commentaries are designed to provide particularized guidance to attorneys engaged in a trusts and estates practice regarding their professional responsibilities. Another useful resource published by the ACTEC Foundation is "Engagement Letters: A Guide for Practitioners" which provides sample form engagement letters and is designed to be used in conjunction with the ACTEC Commentaries.

ATTORNEYS ACTING AS FIDUCIARIES

Some attorneys may be concerned regarding their appointment as fiduciary given that RPC 1.8(c) provides: A lawyer shall not prepare an instrument giving the lawyer or a person related to the lawyer as parent, child, sibling, or spouse any substantial gift from a client, including a testamentary gift, except where the client is related to the donee. N.J.S.A. 3B:18-6 specifically addresses this issue by stating: "If the fiduciary is a duly licensed attorney of this State and shall have performed professional services in addition to his fiduciary duties, the court shall, in addition to the commissions provided by this Chapter, allow him a just counsel fee. If more than one fiduciary shall have performed the professional services, the court shall apportion the fee among them according to the services rendered by them respectively."

Two noteworthy court cases specifically take into account the appropriateness of legal counsel acting as fiduciary. In In re Estate of Simon, 93 N.J. Super. 579, 585 (App. Div. 1967), the Court noted that the judiciary should take into consideration that the attorney "also received an allowance in his capacity as co-executor." In this instance, the court will determine whether, in addition to fiduciary duties, the attorney performed legal services for which he may be compensated. Additionally, in an Appellate Division case, the court stated that fiduciary services must be segregated from the services provided as an attorney. In re Estate of Seabrook, 127 N.J. Super. 135, 147 (App. Div. 1974).

In analyzing the above, the Advisory Committee on Professional Ethics, in Opinion 683, states that " ... subject to the applicable statutory and substantive case law, as a matter of professional ethics, a scrivener, may properly prepare a will naming himself as a fiduciary, and may properly be paid for service in both capacities." The committee did note, however, that the attorney should be aware of disclosure and consultation instructions as per RPC 1.7(b)(2). The attorney should be aware that full disclosure will go a long way in the potential avoidance of improper appearance or overreaching. Although not required in New Jersey, one should seriously consider entering into a written understanding with the client.

RPC 1.4 states that "a lawyer shall explain a matter to the extent reasonably necessary to permit the client to make informed decisions regarding the representation." Certainly, the client should be made aware that the attorney representing the estate will likely be entitled to professional service fees as well as fiduciary commissions.

CONFIDENTIALITY

RPC 1.6 (a) provides "A lawyer shall not reveal information relating to representation of a client unless the client consents after consultation, except for disclosures that are impliedly authorized in order to carry out the representation ..." Exceptions pertaining to information relating to criminal, fraudulent and other illegal and dangerous activity are found in subparagraphs (b) - (d).

An important consideration of any joint representation situation is the extent to which information provided by either client will be shared with the other client. An attorney representing multiple clients in related legal matters is presumed to represent them jointly unless there is an agreement to the contrary. See ACTEC Commentary on MRPC 1.6. A consequence of joint representation is that the spouses waive their normal right of confidentiality in conjunction with the estate planning process which is not problematic if the spouses have nothing to hide and have common estate planning goals. The estate planning lawyer is required to explain the joint nature of the representation and the resulting free flow of information among the lawyer and the joint clients and memorialize this understanding with the written retainer agreement executed by the clients.

An alternative is for the attorney to represent the spouses separately which results in protection of information revealed by either the husband or wife to the attorney. The ACTEC Commentary to MRPC 1.6 points out that concurrent separate representation can challenge the duties of impartiality and loyalty and thus must be approached with care.

Serious problems are created when a spouse who is involved in a joint representation engagement discloses information to the lawyer that he or she wishes to hide from the other spouse. Guidance provided by The ACTEC Commentary to MRPC 1.6 directs the attorney faced with this conundrum to first evaluate both the relevance and significance of the information in determining how to proceed. The alternatives as set forth in the Commentary are to 1) take no action with respect to trivial matters; 2) encourage the client who disclosed the information to allow the attorney to communicate it to the spouse or to personally do so; 3) withdraw from representation where serious adversity exists between the clients. An example of a matter which seems to be considered as "trivial" by the drafters of the Commentary (at least in the context of the attorney's determination of the appropriate course of action) is disclosure of an affair that took place in the past. On the other hand, disclosure by a wife of an intent to leave her spouse after he executes a trust agreement would require action on the part of the attorney.

The Supreme Court of New Jersey addressed the issue of a lawyer's right to disclose information learned from a third party about one client to the other jointly represented client in A. v. B., 158 N.J. 51, 726 A.2d 924 (1999). In A. v. B., a law firm represented both husband and wife in estate planning. Both spouses had signed a waiver of conflict. The law firm later learned of a paternity action against the husband which had not been disclosed to either the wife or the law firm. The Court found that the non-disclosure of the out of wedlock child constituted use of the law firm to perpetuate a fraud upon the wife, which relieves the attorney from the strictures of R.P.C. 1.6. Furthermore, the failure to divulge the information would have adversely impacted upon the wife's estate planning. Accordingly, even though the husband never disclosed the existence of the child to his wife, the law firm was permitted to do so.

CONFLICT OF INTEREST

The general rule under RPC 1.7 is that a lawyer shall not represent a client if the representation involves a "concurrent conflict of interest" which is deemed to exist under RPC 1.7 (a) if: "(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".

The ACTEC Commentaries recognize that joint representation in the estate planning arena is often the most cost and time-effective means by which to achieve the clients' shared goals. "The fact that the goals of the clients are not entirely consistent does not necessarily constitute a conflict that precludes the same lawyer from representing them." ACTEC Commentary on MRPC 1.6.

However, counsel must examine each case involving joint representation to determine whether a conflict of interest exists under RPC 1.7 and must also consider the impact of RPC 1.6, outlining the duty of confidentiality. Recurrent themes that may be present are: a. Family Structure; b. Differing Testamentary Goals; and c. Past Relationship of One Spouse with Attorney.

An obvious scenario with potential for conflict is representation in the context of a "blended family." Each spouse may have different ideas and expectations regarding the ultimate distribution plan particularly if either spouse has children from a prior relationship. The traditional "I love you will" may not be appropriate and the attorney is charged with the responsibility of outlining alternatives, discussing pitfalls and ultimately making recommendations as to the prudent design of the plan.

An attorney who has a prior or present professional or personal relationship with one of the spouses may also be faced with a conflict situation. Since the cornerstone of the relationship with one's attorney is reliance on his or her independent judgment to assist in carrying out testamentary wishes, it is critical that neither party has disproportionate influence over the attorney.

Although a "concurrent conflict of interest" may exist in each of the situations outlined above, the lawyer may not be prohibited from representing either spouse, or both. RPC 1.7 (b) allows an attorney to represent a client despite the existence of such a conflict provided that the lawyer reasonably believes that he or she will be able to provide competent and diligent representation to each affected client and the representation is not prohibited by law and does not involve the assertion of a claim by one client against another client represented by the same lawyer in litigation or proceeding before a tribunal. Furthermore, each affected client must give informed consent, confirmed in writing with the attorney providing full disclosure and consultation which includes "an explanation of the common representation and the advantages and risks involved."

While it seems that the client's waiver of the conflict should be in writing, it also appears that the RPC 1.7 (b) requirements would be satisfied even if the attorney's disclosures are oral. However, written confirmation of the client's understanding of the ramifications of joint representation is no doubt the better practice. This evidence could prove quite useful where a claim is made that the information was not communicated or that the implications of the waiver were not properly explained. As provided in RPC 1.4, "A lawyer shall explain a matter to the extent reasonably necessary to permit the client to make informed decisions regarding the representation."

REPRESENTATION OF AN ESTATE WITH MULTIPLE BENEFICIARIES OR CO-FIDUCIARIES

An attorney retained by a fiduciary to provide services in the context of an estate administration is commonly referred to as the "attorney for the estate." It is incumbent upon the attorney to enter into a written retainer agreement with the fiduciary specifying that the client is the estate. The agreement should specify that the attorney does not represent the fiduciary with respect to his or her beneficial interest in the estate. The ACTEC Commentary to MRPC 1.2 (Scope of Representation) spells out that beneficiaries should be informed by the attorney for the fiduciary that he or she does not represent them and that they may wish to retain independent counsel. Otherwise, the beneficiaries may assume that the attorney is representing their interests.

The ABA comments to MRPC 1.7 recognize the risk of such an erroneous assumption on the part of the beneficiaries, stating "In estate administration the identity of the client may be unclear under the law of a particular jurisdiction. Under one view, the client is the fiduciary; under another view the client is the estate or trust, including its beneficiaries. In order to comply with conflict of interest rules, the lawyer should make clear the lawyer's relationship to the parties involved." The New Jersey Supreme Court has made it abundantly clear that an attorney may have obligations to individuals if the representation (or lack thereof) has not been clarified. An attorney's acceptance of representation may be inferred from the conduct of the parties and need not be articulated. In re Palmieri, 76 N.J. 51 (1978).

The ACTEC Commentary clarifies that an attorney is permitted to represent an executor both in her capacity as a fiduciary and as a beneficiary unless other ethical proscriptions, such as conflict of interest, prevail. Chapter V of ACTEC'S "Engagement Letters: A Guide for Practitioners" contains a comprehensive checklist outlining issues to consider before accepting a fiduciary as a client as well as sample language for a retainer agreement. Representation of some but not all beneficiaries should be approached with great caution, if at all. The attorney would certainly need to overcome the daunting obstacle of convincing the other beneficiaries that he or she is able to abide by the duty of loyalty.

While it may be appropriate in many situations for the attorney to represent co-fiduciaries of an estate or trust, it is incumbent upon the attorney to diligently discuss the ramifications of the joint representation and to confirm in writing that informed consent has been given. The requisite written consent should specify the areas of potential conflict, the waiver of confidentiality between the co-fiduciaries, and the consequences of subsequent termination of joint representation including whether the attorney may continue representing one of the co-fiduciaries.

REPRESENTATION OF MULTIPLE GENERATIONS OF THE SAME FAMILY

An attorney who has prepared an estate plan for a client is not necessarily prohibited from representing a family member of the client who may wish to name him or her as a beneficiary. The ACTEC Commentary on MRPC Rule 1.7 states that when presented with this situation, the attorney should "exercise particular care... particularly if the client will pay the cost of providing the estate planning services to the other person." Nonetheless, so long as the individual is adequately informed and competent and he or she does not wish to unduly benefit the original client, the attorney may draft the document and even accept compensation from the original client so long as there is compliance with RPC 1.8(f). The rule requires informed consent on the part of the new client, compliance with the rules of confidentiality as well as lack of interference with the lawyer-client relationship and the attorney's independent professional judgment.

A private meeting with the new client is mandatory in order to confirm testamentary intent. The attorney must ensure that the estate plan is developed without the influence or control of the referring client which would give rise to a subsequent undue influence challenge. This can certainly be an uncomfortable task especially when the matter has been referred by or even paid for by the person seeking to meddle. Before accepting such a case, the lawyer must closely scrutinize the situation to determine whether prudence will allow his or her involvement.

Haynes v. First National State Bank, 432 A.2d 890 (N.J. 1981) illustrates the interaction between the rules governing attorneys and the concept of undue influence. In Haynes, the drafter of the will also represented the testator's child whom the will favored. The Supreme Court found that "a presumption of undue influence [had] arisen because the testator's attorney [had] placed himself in a conflict of interest and professional loyalty between the testator and the beneficiary." 432 A.2d at 900.

Attorneys must be ever vigilant to ethical minefields and maintain a high level of objectivity with respect to each client and every matter. Awareness of and strict adherence to the rules mixed with common sense will mitigate the risk of involvement in ethical entanglements.

FEES

RPC 1.5 states, in relevant part, "A lawyer's fee shall be reasonable. The factors to be considered in determining the reasonableness of a fee include the following:

1. the time and labor required, the novelty and difficulty of the questions involved, and the skill requisite to perform the legal service properly;

2. the likelihood, if apparent to the client, that the acceptance of the particular employment will preclude other employment by the lawyer;

3. the fee customarily charged in the locality, for similar legal services;

4. the amount involved and the results obtained;

5. the time limitations imposed by the client or by the circumstances;

6. the nature and length of the professional relationship with the client;

7. the experience, reputation, and ability of the lawyer or lawyers performing the services;

8. whether the fee is fixed or contingent.

Subsection (b) further states "When the lawyer has not regularly represented the client, the basis or rate of the fee shall be communicated in writing to the client before or within a reasonable time after commencing the representation.

The attorney should note that the communication to the client regarding the basis or rate of fee as required in paragraph (b) must be in writing rather than "preferably in writing" as indicated in the ABA Model Rule.

If there is a dispute regarding fees, the client may wish to utilize the fee arbitration system. The system was established by the New Jersey Supreme Court to enable clients who dispute attorneys' fees to avoid litigation. The proceeding would be held before a panel of arbitrators.

Consistent with its purpose, the fee arbitration system gives clients certain procedural advantages. Thus, the right to initiate arbitration belongs only to the client (or to the person obligated to pay the fee). Attorneys cannot initiate arbitration.

Attorney participation, however, is mandatory. Once arbitration has been requested by the client the attorney must defend, or the equivalent of a default judgment will be entered. Thus, for example, administrative fees are required from both the client and attorney, but the consequences of failure to pay are very different for the client and the attorney. If the client does not pay, no arbitration will begin. If the attorney does not pay, the arbitration will proceed uncontested, with the attorney barred from participation. Similarly, the attorney is required to file a response to the client's request for arbitration. If the attorney does not file the response within the time allotted, the arbitration will proceed uncontested. The consequences of an uncontested proceeding are severe because the arbitrator's decision is essentially unappealable. Moreover, in the arbitration action, the attorney bears the burden of proving the reasonableness of the fee.

Further, a client may pursue fee arbitration regardless of whether the disputed fee has already been paid. The client may pursue an ethical complaint or a legal malpractice action in addition to disputing the fee. Finally, the client is free to forego the arbitration and, instead, initiate an action in court against the attorney. Court action is the only route available for attorney enforcement of a fee, and it cannot be pursued until the client has been given an opportunity to choose the alternative of arbitration.

On the other hand, because the system is designed to achieve a swift and final resolution, there is little forgiveness in it for the client who does not act promptly and decisively. In the ordinary situation, the client has only a certain period of time in which to decide to request arbitration. If the request is not made within that time, the option is thereafter barred. The request must include a stipulation that any fee determined by the arbitrator to be owed to the attorney may be entered as a judgment against the client. If the client will not so stipulate the arbitration cannot proceed. Once arbitration has been requested, the client has a certain period of time within which to withdraw. If withdrawal does not take place within that period, the client will be bound by the decision of the arbitrator. If the client does withdraw, he has no later recourse to arbitration. And finally, appeal from the arbitrator's decision is extremely limited.

The system is governed by New Jersey Court R. 1:20A-1 through -6.

FEE SPLITTING

Referral fees are generally prohibited by RPC 7.2(c) and RPC 7.3(d). RPC 7.2(c) provides that "[a] lawyer shall not give anything of value to a person for recommending the lawyer's services, except that: (1) a lawyer may pay the reasonable cost of advertising or written communication permitted by this Rule; (2) a lawyer may pay the reasonable cost of advertising, written communication or other notification required in connection with the sale of a law practice as permitted by RPC 1.17; and (3) a lawyer may pay the usual charges of a not-for-profit lawyer referral service or other legal service organization." While RPC 7.3(d) states "a lawyer shall not compensate or give anything of value to a person or organization to recommend or secure the lawyer's employment by a client, or as a reward for having made a recommendation resulting in the lawyer's employment by a client except that the lawyer may pay for public communications permitted by RPC 7.1 and the usual and reasonable fees or dues charged by a lawyer referral service operated, sponsored, or approved by a bar association."

By exception, a certified attorney may divide a fee for legal services with a referring attorney. R. 1:39-6(d) states "A certified attorney who receives a case referral from a lawyer who is not a partner in or associate of that attorney's law firm or law office may divide a fee for legal services with the referring attorney or the referring attorney's estate. The fee division may be made without regard to services performed or responsibility assumed by the referring attorney, provided that the total fee charged the client related only to the matter referred and does not exceed reasonable compensation for the legal services rendered therein."

Attorneys not within the same firm may share fees if: (1) the division corresponds with the services performed; or (2) by written agreement with the client, each lawyer assumes joint responsibility for the representation; provided that in either instance, the client consents and the total fee is reasonable. RPC 1.5(d).