Some Problems Arising in the Representation of a Fiduciary

• Publication year: 2003
• Pages: 11

32 Colo.Law. 11 Colorado Lawyer 2003.

2003, June, Pg. 11. Some Problems Arising in the Representation of a Fiduciary

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11

Vol. 32, No. 6, Pg. 11

The Colorado Lawyer
June 2003
Vol. 32, No. 6 [Page 11]

Articles

Some Problems Arising in the Representation of a Fiduciary
by Harry M Sterling

This article discusses some of the problems an attorney faces in ethically representing a fiduciary in an estate or trust matter, including conflicts of interest among beneficiaries who may be clients, use of engagement letters, and the attorney's role as intermediary or witness. Also examined are issues that arise when dealing with the dishonest fiduciary

Harry M. Sterling, Denver, is Member and Manager of Sterling & Gregory, LLC - (303) 292-9122. The author gratefully acknowledges the valuable content suggestions of James P Gregory

Acting as an attorney for a fiduciary may present difficult problems concerning the administration of an estate or trust. Tax issues, questions about the disposition of property during administration, distribution of property to beneficiaries, or other ordinary and extraordinary problems may arise in many medium and large estates. Each estate or trust has its own unique problems. How the attorney deals with such issues depends on the problem itself. However, the actions taken and considerations involved also are affected by whether the attorney represents a fiduciary, has represented a beneficiary, or both. The one consistency is that history is only a guide, not a clear path to the future.

This article first discusses the importance of identifying the client and then the need for performing properly when handling the administration of an estate or trust. Some of the problems that arise when there are conflicts of interest as the attorney attempts to fulfill his or her various roles in the administration of an estate are addressed next. Finally, the article suggests possible actions that can be taken when dealing with the dishonest fiduciary. Throughout the article, the Colorado Rules of Professional Conduct ("Colo. RPC" or "Colorado Rules")1 are described as they may apply to an estate or trust case.2

IDENTIFICATION
OF THE CLIENT

The source of many problems in estate and trust administration is misidentifying the client. This can result in incorrectly directing the attorney's loyalty and incorrectly applying the ethical rules relating to confidentiality.3 When a person named as a trustee or fiduciary seeks legal representation, it is important to determine if the client(s) is the trustee or fiduciary, trust or estate, or the beneficiaries. Problems also may arise where the lawyer is asked to be an intermediary among parties in interest, or where the client is an artificial entity rather than a natural person.

How to handle such representations differs in each state. Where there is no definitive state opinion, a different answer may be given in state court. State laws are based on case law precedent and various state disciplinary rules.

Approaches in Identifying The Client

There are three lines of authority with respect to identifying the client. First, in most states, including Colorado, only the fiduciary is the client. The attorney does not represent the estate or trust, and his or her duties run to the fiduciary alone. In these states, communications between a trustee or personal representative and his or her attorney do not have to be revealed to beneficiaries.4

Second, in other states, the lawyer may be held to represent the trust or estate itself, in which case the lawyer has direct duties to the fiduciary and to the beneficiaries. Thus, communications between the trustee or personal representative and his or her attorney do have to be revealed to beneficiaries.5

A third approach recognizes that the attorney-client relationship is only between the attorney and the trustee or personal representative. However, the lawyer for the fiduciary also has a duty to the beneficiaries to protect them from inappropriate conduct of the fiduciary.6 Jurisdictions recognizing some duties to the beneficiaries state there is no attorney-client relationship with the beneficiaries, due to the potential adversarial relationship with the beneficiaries. However, under this approach, "the attorney for the executor owes a fiduciary duty to act with due care to protect the interest of the beneficiaries."7 The attorney for the fiduciary can defend the fiduciary against claims made by the beneficiaries of mismanagement of the estate. Nevertheless, in these jurisdictions, the attorney is responsible to advise the fiduciary how to perform his or her fiduciary duties, and can be compelled in discovery to disclose to the beneficiaries what the attorney advised the fiduciary.8

The obligation to disclose such information to the beneficiaries results from the duty of the fiduciary to the beneficiaries, not from any attorney-client relationship between the beneficiaries and the attorney for the fiduciary. The advice from the attorney to the fiduciary has become, in a sense, a part of the trust assets, particularly because the advice was paid for from the trust corpus. As the rest of the corpus is available to the beneficiaries, so is the advice and counsel received by the fiduciary.9

Regardless of the jurisdiction, correct client identification is required for an attorney to do an effective job for the estate. It is elemental for attorneys to know for whom they work, if for no other reason than to know from whom their directions should come, to whom they have to account, and from whom they expect payment. The close relationship probate attorneys form with the survivors in a probate matter, or trust grantors or beneficiaries in a trust, can only be enhanced by clear lines of responsibility and authority. Unambiguous identification of the client avoids multiple, confusing directions.

ATTORNEY FEES IN ESTATES

Colorado statutes govern the payment of fees in estate administration situations. A lawyer for the personal representative, a lawyer whose services resulted in an order beneficial to the estate, and a person appointed by the court are entitled to reasonable compensation and cost reimbursement from the estate.10 If the fees relate to estate litigation, the attorney for the personal representative is entitled to fees from the estate, whether or not successful, as long as no breach of fiduciary duty is found. If a breach of fiduciary duty is found, the attorney for the personal representative is not entitled to payment from the estate concerning the matters in which a breach was found, but must look directly to the personal representative for fees.11

PRELIMINARY
CONSIDERATIONS

Certain issues should be addressed before embarking on representation in estate or trust administration. This section first discusses the engagement letter that sets forth the nature of the representation. Next, the article covers how the attorney must abide by standards of practice concerning duties to address clients, and consultation with and consent by the client.

Engagement Letters

As in other areas of practice, the attorney handling the estate or trust administration must make sure clients sign an engagement letter that sets out the responsibilities of each party to the representation. The engagement letter offers an opportunity to resolve many potential problems in advance, such as disclaimers to the court or to the beneficiaries.

The attorney for a fiduciary should execute an engagement letter with the fiduciary and, if representing another party in interest in the estate, with such party.12 The letter with the fiduciary should state, at a minimum, that the fiduciary is the client to whom attorney confidentiality and loyalty is owed. It also should state that no attorney-client relationship arises with any of the other parties in interest, unless the lawyer also continues to represent the beneficiary, in which case such appropriate interests should be addressed. The letter should define specifically the scope of the attorney's duties and those of the fiduciary, state how the fees will be calculated and billed, describe how the costs will be handled, and explain the attorney-client privilege and potential conflicts of interest.13

If the letter is to go to other clients in interest, in addition to the fiduciary, other provisions should address any conflicts with those clients. The letter should state that the attorney represents only the fiduciary in performing duties in administering the estate and should note that the attorney will not represent the other clients or such representation should not be inferred by the other clients in any adversary situation. The document also should advise the clients that there are statutory rights held by surviving spouses and children, as well as deadlines that will be applied in the estate administration and statutes of limitations in trust administration.14 If there are conflicts of interest present between the fiduciary and the other clients, reference must be made to the conflict in detail, and a consent be given by all the clients to the representation, as discussed below.15

The engagement letter also is useful to avoid future problems.16 For example, counsel should consider requesting a letter from co-fiduciaries allowing the attorney to represent one or the other co-fiduciary if a split develops between them. Another request would be for a letter from the fiduciary allowing the disclosure of information to the court or the beneficiaries if the lawyer believes such disclosure is proper. Finally, counsel should set out means for terminating the attorney-client relationship by either party.17...