What conflicts arise when the person who drafted the trust becomes trustee?
Key takeaway
Conflicts arise when the person who drafted a trust also becomes trustee, because the drafter's own interest could materially limit independent advice. Practitioners describe potential fiduciary compensation as one such interest and describe written informed client consent as part of the arrangement. Court decisions in New Hampshire and New York address fee entitlement and exoneration clauses in the dual role. The points apply to owners who name the document drafter as trustee.
Professional rules and exposure
A lawyer's fiduciary appointment may implicate Model Rule 1.7 if the lawyer's interest could materially limit independent advice about selecting a fiduciary.
Practitioners describe fiduciary and civil malpractice exposure for lawyers who serve as trustees, in addition to professional ethical standards.
Practitioners also say a lawyer weighing trustee service needs the knowledge and experience required by applicable professional responsibility rules. That assessment comes before the lawyer drafts the document.
Written consent to the appointment
Trust and estate practitioners describe a lawyer whose independent judgment may be materially limited by a significant risk, such as potential fiduciary compensation, as needing the client's informed consent confirmed in writing.
Georgia requires a client to consent in writing to appointing the drafting lawyer as fiduciary, and it prescribes a form notification and consent letter.
Trust and estate practitioners describe also a drafter adopting a practice of always obtaining the client's written, informed consent to a fiduciary appointment. Under that practice, no case-by-case determination of whether consent is required is made.
Fees when the drafter or the drafter's firm is paid
Dual fees arise when a trustee hires the trustee's own firm. Estate planning practitioners describe the Model Uniform Trust Code as taking no specific position on dual fees. They also describe a trend toward allowing dual fees if overall fees are reasonable.
The New Hampshire Supreme Court held that an attorney who was executor and the attorney's firm could receive neither fiduciary fees nor legal fees, because the estate's representation was conflicted from the start.
Exoneration clauses in the trust instrument
In New York, a court held that an exoneration clause limiting liability to bad faith acts is void as against public policy when the attorney named as trustee drafted the instrument. An exoneration clause is a trust term that limits the trustee's liability.