ENGAGEMENT LETTERS: A GUIDE FOR PRACTITIONERS
V. REPRESENTATION OF FIDUCIARIES
INTRODUCTION
These forms illustrate issues that should be addressed when the lawyer is about to undertake general representation of a fiduciary, whether it be an executor, administrator, or trustee. Representation of guardians and conservators is beyond the scope of this material as state laws typically set forth detailed requirements for representation of this class of fiduciaries. This Section comprises two checklists and two corresponding form engagement letters. The first set pertains to representation of an estate's executor or administrator, whereas the second pertains to the representation of a trustee. These letters are not designed to describe every situation in which lawyers represent fiduciaries and should be modified as appropriate for applicable state laws, rules of practice, and particular circumstances.
References to the ACTEC Commentaries (3d Edition):
(Note that the page numbers shown below refer to the printed version of the ACTEC Commentaries)
General Principles (re Scope of Representation), pp. 50-51
Multiple Fiduciaries, p. 51
Communication With Beneficiaries of Fiduciary Estate, pp. 51-52
Representation of Fiduciary in Representative and Individual Capacities, pp. 52-53
Lawyer May Not Make False or Misleading Statements, pp. 54-55
Disclosure of Acts or Omissions by Fiduciary Client, p. 55
Representation of Fiduciary in Representative Not Individual Capacity, pp. 55-56
General and Individual Representation Distinguished, p. 56
Lawyer Should Not Attempt to Diminish Duties of Lawyer to Beneficiaries Without Notice to Them, pp.56-57
Duties to Beneficiaries, pp. 57-59
Planning the Administration of a Fiduciary Estate, pp. 83-84
Advising Fiduciary Regarding Administration, pp. 92-93
Termination of Representation, pp. 94-95
Basis of Fees for Trusts and Estates Services, p. 104
Implied Authorization to Disclose, p. 124
Disclosures by Lawyer for Fiduciary, pp. 125-127
Designation of Scrivener as Attorney for Fiduciary, p. 190
Prohibited Transactions, p. 191
Organization as Client, pp. 209-211
Truthfulness in Statements to Others, pp. 257-258
Dealing With Unrepresented Person, p. 259
ESTATE ADMINISTRATION REPRESENTATION
CHECKLISTI. Who is the client?
A. Under the majority view, the named executor(s) or administrator(s) (hereinafter referred to for convenience as "the Executor") hires the lawyer and becomes the sole client.
B. Most courts hold that the fiduciary is the lawyer's client. A few courts and commentators suggest that "the estate" is the client, or primary client, of the lawyer. However, typically the discussion or analysis that follows such an assertion speaks in terms of duties owed to the fiduciary, the beneficiaries and even to the creditors. The practitioner should exercise special care to identify the client and anticipate and deal with potential or actual conflicts of interest. The form of engagement letter that follows does not attempt to deal with conflicts of interest but does both identify the client and identify those who are not clients, in accordance with the suggestions set forth in the ACTEC Commentaries.
II. Threshold issues
A. Does the lawyer have the experience, training and time to provide competent representation?
B. Does the lawyer have an impermissible conflict of interest, such as a client relationship with a party who is expected to have a claim against the estate?
C. If the lawyer has, or has had, a client relationship with a beneficiary, heir or creditor of the estate which the lawyer believes will not adversely affect the proffered representation, the lawyer must make disclosure and seek the informed consent of the former, present and proposed clients in accordance with ethical rules.
D. If the lawyer has a claim against the estate for prior services, is it appropriate for the lawyer to make disclosure to, and request consent from, the Executor?
E. If there are two or more Executors, is there anything to indicate that the interests are otherwise than mutual, or are there reasons to consult with the Executors and obtain their consents to multiple representation?
III. What should the engagement letter contain?
A. Statement as to the proposed client relationship, e.g., the representation is of the Executor in a fiduciary capacity and not of the beneficiaries.
B. Description of the services to be rendered and services not to be included. Avoid general, all-inclusive language that can give rise to more questions for interpretation by the Executor, and possibly by beneficiaries as well.
C. Explanation of how fees will be determined and billed, together with an explanation of how costs will be handled (e.g., third party invoices over a specified amount to be referred to the Executor for payment directly).
D. Explanation of lawyer-client communications privilege and potential conflicts of interest. Consider requesting the Executor to waive future conflicts (e.g., allowing the lawyer to continue to represent one or more co-Executors if split develops and co-Executor engages separate counsel and/or allowing the lawyer to disclose information to the court or the beneficiaries.)
E. Explanation of how the lawyer-client relationship may be terminated.
F. Consider suggesting that the Executor should feel free to consult other counsel before agreeing to the terms of engagement.
IV. Consider whether a copy of the engagement letter should be given to the beneficiaries (This step is required in some jurisdictions).
ESTATE ADMINISTRATION ENGAGEMENT LETTER
(Date)
Dear (Client):
The purpose of this letter is to confirm my representation of you as Executor of the Estate of _________________ and to set forth the terms of engagement.
I appreciate your confidence and trust in engaging me as your lawyer. I will be primarily responsible for this representation [but other lawyers or paralegals in my firm will assist me. In any event, all questions should be directed to me to provide for continuity of communication].
1. Summary of Services to be Performed For You as Executor. I will provide those services that are necessary and appropriate to administer the estate under the law of ______, commencing with the petition to probate the will and have you qualified as Executor. The normal services that will then be involved are the following [Optional language: The following list includes the types of services that may be provided]:
(a) Prepare and complete all notices of appointment of you as Executor and other notices with respect to creditors as are required by the laws of the State of __________ and rules of court having jurisdiction of the estate.
(b) Assist you in preparing a complete inventory of all assets of any kind or nature which are subject to probate, and any nonprobate assets such as life insurance, retirement benefits, and other assets.
(c) Help you make a thorough search for all debts, obligations and contingent liabilities of the estate in order to determine the financial condition of the estate and advise you regarding other action which must be taken by you to secure, reinvest, or protect the assets and provide for the discharge of liabilities, including death taxes of the estate.
(d) Prepare and complete all interim reports to the Probate Court and the beneficiaries as required during the course of administration of the estate.
(e) Prepare all tax returns for the estate, including federal estate tax and generation-skipping tax returns, state inheritance tax, or any local or state property tax returns, as well as federal and state fiduciary income tax returns.
(f) Review and consider with you any post-death planning, such as alternative asset valuation options, use of disclaimers, funding of trusts as provided for in the estate plan, timing the distribution of assets that are beneficial to the estate and any beneficiaries, and election of income tax benefits to the estate and beneficiaries.
(g) Plan for the payment of all death taxes and the source of funds to be used in payment of any tax obligations, along with any elections for installment payment of taxes if available.
(h) Prepare a plan of distribution of assets held in the estate, either outright or to separate continuing trusts, for the beneficiaries.
(i) Prepare all reports, notices, consents, receipts, and accountings for closing the estate and your discharge as Executor.
(j) Counsel and advise on any related questions or matters arising out of the administration of the estate.
If there are other legal services that you wish me to perform for you as Executor, we should first consult together and supplement this letter agreement before commencing those tasks.
In that connection, you should understand that I represent you as Executor. I do not represent the beneficiaries of the estate, even though I will, from time to time, provide them with information about the administration of the estate. In appropriate circumstances, I may advise beneficiaries to obtain independent counsel as I do not represent them.
2. Charges for Legal Services and Out-of-Pocket Costs. I charge for services on the basis of the time devoted by me [ and other professionals in my firm]. Current hourly billing rates are as follows [NOTE: In many jurisdictions, fees are set statutorily by the probate court]:
Partners $______ to $________
Associates $______ to $________
Paralegals/Estate Administrators $______ to $________
I will bill the estate on a periodic basis. Because income tax considerations and cash requirements often dictate the timing of fee payments, I will request payments when they will best serve the interests of the estate and its beneficiaries.
It is to be understood that my fees will be payable whether or not approved by the inheritance and estate tax authorities or by the Probate Court. Although it is usual and customary to look to estate assets as the source of funds with which to pay our charges, the responsibility for payment ultimately is yours [NOTE: This arrangement would be prohibited in certain states which have statutory fee legislation].
I will also bill the estate for out-of-pocket expenses, such as probate and filing fees, travel expenses, delivery charges, duplicating, express mail, faxing and toll telephone calls. I will expect reimbursement of such costs upon presentation of periodic disbursement bills.
3. Conflicts of Interest and Confidentiality. Any relationship between a lawyer and client is subject to Rules of Professional Conduct. In estates, ethical rules applicable to conflicts of interests and confidentiality are of primary concern because of the close relationship of the parties. I cannot overemphasize the need for complete and full disclosure to me at all times of all your acts and doings to avoid problems that may arise in these areas.
Apart from any applicable legal requirement to notify the beneficiaries that the will has been probated and the estate administration commenced, I consider it good practice to do so and to provide each beneficiary with a copy of the will. In doing so, I will make it clear that you, alone, are my client. Furthermore, I usually keep the beneficiaries advised as the administration of the estate progresses, for example by furnishing copies of the formal inventory of estate assets as soon as that has been formalized.
As a condition of this representation, I require that, notwithstanding normal rules of confidentiality, you authorize me to notify the probate court and creditors and beneficiaries of the estate, as the case may be, of any actions or omissions on your part that have a material effect on their interests in the estate, including acts or omissions that may constitute negligence, bad faith, or breach of your fiduciary duties [In many jurisdictions the attorney-client communications privilege might preclude this type of disclosure without the personal representative's informed waiver. Reference should be made to the law of the jurisdiction in which the estate proceeding is pending].
[IF THERE ARE MULTIPLE EXECUTORS]
While there is nothing at this point to suggest that any differences of opinion will develop between you, during the course of administration of the estate it is possible that issues may arise on which you do not agree. Ordinarily, under such circumstances, one lawyer could not represent all of the co-executors without being involved in a serious conflict of interest problem.
Conflicts of interest may arise in a number of different contexts, including whether and to what extent discretionary distributions should be made from the estate, the investment policy to be followed by the co-executors, and the payment of compensation to the co-executors. In the event that the co-executors should reach different conclusions concerning the management and administration of the estate, it might be best for each of you to have the benefit of independent counsel to avoid the possibility that my advice to one of you would be influenced in any way by my representation of one of the other co-executors. For now, I will represent all of you in the administration of the estate, with the understanding that each of you retains the right to obtain independent legal counsel at any time that it appears to you to be advantageous.
Although I do not anticipate that it will be necessary, if a conflict does arise between the co-executors, and it is impossible in my judgment to perform my obligations to each of you in accordance with the standards that I would maintain in representing any individual client, I will withdraw from all further representation of the co-executors and advise one or all of you to obtain independent counsel. In such event, I would submit a statement for legal services rendered up to the date of such withdrawal. [In some states, this will not be appropriate, and application would have to be made to the probate court for an award of a portion of the single statutory attorney's fee that will be awarded for ordinary legal services to the estate].
As a part of my representation, there will be complete and free disclosure to each of you of all information concerning the estate that I may receive from either of you in your capacity as co-executor. Such information will not be confidential between you, collectively, and me as your lawyer, irrespective of whether the information is obtained in conferences at which all of you are present, or private conferences with one of you, including conferences that may have taken place before the date of this letter.
[IF EXECUTOR IS ONE OF THE BENEFICIARIES]
Because you are a beneficiary of the estate, I must advise you that I only represent you in your capacity as Executor, and can only represent you as a beneficiary if there is no conflict of interest by reason of such relationship. For example, a conflict could arise in distribution of assets to you if one of the other beneficiaries should object to your individual ownership of partial interest in an estate asset; or by reason of the amount of compensation which you may claim. In the event of such a conflict, consideration may have to be given by you to the employment of independent counsel to represent your personal interests.
4. Termination of Engagement.
(a) You may terminate this engagement at any time by notice in writing to me. Upon receipt of such notice, subject to such court approval as may be necessary in the context of the situation, I will promptly cease providing any service to you. You will be responsible for paying for my services rendered up to the time I receive such notice and for such reasonable services that I provide thereafter in connection with the transfer of responsibility for the matters I am then handling to your new counsel [See notes above about applicability of this type of arrangement in statutory fee states].
(b) I may terminate this engagement by giving you written notice. Upon termination of my representation, you will be responsible for paying for my services rendered up to the time I terminate our engagement and for such reasonable services that I provide thereafter in connection with the transfer of responsibility for the matters I am then handling to your new counsel [See note above about applicability of this type of arrangement in statutory fee states].
If you have any questions about anything discussed in this letter, please let me know. In addition, you should feel free to consult with another lawyer about the effect of signing this letter.
If this letter meets with your approval, please sign the approval copy of this letter and return it in the envelope provided.
I welcome and look forward to the opportunity to be of service.
Yours very truly,
Date Approved ______________________
___________________________________ Executor
TRUST ADMINISTRATION REPRESENTATION CHECKLIST I. Who is the client?
A. Under the majority view, the trustee should be and usually is the lawyer's client. However, a few courts and practitioners favor an entity approach. See Comments at (1)(b) of Estate Administration Representation Checklist.
B. Inter vivos trusts --
1. Typically, as part of an estate planning engagement, the lawyer serves as scrivener and then advises and assists both the settlor and trustee with respect to funding and otherwise setting up the trust; all parties likely proceed on the assumption, or with the tacit understanding, that the trustee will look to that attorney for ongoing advice.
2. In the case of the typical irrevocable trust, the settlor retains no ongoing legal or equitable interest, making it unlikely that any conflicts will arise that would preclude the lawyer's continued representation of the settlor for other purposes or matters while also representing the trustee.
3. A revocable trust is usually for the settlor's own benefit and remains fully subject to the settlor's control as long as the settlor remains competent to amend or revoke; however, if differences arise between the parties, the lawyer may have no alternative but to advise the trustee to obtain separate counsel, at least for the purpose of resolving the differences. When the settlor dies and the trust becomes irrevocable, the lawyer should confirm or formalize the representation of the trustee.
C. Testamentary trusts -- Typically the lawyer who has represented the executor will, more or less as a matter of course, come to represent the trustee as well. The transition from estate to trust will be "seamless" in many cases, especially if exactly the same person serves in both fiduciary capacities. Nevertheless, an engagement letter is advisable to cover the points outlined below.
D. Co-trustees -- Especially if unanimous action is required to bind the trust, the lawyer should be able to represent the co-trustees collectively, absent indications that differences exist between or among the co-trustees.
II. What should the engagement letter contain?
A. Statement as to the client relationship, i.e., the representation is of the trustee in a fiduciary capacity and no one else.
B. Specific description of the services to be rendered and, if appropriate, services not to be included. If there is a corporate or other professional fiduciary, the lawyer may simply indicate availability to perform those services the trustee may require from time to time.
C. Explanation of how fees will be determined and billed, together with an explanation of how costs will be accounted for. How to deal with principal vs. income issues. Further, will it be prudent for the trustee to pay fees on an interim basis, without court approval?
D. Explanation of lawyer-client communications privilege and potential conflicts of interest. Consider requesting the trustee to waive future conflicts (e.g., allowing the lawyer to continue to represent one or more co-trustees if split develops and a co-trustee engages separate counsel, and allowing the lawyer to disclose information to the court or the beneficiaries.)
E. Explanation of how the lawyer/client relationship may be terminated.
F. Consider suggesting that the trustee should feel free to consult other counsel before agreeing to the terms of engagement.
IRREVOCABLE INTER VIVOS TRUST ENGAGEMENT LETTER
(Date)
Re: Trust U/A John R. Doe dated 00/00/90
Dear Trustee:
As promised, I am enclosing a copy of the fully-executed agreement of trust for your records.
As you know, I have represented John Doe in connection with establishing this trust, which is irrevocable and in which he has retained no interest. Although I anticipate continuing to represent him for other purposes, I am able, and would welcome the opportunity, to represent you as Trustee upon the following terms:
(1) General Services. I will provide such advice and assistance in connection with the administration of the trust as may be appropriate and agreed to from time to time. In that connection, I would be pleased to discuss with you your duties and responsibilities as trustee and your obligation to the beneficiaries of the trust including any special circumstances with respect to beneficiaries that you should be aware of as trustee.
(2) Accounting Services. [Omit if a corporate trustee] I can provide, through a special custody account arrangement we have with XYZ Trust Company, full administrative services, including record keeping, bill paying, handling periodic or special distributions, and daily sweeping of principal and income cash into selected short-term investment funds. I will provide full particulars if this custody arrangement is of interest to you.
(3) Tax Advice and Return Preparation. I am also prepared to advise you on tax questions that may arise in the administration of the trust and to handle federal and state fiduciary income tax preparation and to deal with any property taxes that may be applicable.
(4) Investment Responsibilities. [Omit if a corporate trustee with investment services] I will advise you of your powers and responsibilities with respect to trust investments, but cannot provide investment advice as such.
[COMPLETE THIS LETTER BY ADAPTING APPROPRIATE PROVISIONS FROM ESTATE ADMINISTRATION LETTER ]
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