Estates And Trusts Step 1: Who Is Your Client?

When Lawyers Mutual’s claims attorneys talk through situations with our insureds, one of the first questions we ask is often “who is your client?”  This is especially true in estates matters where the client can fill multiple roles (individual or fiduciary) and other parties may be directly involved.  The following situations are based on recent calls we have received and highlight the importance – and challenges – of identifying who you represent in an estate matter.

• Completing estate planning work at the request of a family member

You have an initial consultation with a prospective client about drafting a will and power of attorney.  The client provides some general information about her wishes but wants to speak with her financial advisor before proceeding.  No engagement letter is signed, and many of the details of the estate plan are unknown.  After several weeks pass, you receive a call from the prospective client’s son.  His mother is ill and has been moved to a long-term care facility in another city.  The mother must have mentioned that she met with you, and the son asks you to prepare the will and power of attorney.  He offers to provide the information needed to complete the estate plan and tells you that his mother is competent to sign the documents.  Can you do it? 

While the direction to move forward is coming from the son, the client in this scenario is the mother.  State Bar ethics opinions 2006 FEO 11 and 2003 FEO 7 make clear that you can only prepare the documents after consulting with the mother to obtain her informed consent to the engagement, determining her wishes, and exercising independent legal judgment on her behalf.  The will and power of attorney should not be drafted based only on instructions given by the son.  In this situation, it would also be crucial to independently assess the mother’s competency.  If circumstances prevent you from doing any of these things, you should decline the representation. 

• Representing a trustee-beneficiary in a reformation action

You are contacted by three siblings who are involved in a dispute regarding their mother’s estate.  They are named as beneficiaries in a testamentary trust along with their late mother’s second husband.  The surviving spouse is seeking to reform the trust to increase his share and decrease that of the prospective clients.  One of the siblings is the trustee.  Who should you represent and in what capacity?

Since the siblings are seeking advice to advance their own interests and maximize their distributions under the trust, they need counsel to represent them in their individual capacities.  The trustee also owes fiduciary duties to all beneficiaries to see that the trust is properly administered.  To the extent those fiduciary duties conflict with his individual interests, he may need separate counsel to advise him about his responsibilities as trustee and it may be appropriate for him to resign if he cannot act as a neutral fiduciary.  For your purposes, it is not possible to represent him in both roles, so you will need clearly document that you represent his individual interests only.  You also need to make sure that joint representation of the three siblings is permissible under Rule of Professional Conduct 1.7 and obtain the clients’ informed consent in writing.

• Handling an estate administration where the executor has misapplied funds

You were hired to assist an executor with her husband’s estate.  The executor failed to timely provide bank statements and records, and when you receive these documents, you discover that she has used estate funds to pay for personal items.  You immediately instruct her to stop these payments and she does.  You also tell the executor that she will have to repay the improper distributions.  Eventually, it becomes clear that the debts of the estate exceed the assets and the executor reports that she does not have the money to repay the amounts taken.  What are your obligations in this situation?

When handling an estate administration, you represent the estate and the executor in her official capacity.  2002 FEO 3 and RPC 137.  Your role is to see that the estate is properly administered and that funds due to the estate are first used to satisfy the claims of creditors.  You do not represent the executor individually and owe no duty to protect her individual interests.  Under the facts presented, it appears there is a conflict between the client’s duties as executor and her individual interests in keeping the improperly distributed funds and/or avoiding personal liability.  If there are insufficient assets to pay the estate’s debts, you should inform the executor that a conflict exists.  If you conclude that she is in breach of her fiduciary duties to the estate and her conduct constitutes grounds for removal, you should inform her that she may be removed and you should terminate the representation.   

Many estates and trusts claims and ethical issues can be avoided by keeping in mind who you represent and in what capacity.  If you need help working through these tricky issues, please contact Lawyers Mutual’s claims attorneys.