Representing Trusts and Trustees-who Is the Client and Do Notions of Privity Protect the Client Relationship?
| Pages | 211 |
| Publication year | 2021 |
66 CBJ 211. Representing Trusts and Trustees-Who is the Client and Do Notions of Privity Protect the Client Relationship?
Every trust arrangement contains actual and potential conflicts of interest. The trustee and any one or more beneficiaries may disagree about investments, distributions of income or principal or any other aspect of trust administration. In addition, trust beneficiaries have differing interests which may lead them to disagree about the management of trust funds. Attorneys who represent trustees must be careful to recognize who their client is and to understand the ethical obligations involved in representing that client.
A lawyer for a trust is usually considered to be the lawyer for the trustee. (fn1) The trustee, in turn, represents the, beneficiaries of the trust. (fn2)
A practical indication that trust counsel's client is the trustee lies in the fact that trustees are, subject to a right of reimbursement from the trust, personally liable for attorneys' fees incurred in the administration of a trust. (fn3) The general rule that trust counsel's client is the trustee and not the trust beneficiaries is not altered by the fact that attorneys' fees are paid from trust corpus. (fn4) Connecticut cases confirm that an attorney-client relationship is not necessarily established with the party paying for the services. (fn5)
Trustees are the legal owners of trust property and not merely agents of the trust beneficiaries. (fn6) Instead, trustees act as principals and have the authority to hire agents such as attorneys. However, they must act prudently in doing so, as the Probate Court will not allow improper, excessive or otherwise unreasonable fees to be charged to a trust. (fn7)
In the event of negligence by trust counsel, a trust beneficiary's remedy is against the trustee, who may then proceed against trust counsel for malpractice. (fn8) Absent a finding of fraud or malicious acts, if a trust beneficiary is allegedly harmed by the negligence of trust counsel, the injured beneficiary should not have standing to sue the attorney directly because there is no "privity of contract." (fn9)
A significant movement away from the privity rule is evident nationally, particularly in the area of estate planning, where the doctrine is eroding to allow intended beneficiaries to sue a decedent's estate planning counsel. (fn10) However, courts are generally less willing to expand the privity of contract between an attorney and trustee to create an attorney-client relationship between trust counsel and trust beneficiaries. (fn11) Representation of a trustee is very different from the representation of a testator, where it can be
argued that the interests and purposes of the testator and his or her intended beneficiaries are similar if not identical. Since the duties and decisions of a trustee often conflict with the desires of the trust beneficiaries, the privity of contract doctrine must be respected if trust counsel are to render trustees independent advice.
Generally, attorneys are not liable to persons other than their clients for negligently rendered services. (fn12) Connecticut courts have recognized an exception to the privity doctrine on public policy grounds if the plaintiff can demonstrate that he was the intended or foreseeable beneficiary of the services. (fn13)
To determine whether there exist adequate public policy reasons to impose a duty of care to third parties not in privity, Connecticut courts are likely to rely on a balancing test involving the following factors: (i) the extent to which the transaction was intended to benefit the plaintiff, (ii) the foresee ability of harm to the plaintiff, (iii) the degree of certainty that the plaintiff suffered the injury, (iv) the closeness of the connection between the defendant's conduct and the injury suffered (i.e., was the defendant's conduct the proximate cause of the harm), (v) the moral blame attached to the defendant's conduct and (vi) the policy of preventing future harm. (fn14)
Although Connecticut case law has opened the door for attacks on the privity doctrine, recent cases such as Winslow v. Stevens (fn15) indicate that Connecticut courts have not abandoned the doctrine and will, in each case, decide whether to require a showing of privity to impose liability. In Winslow, the decedent's son brought a malpractice action against the decedent's attorney for the negligent preparation and execution of the decedent's win. The Superior Court found the complaint insufficient to bring the plaintiff within any of the recognized exceptions to the privity requirement. Since the decedent's son was not the attorney's client, no claim for legal malpractice could stand.
A recent Connecticut Supreme Court case confirms that the doctrine of privity is still respected in Connecticut where necessary to protect counsel from compromising their duty of loyalty to clients. (fn16) In Krawczyk, the Connecticut Supreme Court refused to find an attorney liable to an intended beneficiary under a will that was never signed due to a delay in the preparation of the document. The Court stated that:
... imposition of liability to third parties for negligent delay in the execution of estate planning documents would not comport with a lawyer's duty of undivided loyalty to the client .... Fear of liability to potential third party beneficiaries would contravene the attorney's primary responsibility to ensure that the proposed estate plan effectuates the client's wishes and that the client understands the available options and the legal and practical implications of whatever course of action is ultimately chosen. (fn17)
Connecticut courts have not yet answered whether trust counsel are or should be liable to trust beneficiaries. The facts and circumstances of each case will be crucial in the determination of whether the privity defense will prevail.
Given that Connecticut courts hesitate to find liability to estate planning beneficiaries without careful consideration of the circumstances, one might expect Connecticut to follow those states that recognize that allowing negligence or breach of contract actions by trust beneficiaries against trust counsel would interfere with trust counsel's duty of undivided loyalty to the trustee. (fn18) It is well established in New York, for example, that absent fraud, collusion, malicious acts or other special circumstances, an attorney is not liable for professional negligence to third parties not in privity. (fn19) It has been expressly held in New York, due to a lack of privity of contract, that negligence by trust counsel is not actionable by the trust beneficiaries...
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