ACTEC COMMENTARIES ON THE MODEL RULES OF PROFESSIONAL CONDUCT
MRPC 1.8
Conflict of Interest: Prohibited Transactions.
(a) A lawyer shall not enter into a business transaction with a client or knowingly acquire an ownership, possessory, security or other pecuniary interest adverse to a client unless:
(1) the transaction and terms on which the lawyer acquires the interest are fair and reasonable to the client and are fully disclosed and transmitted in writing to the client in a manner that can be reasonably understood by the client;
(2) the client is given a reasonable opportunity to seek the advice of independent counsel in the transaction; and
(3) the client consents in writing thereto.
(b) A lawyer shall not use information relating to representation of a client to the disadvantage of the client unless the client consents after consultation, except as permitted or required by Rule 1.6 or Rule 3.3.
(c) A lawyer shall not prepare an instrument giving the lawyer or a person related to the lawyer as parent, child, sibling, or spouse any substantial gift from a client, including a testamentary gift, except where the client is related to the donee.
(d) Prior to the conclusion of representation of a client, a lawyer shall not make or negotiate an agreement giving the lawyer literary or media rights to a portrayal or account based in substantial part on information relating to the representation.
(e) A lawyer shall not provide financial assistance to a client in connection with pending or contemplated litigation, except that:
(1) a lawyer may advance court costs and expenses of litigation, the repayment of which may be contingent on the outcome of the matter; and
(2) a lawyer representing an indigent client may pay court costs and expenses of litigation on behalf of the client.
(f) A lawyer shall not accept compensation for representing a client from one other than the client unless:
(1) the client consents after consultation;
(2) there is no interference with the lawyer's independence of professional judgment or with the client-lawyer relationship; and
(3) information relating to representation of a client is protected as required by Rule 1.6.
(g) A lawyer who represents two or more clients shall not participate in making an aggregate settlement of the claims of or against the clients, or in a criminal case an aggregate agreement as to guilty or nolo contendere pleas, unless each client consents after consultation, including disclosure of the existence and nature of all the claims or pleas involved and of the participation of each person in the settlement.
(h) A lawyer shall not make an agreement prospectively limiting the lawyer's liability to a client for malpractice unless permitted by law and the client is independently represented in making the agreement, or settle a claim for such liability with an unrepresented client or former client without first advising that person in writing that independent representation is appropriate in connection therewith.
(i) A lawyer related to another lawyer as parent, child, sibling or spouse shall not represent a client in a representation directly adverse to a person who the lawyer knows is represented by the other lawyer except upon the consent by the client after consultation regarding the relationship.
(j) A lawyer shall not acquire a proprietary interest in the cause of action or subject matter of litigation the lawyer is conducting for a client, except that the lawyer may:
(1) acquire a lien granted by law to secure the lawyer's fee or expenses; and
(2) contract with a client for a reasonable contingent fee in a civil case.
* * * * * * * * * * * * * * *
ACTEC COMMENTARY ON MRPC 1.8
Gifts to Lawyer. A lawyer may properly prepare a will or other document that benefits the lawyer, the lawyer's spouse, children, siblings or parents for a client who is closely related to the lawyer or the lawyer's spouse. However, the lawyer should exercise special care if a relative of either the lawyer or the lawyer's spouse proposes to make a gift that is disproportionately large in relation to gifts that the relative proposes to make to others who are equally related. Neither the lawyer nor anyone associated with the lawyer should assist a client who is not closely related to the lawyer or to the lawyer's spouse to make a substantial gift to the lawyer or the lawyer's spouse, children, parents or siblings. See MRPC 1.10 (Imputed Disqualification) regarding the imputed disqualification of associated lawyers. For the purposes of this Commentary: (1) a closely related person is a spouse or one who would be entitled to receive part or all of the client's estate if the client were to die intestate not survived by a spouse; and (2) the substantiality of a gift is determined by reference both to the size of the client's estate and to the size of the estate of the lawyer or the lawyer's spouse or children. The provisions of this rule extend to all methods by which gratuitous transfers might be made by a client to a lawyer including life insurance, joint tenancy with right of survivorship, and pay-on-death and trust accounts.
Exculpatory Clauses. Under some circumstances and at the client's informed request, a lawyer may properly include an exculpatory provision in a document drafted by the lawyer for an unrelated client that appoints the lawyer to a fiduciary office. (An exculpatory provision is one that exonerates a fiduciary from liability for certain acts and omissions affecting the fiduciary estate.) An exculpatory provision may properly be included in any document with the informed approval of the client. An exculpatory clause is often desired by a client who wishes to appoint an individual nonprofessional or family member as fiduciary.
Payment of Compensation by Person Other than Client. Under the conditions specified in MRPC 1.8(f) the lawyer may accept compensation from a person other than the client. See ACTEC Commentary on MRPC 1.5 (Fees). In some instances the payor may also be a client, which may implicate MRPC 1.7 (Conflict of Interest: General Rule) or MRPC 2.2 (Intermediary).
Example 1.8-1. Father (F), a client of Lawyer (L), has asked L to prepare an irrevocable trust for F's daughter (D), who will soon attain her majority. F wants D to transfer property to the trust that D will be entitled to receive from a custodianship that was established for D under the Uniform Transfers to Minors Act. F has indicated that he would pay the cost of L's services in connection with the preparation of the trust. Before undertaking to represent D, L should inform F regarding the requirements of MRPC 1.8--particularly that L must be free to exercise independent judgment in advising D in the matter. L must also obtain D's informed consent to L being compensated by F. Since F is a client, L must be satisfied that representing both F and D is permissible under MRPCs 1.7 or 2.2. If L cannot represent both F and D consistent with the provisions of MRPCs 1.7 or 2.2, L should decline to represent D. L should not prepare the trust at F's request without meeting with D personally--just as L should not draw D's will without meeting with her personally.
Designation of Scrivener as Attorney for Fiduciary. The ethical propriety of a lawyer drawing a document that directs a fiduciary to retain the lawyer as his or her counsel involves essentially the same issues as does the appointment of the scrivener as fiduciary. However, although the appointment of a named fiduciary is generally necessary and desirable, it is usually unnecessary to designate any particular lawyer to serve as counsel to the fiduciary or to direct the fiduciary to retain a particular lawyer. Before drawing a document in which a fiduciary is directed to retain the scrivener as counsel, the scrivener should advise the client that it is neither necessary nor customary to include such a direction in a will or trust. A client who wishes to include such a direction in a document should be advised as to whether or not such a direction is binding on the fiduciary under the governing law. In most states such a direction is usually not binding on a fiduciary, who is generally free to select and retain counsel of his or her own choice without regard to such a direction.
Retention of Original Documents. A lawyer who has drawn a will or other estate planning documents for a client may offer to retain the executed originals of the documents subject to the client's order. However, a lawyer who retains a client's documents for safekeeping should provide the client with a written receipt, which may be in the form of a letter, acknowledging that the documents are held subject to the client's order. The receipt may, but need not, also indicate that the fiduciary designated in the documents is not required to retain as counsel the lawyer with whom the documents were left for safekeeping. The documents should be held by the lawyer in a manner consistent with the requirements of MRPC 1.15 (Safekeeping Property) regarding the duties of a lawyer who receives and holds property on behalf of a client. In particular, the documents should be properly identified and appropriately safeguarded. Subject to otherwise applicable law, the lawyer should comply with the client's written directions regarding disposition of the documents.
The retention of the client's original estate planning documents does not itself make the client an "active" client or impose any obligation on the lawyer to take steps to keep informed regarding the client's management of property and family status. Similarly, sending a client periodic letters encouraging the client to review the sufficiency of the client's estate plan or calling the client's attention to subsequent legal developments do not increase the lawyer's obligations to the client. See ACTEC Commentary on MRPC 1.4 (Communication) for a discussion of the concept of dormant representation.
Prohibited Transactions. A lawyer generally should not enter into purchase or sale transactions with a client or with the beneficiaries of a fiduciary estate if the lawyer is serving as fiduciary or as counsel to the fiduciary. Similarly, a lawyer generally should neither borrow from, nor lend to, a client or beneficiary.
ANNOTATIONS
(Refer to Caveat)Gifts to Lawyer:
Cases:
California:
Estate of Auen, 35 Cal. Rptr. 2d 557 (Cal. App. 1994). This case is discussed in the Annotations following the ACTEC Commentary on MRPC 1.7.
Estate of Rohde, 323 P.2d 490 (Cal. App. 1958). This case is discussed in the Annotations following the ACTEC Commentary on MRPC 1.7.
Colorado:
People v. Berge, 620 P.2d 23 (Colo. 1980). A lawyer who was left a substantial bequest under a will prepared by a lawyer who shared office space with the lawyer-beneficiary was suspended for 90 days. The will required the executor to engage a member of the lawyer-beneficiary's firm as a condition of appointment. The lawyer-beneficiary also acted as witness to will that benefitted him.
Iowa:
Committee on Professional Ethics v. Behnke, 276 N.W.2d 838 (Iowa 1979). A lawyer was suspended for three years for drawing a will under which he was a major beneficiary. The court held that EC 5-5 was not merely aspirational.
Committee on Professional Ethics v. Randall, 285 N.W.2d 161 (Iowa 1979), cert. denied, 446 U.S. 946 (1980). A lawyer was disbarred for preparing a will for a long-time client that left the client's entire multi-million dollar estate to the scrivener.
Michigan:
In re Karabatian's Estate, 170 N.W.2d 166 (Mich. App. 1969). A bequest to a lawyer who drew the will of an unrelated client was held to be void. Accordingly, the lawyer lacked standing to contest a later will.
New Hampshire:
Whelan's Case, 619 A.2d 571 (N.H. 1992). In this case a lawyer was censured for drafting a will in which the testatrix left her residence to the scrivener's partner. The lawyer did not violate Rule 1.8(c) or Rule 1.10. Instead, the lawyer violated Rule 5.1(c)(2) because the lawyer is responsible for the lawyer's partner's violation of Rule 1.8(c) and Rule 8.4(a) (Lawyer may not knowingly assist or induce another to violate a Rule). In its opinion the court observed that: "The respondent's defense is basically one of ignorance of the Rules of Professional Conduct, which is no defense. We hold that lawyers, upon admission to the bar, are deemed to know the Rules of Professional Conduct." 619 A.2d at 573.
New York:
Will of Cromwell, Dec'd, 552 N.Y.S. 2d 480 (Surr. Ct. 1989). The gift of $500,000 to an attorney draftsman was held valid where it was not procured by fraud or undue influence and where there was a long-standing professional relationship between the attorney and the testator involving close family ties.
Will of Elsa Tank, Dec'd, 503 N.Y.S. 2d 495 (Surr. Ct. 1986). Lawyer preparing the will of a woman in failing health who insisted that the lawyer include a bequest to himself had the ethical duty to discourage and refuse the bequest, particularly when the relationship between the attorney and the client was not founded upon any friendship. The court cites Code of Professional Responsibility EC 1-1 et seq., and EC 5-5 (McKinneys' Judiciary Law App.) which states that a lawyer "should not suggest to his client that a gift be made to himself or for his benefit. If a lawyer accepts a gift from his client, he is peculiarly susceptible to the charge that he unduly influenced or overreached the client. Other than in exceptional circumstances, a lawyer should insist that an instrument in which his client desires to name him beneficially be prepared by another lawyer selected by the client."
Ohio:
Clermont County Bar Association v. Bradford, 685 N.E.2d 515 (Ohio 1997). In this attorney disciplinary proceeding the Supreme Court of Ohio held that an attorney's misconduct in representing the husband's heirs after doing preliminary work for the wife's heirs and in drafting revisions to a will under which he was a contingent remainderman warranted public reprimand.
Mahoning County Bar Ass'n v. Theofilos, 521 N.E.2d 797 (Ohio 1988). A lawyer was suspended for one year for drawing a will for a client he had known for only four months that gave the client's entire estate to the scrivener and his minor son. All of the decedent's assets passed to the lawyer under joint and survivor bank accounts.
Pennsylvania:
In re Bloch, 625 A.2d 57 (Pa. Super. 1993). A will that named the scrivener's father and his paramour as residuary legatees was not proved to be the result of undue influence.
To the extent that the scrivener's conduct is challenged as unethical behavior violative of the Rules of Professional Conduct, Rule 1.8(c), our Supreme Court has held that enforcement of the Rules of Professional Conduct does not extend itself to allow courts to alter substantive law or to punish an attorney's misconduct. . . . We have been presented with no evidence of undue influence engaged in by the scrivener as to the decedent, nor was there proof of a weakened intellect associated with the testatrix during the period the will in question was prepared. . . . Accordingly, we are not prepared to invalidate the will on the grounds that the scrivener acted in violation of the Code of Professional Conduct. 625 A.2d at 62-63.
South Dakota:
In re Matter of Discipline of Martin, 506 N.W.2d 101 (S.D. 1993). In this case a lawyer was suspended for two years for multiple infractions including preparation of a will that named the lawyer as executor and trustee, which would allow him to manage the estate, including his debts to it. Lawyer never advised aged client to obtain independent advice.
Tennessee:
Matlock v. Simpson, 902 S.W. 2d 384 (Tenn. 1995). This will contest action involved a will drawn by a lawyer that left the lawyer almost all of the unrelated client's estate. The earlier wills that the lawyer had drawn for the client left the client's estate to his son or to his son and his daughter. The client also had executed a general power of attorney that named the lawyer as his attorney-in-fact, "with full authority to handle his business affairs and assets as fully" as the client could. The court reviewed the presumptions that apply to transactions between persons in a confidential relationship. The court held that, as a matter of law, a confidential relationship existed, and the validity of a subsequent transaction that benefits the dominant party is rebuttably presumed to be the product of undue influence. The court continued that the presumption of undue influence arising out of a confidential relationship can only be overcome by clear and convincing evidence.
Wisconsin:
State v. Collentine, 159 N.W.2d 50 (Wis. 1968). The Supreme Court of Wisconsin held that an attorney who, as conservator of an estate, prepared a will bequeathing the residue of the conservatee's estate to himself, was guilty of unprofessional conduct. However, the court held that he was subject only to being admonished rather than disciplined where the evidence showed the attorney had attempted to persuade the testator to get another attorney to draft the will and had taken pains to establish that it was the testator's independent and uninfluenced volition to have such a will prepared (and where there was no natural recipient of the testator's bounty and the residuary estate was of no value).
Statutes:
California:
California has enacted detailed legislation voiding any gift to a "disqualified person," a term defined to include any individual having a fiduciary relationship to the transferor who drafts, transcribes or causes to be drafted or transcribed any instrument of transfer (i.e., will, trust, deed, etc.), relatives by blood or marriage of or cohabitants with such persons, and partners, shareholders and partnerships or corporations in which disqualified persons have a ten percent or more interest, and employees of any such entity. Exceptions to disqualification include: (i) if the otherwise disqualified person is related by blood or marriage to or a cohabitant with the transferor; (ii) if an independent attorney certifies that the transfer was not the product of fraud, menace, duress or undue influence. Cal.Prob.C. §§ 21350-21356.
Texas:
Texas Probate Code § 58b, adopted in 1997, provides in subsection (a) that "A devise or bequest of property to an attorney who prepares or supervises the preparation of the will or a devise or bequest of property to an heir or employee of the attorney who prepares or supervises the preparation of the will is void." Subsection (b) exempts "a bequest made to a person who is related within the second degree by consanguinity or affinity to the testator . . . ."
Ethics Opinion:
Connecticut:
Eth. Op. 97-1 (1997). A lawyer is in violation of Rule 1.8 if a lawyer prepares a will under which he or she is named as a beneficiary even at the express request of the testator, regardless of the fact that the testator is referred to another attorney in the same law office as the lawyer who prepared the will for the purpose of execution of the will.
Transactions With Beneficiaries:
Case:
California:
Sodikoff v. State Bar, 121 Cal. Rptr. 467 (1975). In this disciplinary action the court imposed a six month suspension on a lawyer who represented the administrator of an estate who violated a position of trust and confidence that he voluntarily assumed vis-a-vis an elderly beneficiary who lived in England. The lawyer, who had encouraged the beneficiary to sell real property, falsely advised the beneficiary that "one of our clients by the name of Acquistate, a California corporation" had made an offer to buy the property for $20,000. The lawyer failed to disclose to the beneficiary that Acquistate was not a client of the law firm, but was the lawyer's alter ego. The lawyer also failed to disclose that the property had been appraised at $46,500.
Ethics Opinion:
Delaware:
Del. Op. 80-6 (1980). This opinion allows the lawyer to purchase an asset from a beneficiary with full disclosure at a fair price. The opinion is summarized in more detail in the Annotation following the ACTEC Commentary on MRPC 1.7.
Appointment of Scrivener as Attorney for Fiduciary:
Ethics Opinions:
Mississippi:
Miss. Op. 73 (1990). A lawyer may at client's request draft a will naming scrivener as attorney for the estate.
Montana:
Eth. Op. 960731 (1996). This opinion is discussed in the Annotations following the ACTEC Commentary on MRPC 1.7.
Retaining Original Documents:
Ethics Opinions:
Pennsylvania:
Eth. Op. 97-66 (1997). A lawyer had prepared a will for a woman who had died. Her husband was named executor, but had refused to probate the will for nine months after his wife's death. The will is in the possession of the lawyer. This opinion holds that the attorney has an absolute obligation to take steps to see that the will is given effect.
Washington:
Wash. 103 (1962) (withdrawn). A lawyer may retain an original document if requested to do so by a client on the client's own volition, with the understanding that the client may withdraw it at any time.
Articles:
Johnston, An Ethical Analysis of Common Estate Planning Practices: Is Good Business Bad Ethics?, 45 Ohio St. L.J. 57 (1984).
Wade, Current Developments in Ethical Problems Faced by Estate Planners, UCLA-CEB, Estate Planning 1992, 95-128.
Serving as Fiduciary and Counsel for Fiduciary:
Ethics Opinion:
New Hampshire:
N.H. Op. 1987-8/9 (1988). With proper disclosure to a client a lawyer may serve as fiduciary and as counsel to the fiduciary provided the fees are reasonable.
Statute:
California:
By statute California prohibits lawyers who are serving as fiduciaries from collecting dual compensation unless such dual compensation is specifically authorized by the court in the conservatorship, guardianship or estate context or, in the case of inter vivos trusts, following advance notice to the beneficiaries and no objection by the beneficiaries. A purported waiver of these provisions in any instrument of transfer is void as against public policy. Cal. Prob. C. §§ 10804, 15687.
Prohibited Transactions:
Cases:
New York:
In re Bond and Mortgage Guarantee Co., 103 N.E.2d 721 (N.Y. 1952). The lawyer for a trustee for the holders of mortgage certificates may not purchase certificates under any circumstance.
Oregon:
In re Hendricks, 580 P.2d 188 (Or. 1978). A lawyer was disciplined for borrowing from a client without properly documenting the loan or advising the client to obtain independent counsel.
Ethics Opinion:
California:
RPC 4-300 prohibits a lawyer from representing the seller at a probate, foreclosure, trustee, receiver, or judicial sale, if the purchaser is a spouse or other relative of the lawyer or another lawyer in the same law firm or an employee of the law firm.
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