Lawyers who represent trustees sometimes learn to their dismay that the attorney-client privilege actually belongs to trust beneficiaries. This article looks at the confusing state of law in Illinois and recommends steps lawyers can take to protect themselves and their clients.
As attorneys, we learn early on that the attorney-client privilege is sacrosanct. We convince our clients they can tell us anything and it will be protected. Throughout our representation, we are ethically bound to act solely for our clients' welfare and are committed to doing whatever we can to protect their interest.
When your client is a trustee, however, that may or may not be the case.
There is a split in authority over whether a trustee who retains an attorney does so on his or her own behalf or on the trust's behalf. As a result, it is unclear in many circumstances whether the attorney-client privilege belongs to the trustee or the beneficiary, especially when there is litigation between them.
In fact, the Uniform Trust Code has left open the extent to which a trustee may claim attorney-client privilege against a beneficiary. (1) In addition, it is uncertain whether a successor trustee who takes over the administration of the trust inherits the privilege and can waive it on behalf of the trust.
In Illinois the law is unsettled, although recent case law suggests Illinois courts will adopt the "adversarial relationship" test. Under that approach, beneficiaries have the right to the trustee's "privileged" communications about administration of the trust until and unless the trustee and beneficiary relationship becomes "adversarial."
In short, ownership of the attorney-client privilege is uncertain when your client is a trustee. Attorneys who are approached by a trustee for representation must be wary and immediately protect their and their client's--whomever that might be--interests.
The split of authority
The beneficiary is the client (the fiduciary-duty exception). In a number of jurisdictions, courts have held that when a trustee retains an attorney on behalf of the trust, the attorney's client is in fact the beneficiary. While acknowledging that a trustee might be discouraged by the loss of the attorney-client privilege from seeking counsel's advice, these courts emphasize that the trustee and/or the attorney has a fiduciary duty to beneficiaries that requires him or her to reasonably report to the beneficiaries. This approach has been labeled the fiduciary-duty exception.
Riggs Natl Bank of Washington, DC v Zimmer (2) is often cited for this proposition. In Riggs, the trustees communicated certain facts to their attorneys to secure a legal opinion for the trustees' petition for instructions and in anticipation of potential tax litigation for the trust, and the beneficiaries sought to compel production of the attorneys' internal memorandum. (3) The Delaware Chancery Court found that because the memorandum was prepared for the benefit of the beneficiaries and there was nothing in the record to suggest that the purpose of the memorandum was "defensive on the trustee's part," the memorandum should be produced. (4)
A number of courts follow Riggs and the policies set forth therein: (5) that the attorneys' client is the beneficiary of the trust and, as a result, communications with the trustee are not privileged. (6) Most courts following the Riggs analysis, however, make a distinction between trustees' communications that are for the purpose of litigation, which are privileged, and those that are for "administration" of the trust, which are not. (7)
The comments to the Restatement adopt the fiduciary-duty exception, providing that the privilege does apply
to communications between the trustee and a lawyer specifically retained by the trustee to represent, not the trust or the trustee with respect to executing trust duties, but the trustee in the trustee's personal capacity, such as to assist the trustee in a dispute with a beneficiary or to assert a right against the beneficiary. (8) Determining when a dispute begins can be difficult. (9) Consider a relationship that starts as non-adversarial but develops into something adversarial - precisely when can the trustee invoke the privilege? Courts have recognized that drawing the line "can be difficult." (10)
The trustee is the client. However, a number of recent decisions in other jurisdictions--for example, the California Supreme Court's ruling in Wells Fargo Bank, NA v Superior Court (11)--have held to the contrary. According to this line of cases, when a trust retains an attorney, the trustee is the client and holds the privilege, regardless of whether the advice was obtained for purposes of "administration" or "defense." These courts place a premium on the public policy behind the privilege and reason that beneficiaries benefit from a trustee's full and frank disclosure to his or her attorney.
The Texas Supreme Court explained the rationale in Huie v DeShazo:
A trustee must be able to consult freely with his or her attorney to obtain the best possible legal guidance. Without the privilege, trustees might be inclined to forsake legal advice, thus adversely affecting the trust, as disappointed beneficiaries could later pore over the attorney-client communications in...