I. Introduction to the Stage: Fiduciary Representation
In most attorney-client representation matters, the party who signs the engagement agreement and pays the attorney’s fees will be the client. It may appear — at first glance — that there is little difference between this type of representation and an attorney’s representation of fiduciaries.
With nary a moment of comfort, however, the plot thickens, as the saying goes. In the theater version of “The Fiduciary Representation Story,” a complex and duty-laden character referred to as a fiduciary enters the stage playing multiple roles while changing hats frequently. Spoken in ominous tones, the lines “breach of fiduciary duty” and “abuse of discretion” whispered or shouted by other characters put audience members on the edge of their seats.
As the story unfolds, the audience realizes it is a mystery. One person is charged with the goal of protecting the property or well-being of another, under circumstances that may be as vast as the population itself. It appears that the goal is ambitious, but one has a foreboding that it is just the proverbial tip of the iceberg. The mystery continues; the audience is puzzled by scenes in which a fiduciary appears to meet all legal duties yet faces accusations of impropriety, which could be costly. As this story continues, an increasing number of scenes cast the fiduciary as a villain.
At some point in the play, several fiduciary litigation attorneys enter the stage and speak their lines: “If you are asked to serve as a fiduciary, decline.” “If you are serving as a fiduciary, resign.” “Never let anyone you care about serve as a fiduciary.” Part of the mystery becomes clear: Fiduciaries are held to high — sometimes unattainable or uneconomical — standards when managing property for the benefit of others. We see that fiduciary duties can create time-consuming work and liability risks and that costs increase as work and risks increase. Suspense builds as a person with property needs more assistance and others try to assist, balancing costs and benefits, sometimes resulting in fiery disagreements.
As in the field of elder and special needs law, we see that fiduciaries are not just important — they are essential. If fiduciaries leave the stage, the story ends; if there are no fiduciaries, there can be no implementation of plans. If a plan cannot be implemented, it is not a realistic plan; it is merely a one-person play in which the script consists of a property owner saying, “My property shall be used to do as I say,” along with a list of instructions no one must follow.
This article discusses the importance of fiduciary representation — even when protecting fiduciaries is not the primary goal of the field of elder and special needs law. The primary goal is to create, provide, administer, and protect long-term care plans for individuals who are (or may become) vulnerable, using the property available to implement such plans. To meet this goal, effective fiduciaries are necessary. To have effective fiduciaries, prudent and qualified individuals must be willing to serve in fiduciary roles despite the risks. The NAELA Aspirational Standards provide guidance to attorneys who represent fiduciaries.
If an article on fiduciary representation were a play, the audience would leave unsatisfied; critics would be merciless. At the end, the mystery would not have been solved because there was no Agatha Christie or Perry Mason moment of clarity. When there are problems, the final act may close with the fiduciary — or the fiduciary’s attorney — as the prime suspect. It appears that the only way to fully protect a proposed fiduciary is to advise the individual to decline to serve — to stay off the stage no matter how much the fiduciary cares about the original property owner’s objectives. If an attorney advises a fiduciary to decline to serve, will the attorney be liable to the intended beneficiaries for the lack of the fiduciary’s service?
We leave this introduction with the understanding that the basic principle of administering estates for the benefit of intended beneficiaries is unchanged, except that representation of fiduciaries has tipped from the need to advise fiduciary clients on meeting fiduciary duties to the need to advise them on meeting fiduciary duties in a defensive manner and on recognizing the possibility that in some cases or states, an attorney may be treated as having fiduciary duties to parties the attorney has never met.
II. Background: Fiduciary Duties, Liability Risks, and Chaos
In cases handled by elder and special needs law attorneys, fiduciary representation is not a play, it is not fiction, and it does not exist for the entertainment of others. Although cases replete with family dynamics, property, accusations of greed and misdeeds, unmet health and safety needs, and harm to vulnerable individuals make for dramatic reading, such cases may represent staggering legal fees, overall failures in planning, and lost opportunities for the health and well-being of those who may suffer greatly from such losses.
An objective of this article is to consider how the NAELA Aspirational Standards apply to duties, risks, and uncertainties associated with planning for one party to be responsible for the property of another. Representation of fiduciaries from the planning stages forward may encourage more prudent individuals to serve in fiduciary roles.
When deciding whether to represent a fiduciary or a proposed fiduciary, the attorney will consider what fiduciary duties apply, who owes the duties, to whom the duties are owed, the costs of meeting the duties, whether costs will be covered, whether documents may be changed or modified, and whether the time frame is sufficient for meeting or changing the duties that apply. The attorney may decide to do the following:
• Decline to represent the fiduciary, proposed fiduciary, or any other party;
• Represent a proposed fiduciary who is considering whether to serve or who is declining to serve;
• Represent a fiduciary who is resigning;
• Represent a fiduciary in conflict with others who are involved with the fiduciary estate;
• Represent a fiduciary individually or on behalf of a principal to modify documents or to ensure agreement of beneficiaries before the fiduciary agrees to serve; or
• Represent the fiduciary individually or acting for a principal to implement and administer plans while meeting fiduciary duties.
While seeking to protect vulnerable individuals and hold fiduciaries accountable for harm is a necessary goal, the measurement systems have brought chaos to fiduciary liability risk. Unfortunately, there is no free universal justice center to use for expedient verification that a fiduciary has or has not met fiduciary duties. The potential for high dispute costs equates with the risk of a plan’s failure to protect vulnerable individuals.
III. Starting Points — Each State’s Unique Position
Fiduciary duties are among the highest duties in law. When the interests of vulnerable individuals are at stake, fiduciaries should be mindful of a sacred responsibility of care and competence. However, experts across the country debate the scope of fiduciary duties, who owes such duties, and to whom duties are owed; whose interests are identical versus conflicting; who is classified as a fiduciary; and whether attorneys have pass-through fiduciary duties to the same parties to whom the attorney’s fiduciary client has duties. While state law controls the duties that will apply, the differences in state rules result in mushy distinctions and blurry lines, including the possibility that:
• Beneficiaries of the attorney’s fiduciary client may also be considered the attorney’s clients — whether secondary, derivative, concurrent, joint, quasi-, qualified, almost, or otherwise;
• The attorney may be treated as having duties to beneficiaries even when such beneficiaries are not categorized as clients; or
• The fiduciary’s attorney may owe beneficiaries the same duties that attorneys generally owe to unrepresented persons.
When many parties have standing to claim breach of duties, to investigate, or to second-guess a fiduciary’s decisions, high dispute costs are possible. One experienced litigation attorney noted, “I can argue either side of any fiduciary duty case.”
Each definition is limited; definitions may change as circumstances change.
The term “reasonable” means the effort, time, cost, and knowledge appropriate for steps or results, as determined by analyzing relevant facts, which may also be costly. Fiduciary discretion is often accompanied by a reasonableness standard, which may lead to differences of opinion, disagreements, and expensive disputes.
The definition of the term “fiduciary” includes (a) a trustee, (b) an agent under a power of attorney, (c) the executor or administrator of an estate, and (d) a guardian. However, the term may also be used generally to refer to any party who has a duty to another involving property. References to fiduciary duties could occur in wide-ranging circumstances, such as the duties of government agencies to the public and the duties of a mechanic in possession of another person’s car. The term “breach of fiduciary duty” may be included in claims from gross negligence to theft to a beneficiary’s unhappiness. Given the broad usage of the term “fiduciary,” the owner of the shop where a mechanic is employed could receive a letter from a customer complaining that the shop, as a fiduciary, did not observe its duties with a “punctilio of an honor the most sensitive.”
A fiduciary’s ability to meet his or her fiduciary duties cost-effectively will depend upon the duties that apply, the circumstances, and the fiduciary’s actions. Original property owners may select fiduciaries with whom they have long-standing and collaborative relationships. However, when someone other than the beneficiary of property selects the fiduciary, as in cases with court-appointed guardians or trustees of third-party trusts, the relationship may be less collaborative. Differences exist among corporate fiduciaries, individual fiduciaries, nonprofit trustees of pooled trusts, trustees who manage investments but not distributions, public benefit advisors to fiduciaries, trust protectors, trustee appointers, trustees with discretion, professional advisors as fiduciaries, trustees directed to take specific steps under the original documents or by other parties currently, fiduciaries related to a principal or beneficiary, fiduciaries who have collaborative relationships with beneficiaries, and fiduciaries in cases in which there is hostility. It may be more difficult to represent individual fiduciaries than to represent corporate fiduciaries.
C. Protected Individual
The NAELA Aspirational Standards define “protected individual” as “the individual whose personal and property interests are the subject of the representation.” In many cases, the protected individual will be treated as the client when the individual’s property is involved, even if the individual lacks capacity to retain the attorney. In other cases, the fiduciary may be the attorney’s client but will have duties to the protected individual, beneficiaries, or others. Differences in representation and duties are far from comfortably clear.
D. Original Property Owner, Grantor, or Principal
In this article, “original property owner” means the individual who owned property that has been set aside to be administered for the individual’s own benefit or for the benefit of another person. The original property owner may be the grantor of a trust for such property owner’s benefit, the grantor of a trust established and funded for the benefit of another, a ward who owned property and who is now subject to guardianship, a testator directing property to beneficiaries under a will, or a principal who granted authority to an agent under a power of attorney. The terms “original property owner,” “grantor,” and “principal” are used interchangeably in this article.
In this article, the term “estate” means the property set aside by the original property owner or administered by a fiduciary for the benefit of the original property owner or another person. An estate may be subject to the terms of a will, trust, guardianship, or power of attorney.
V. Holistic Approach — Standard A
A. Setting the Stage for Client Identification, Diminished Capacity, Increased Dependence on Others, Planning for Changes, Representation Migration, and Other Matters That No One Likes to Think About
Client identification is the first step in legal representation. However, in the field of elder and special needs law, a holistic view is a critical foundation for taking even the first step. NAELA Aspirational Standard A, Section 1, addresses the scope of a holistic approach, noting that the elder and special needs law attorney:
In applying a holistic approach to legal problems, works to consider the larger context, both other legal consequences as well as the extra-legal context in which the problems exist and must be solved.
At the beginning of a case, fiduciary roles may be viewed as mechanical components of a plan, without directions to fiduciaries for implementing the plan. An individual’s increased life needs will often include supported decision-making and advocacy for independence, goals that a fiduciary may help facilitate. The Example in Standard A, Section 1, Comment, presents a common scenario:
An attorney is engaged to prepare powers of attorney and an estate plan for a homebound client who has suffered a significant decline … .
Many cases begin with an individual who is vulnerable due to one or more impairments and who has requested basic planning. The elder and special needs law attorney brings life planning skills to the case, considering multiple parties and resources, advising on other services, and suggesting measures to prevent financial exploitation. Further, in advising the client holistically, Standard A, Section 3, states that the elder and special needs law attorney:
Encourages the use of family members and other third parties to support the client in the legal representation when appropriate and the client consents.
At this point, an attorney for a protected individual may help the individual understand how a fiduciary is different from other advocates. However, challenges facing fiduciaries are rarely considered at the beginning of representation, when many urgent matters are heaped onto the attorney’s conference room table.
In an ideal although not always existing scenario, the attorney would quickly understand the overall circumstances, identify a single client, identify other parties to whom duties may be owed, and draft engagement agreements that cover current goals while anticipating future changes. The attorney would be prepared to draft documents that will provide sufficient but not excessive authority to fiduciaries while protecting the intended beneficiaries. The attorney would be able to secure the agreement of all parties as to the identification of the client and an understanding that others involved are not clients to prevent “representation migration,” in which nonclients believe the attorney is representing them or in which the attorney, in problem-solving mode, provides them with advice.
The attorney would assess and address the conflicts of interest that exist whenever more than one person is involved, identify and explain confidentiality duties as owed to the client combined with a fiduciary’s often-conflicting duties of disclosure, and determine what competent representation means in the case at hand. The attorney would determine an original property owner’s capacity, address diminishing capacity or mobility impairments, and when possible, determine the capacity of prospective fiduciaries or other parties. The attorney would determine how to communicate in a manner that facilitates understanding and informed consent while still protecting confidentiality.
In fiduciary representation cases, a version of the advice to “stop, drop, and roll,” which applies to fire safety, could be used. Attorneys may want to stop routine intake steps, drop the assumption that the individual speaking to the attorney will be the client, and roll through carefully developed checklists unique to the perils of fiduciary representation.
B. Will the Shoes Fit When the Fiduciary Steps Into Them?
It is often said that a fiduciary will “step into the shoes” of a grantor or principal, but this phrase does not have a technical definition. When a fiduciary is acting under a power of attorney, for example, the fiduciary will be acting on behalf of the principal, but rather than having interests identical to the principal, the fiduciary will assist the principal. In preparing for challenges facing a fiduciary, consider Standard A, Section 3, Comment:
In the elder and special needs law practice, the assistance of nonclient family members and other third parties is often appropriate and useful, especially when the capacity of the person being served in the legal representation is diminished. The attorney needs to confirm that (a) nonclients who are involved in the legal representation understand who the attorney’s client is and are not unduly influencing the client and (b) the client has authorized the involvement of the nonclient in the process, preferably in writing.
Standard A, Section 4, states that the elder and special needs law attorney:
Explains to the client seeking estate planning services how conflicts among family members may develop and, if desired by the client, recommends harmony-enhancing measures consistent with the client’s estate planning goals to minimize these conflicts.
This is another pivotal point in representation of a fiduciary because the fiduciary’s relationships with the principal’s family members, friends, and advisors may significantly differ from the principal’s relationships with these individuals. Even when a principal and fiduciary have identical goals in avoiding costly disputes, the fiduciary will face obstacles the principal will not face. Representation of the fiduciary separately from representation of a principal may help a fiduciary fulfill fiduciary duties with less risk to him or her personally. The second paragraph of Standard A, Section 4, Comment, states:
Subsequent family conflicts may frustrate the client’s estate planning goals, significantly increase legal fees and other costs of administering an estate or trust, and, if the conflicts occur during the client’s lifetime, cause the client unnecessary stress.
The Standards recommend harmony-enhancing steps such as documenting the goal of family harmony, outlining how problems could develop, and proposing how problems could be resolved. It may be helpful for parties to understand that dissatisfaction with a fiduciary is nothing new. Also, the expansive scope of a fiduciary’s work may be more understandable when an attorney representing the fiduciary presents the information. Standard A, Section 5, states that the elder and special needs law attorney:
When conflict between family members or other interested parties arise, evaluates whether nonjudicial conflict resolution is appropriate and encourages noncourt resolution when appropriate.
In theory and in law, fiduciary duties are sweeping. As other forms of litigation have dried up, fiduciary litigation appears to have increased. Still, noncourt resolution may be possible in cases in which the parties are committed to collaboration. However, the fiduciary for unhappy beneficiaries may swiftly become the subject of harsh scrutiny by attorneys highly skilled in fiduciary litigation. The question becomes, “Has the fiduciary met the high fiduciary duty standards required by law?” Getting an answer to this question will often not be simple or inexpensive. For a parallel example in another industry, consider the story of Captain Chesley B. “Sully” Sullenberger III, famed for landing his airplane on the Hudson River after both engines lost power, an incident often referred to as the “miracle on the Hudson.”
The movie “Sully” tells the story of how Captain Sullenberger landed his plane on the Hudson River. Critics of his decision to land on the river, with all the attendant risks of doing so, pointed to simulations (according to the movie version) demonstrating that Captain Sullenberger had enough time to fly to, and land at, either New York’s LaGuardia Airport or a smaller and closer airport in New Jersey. However, from Captain Sullenberger’s explanations, one sees that the simulations did not account for the pilots’ need to consider all protocols, regulations, general factors, and adjustments due to specific circumstances plus the need to get to an airport for a safe landing. In other words, the simulations covered only the time required to take actions and did not factor in the time needed to gather data, analyze the data, determine options, analyze the options, and decide upon a course of action.
While a fiduciary must often make discretionary decisions quickly, considering and analyzing many factors, those who second-guess the decisions — later, with 20/20 hindsight, access to additional data, and a great deal more time — may be able to prove that a better decision was possible.
C. Fiduciary and Principal — Aren’t Their Interests Identical?
In general, as long as original property owners are not incapacitated, they have the right to use their property in any manner they choose. They may give their property to family or charities, spend all their funds on vacations, gamble everything away, or make investment decisions that others categorize as foolish. No matter how they use their property, they generally have no requirement to account to their children or anyone else.
Meanwhile, the fiduciary’s duties are considerably different. The role of the fiduciary exists to manage property and services for the benefit of one or more beneficiaries. In representing a fiduciary, an attorney’s first objective will be to ensure that the fiduciary understands the fiduciary duties that apply and how to meet such duties, including accountings and disclosures. No matter how precisely documents reflect an original property owner’s goals, the fiduciary may need additional advice to implement plans, even if the additional costs of obtaining such advice are unwelcome.
D. Anticipating Vulnerabilities That Could Lead to Abuse, Neglect, and Exploitation of a Protected Individual
Many attorneys will caution clients that children who were resentful or hostile before a parent’s incapacity rarely become devoted caregivers after a parent’s incapacity. Yet estranged children often return when a parent is vulnerable and are often embraced not only by the vulnerable parent but also by advocates and advisors who do not wish to antagonize the parent, who views the children’s return as a successful family reconciliation. While considering the family and many other factors, according to Standard A, Section 6, the elder and special needs law attorney:
Takes actions to help prevent current and future financial exploitation, abuse, and neglect of the client.
Elder financial abuse has been called “the crime of the 21st century.” In a society in which life spans are lengthening, and periods of vulnerability with higher medical and other care costs are getting longer, planning to achieve the original property owner’s objectives is critical and challenging. When an individual’s decline is gradual, and the individual does not acknowledge a need for assistance, trusted fiduciaries may face especially difficult challenges.
Such was the case with brilliant economist Mollie Orshansky and the trusted family members she appointed as fiduciaries. She planned for future assistance with a trust, a condominium close to her family, and medical directives. Yet as she declined, she refused help from the fiduciaries she had selected. The property manager in her building called adult protective services, and a court appointed a nonfamily member as guardian. The costly interstate battle that followed thwarted many of Ms. Orshansky’s plans for peaceful transitions as she aged, depleted much of her estate, and traumatized family members.
When an individual’s capacity is declining, trusted advisors who are concerned about the individual’s long-term best interests may suggest that the individual give up some independence or control in order to secure better safety and protection of property. Meanwhile, to gain favor, newly arrived individuals — sometimes caregivers, professional advisors, formerly estranged children, or con artists — may agree with the individual and support unsafe or nonprudent choices. When individuals hear what they want to hear from new “friends” and do not like what they hear from long-time trusted advisors, they may become dismissive — even distrustful — of their long-time advisors.
E. Transitions: Smooth Sailing or a Bumpy Ride?
Many families face challenges by collaborating with attorneys who are helping them maintain the harmony they have developed among family members during their lives. In other cases, family members pose risks. The NAELA Aspirational Standards urge attorneys to consider family and other relationships carefully when developing plans, noting that attorneys could encourage clients to do the following:
• Sign a written preconsent form authorizing the attorney to take protective action if the attorney discovers exploitation, abuse, or neglect of the client;
• Place the client’s assets into a living trust; or
• Give a trustworthy family member access to the client’s bank account to enable this family member to act as a protector by checking on expenditures.
When an original property owner is especially independent, intelligent, and resourceful — and when disgruntled family members are waiting in the wings — the individual may find that no one he or she trusts is willing to serve as fiduciary unless the individual takes significant actions to protect the fiduciary during difficult transitions that could occur if the principal’s capacity declines. Such actions, including the following, could be added by the individual’s attorney but reviewed by an attorney representing the fiduciary:
• Plan and budget from the outset for the fiduciary to retain separate counsel.
• Initiate an agent’s administration under a power of attorney prior to crisis.
• Provide fair to generous compensation to the fiduciary.
• Establish a simple committee process for determining a grantor’s/trustee’s incapacity so that the successor trustee may begin administration more smoothly.
• Draft documents to designate guardian preferences in advance to reduce the risk of a family member making an end run around powers of attorney and trusts.
• Formulate care plans that contemplate changes in mental capacity, including periods of poor decision-making before incapacity.
• Indemnify the fiduciary and draft release and transition plans, exit plans, and detailed accounting and disclosure procedures; detail coverage of costs; consider providing insurance for the fiduciary.
• Clarify that the grantor does not want the fiduciary to bear liability unless gross negligence is proved by clear and convincing evidence or provide the fiduciary with the highest level of protection permitted for fiduciaries under state law, clearly stating that the fiduciary may use trust assets for defense.
• Restrict the grantor’s ability to revoke a trust unless the grantor obtains a care management report or takes other agreed-upon steps.
• Detail supported decision-making steps, instructions on how to handle gaps in authority resulting from temporary impairments, and instructions on how to address other questions of capacity.
If long-time trusted advocates are involved in an individual’s life, there may be far less risk in protecting such advocates than in creating documents that discourage such trusted advocates from serving as fiduciaries.
VI. Standard B — Client Identification
A. Fiduciary, Principal, Advocate, Family Group, Beneficiary, or Others: Who Is the Client?
Clarity is not currently in the cards for fiduciary representation, even if one believes that, in general, fiduciaries should protect the interests of an estate’s beneficiaries with loyalty and care and attorneys representing fiduciaries should help them do so. The state-to-state differences in statutes, interpretations, rulings, and cases remain vast and often conflicting. With ever-changing statutes and case holdings, it may be challenging to determine who currently owes duties to whom under state law. Multiple representation options exist, and multiple parties may be involved in each case. Standard B, Section 1, Comment, reminds attorneys what is at stake:
It is the client to whom the attorney owes the professional duties of competence, communication, diligence, loyalty, and confidentiality.
Although each case is multifaceted, Standard B provides three key steps to help clarify client relationships. According to Standard B, Sections 1, 2, and 3, the elder and special needs law attorney:
1. Identifies the client and the individuals who will assist the client at the earliest stage of the representation, obtains the client’s agreement on these identifications, and communicates this information to the persons involved.
2. Recognizes the unique challenges of identifying the client when a fiduciary is acting on behalf of a protected individual.
3. Meets with the prospective client in private at the earliest practicable time to help the attorney identify the client and assess the prospective client’s capacity and wishes as well as the presence of any undue influence.
The Standards do not suggest that it is simple to identify the client but that it is important to do so, despite the challenges, as soon as possible, as clearly as possible, and as well-documented as possible. Families and groups will often come to the attorney’s office together, working collaboratively, with multiple parties helping the person who needs assistance. Standard B, Section 1, Comment, describes a common scenario in which:
the individual whose personal and property interests are to be protected in the proposed representation may not be present or may be accompanied by family members, appointed fiduciaries, or other trusted third parties.
In an initial meeting, all individuals may consider representation a group endeavor, believing that all have the same goals and interests; they may view the fiduciary as simply another member of the team. Joint (multiparty) representation may appear expedient, but multiple parties rarely share identical views for very long. If an attorney proceeds with joint representation and a conflict later develops, the attorney may need to withdraw, leaving all parties to start over with new attorneys. In providing guidance and direction, Standard B, Section 1, Comment, states:
Usually, the client is the individual whose personal and property interests are to be protected.
The Comment continues, noting that, alternatively, a family member, fiduciary, or other person can be the client, also acknowledging that:
different attorneys with the same set of facts may identify different individuals as the client, and each result is equally appropriate.
For example, a parent may be the individual whose interests and property are the focus of the representation, but one or more of the individual’s children may be devoting time and resources to the parent’s care, taking time off work, neglecting their own families or health, or even leaving their jobs and moving to provide care. As caregivers with extensive and possibly ongoing duties, such caregiver children are also persons whose interests and property are involved. In such a case, the parent may be the client but may wish for devoted children to coordinate matters for them while being treated respectfully and appreciatively by advisors.
In this case, identifying the parent as the client — without undertaking joint representation — does not diminish the contributions and sacrifices of the caregivers but instead recognizes that each client relationship brings a host of duties; when there is more than one client, it is difficult to meet stringent representation duties, including communication, conflict of interest avoidance, and confidentiality. Standard B, Section 1, Comment, notes:
One thing is certain: Regardless of who the client is, the attorney should be vigilant in protecting the individual.
At various times during a case, it may be helpful to clarify nonrepresentation and advise nonrepresented parties of the benefits of separate counsel.
B. Fiduciary or Protected Individual: Who Is the Client?
As noted earlier, Standard B, Section 2, states that the elder and special needs law attorney:
Recognizes the unique challenges of identifying the client when a fiduciary is acting on behalf of a protected individual.
In cases in which a principal, as a protected individual, needs assistance, there are many possible constellations of property, purposes, priorities, parties, and other people. When a fiduciary will actively represent (act for) the protected individual, the attorney may ask questions such as these:
• Will the protected individual be the client even though the individual may lack the capacity to act as a traditional client and a fiduciary actively represents the principal?
• Will the fiduciary be the client when the protected individual is not able to act as a traditional client?
• Will both the protected individual and the fiduciary be joint clients?
Even when the answer to any one of the preceding questions is “yes,” the attorney will consider all the circumstances to determine the type of representation he or she believes will be most effective. There will be advantages and disadvantages to each type of representation but, in general, the attorney may consider:
• Representing the principal individually; the fiduciary, as an agent, may act on behalf of the principal.
• Representing the fiduciary individually; principals may then be unrepresented unless another attorney represents them.
• Representing the principal and fiduciary concurrently, with separate representation and without sharing information between them; however, it may not be possible to address conflicts of interest, confidentiality, and communication.
• Conducting joint or multiple-party representation, with information shared among clients.
• Representing parties individually and sequentially, which commonly occurs in estate administration.
• Representing one party then another without separate engagement agreements; such representation migration may be expedient at first but could be very expensive in a dispute.
• Recommending that the fiduciary hire a separate attorney to represent the fiduciary’s interests as well as another attorney to represent the fiduciary in administering the estate. Surprisingly, this is the most cost-effective approach under the right circumstances.
C. The Attorney’s Differing, Slipping, and Sliding Duties
In fiduciary representation cases, courts have found that attorneys had a fiduciary duty to the beneficiaries of trusts and wards under guardianships. Meanwhile, some state statutes, cases, and bar opinions clarify that an attorney hired by a fiduciary represents and owes a duty only to the fiduciary. Depending on state rules, attorneys may have duties to an expanded group of persons by default but may be able to limit these duties in the engagement agreement.
To determine minimum required duties, an attorney will sort through state laws and rules, and the specific circumstances, to clarify possible differences in the attorney’s duties to the following parties:
• The original property owner as the client or former client;
• Intended beneficiaries of an estate;
• The fiduciary as the client or former client; and
• One or more of such parties if they are incapacitated or protected individuals.
Even in the absence of specific laws and rules, the NAELA Aspirational Standards set forth the standard of vigilance in safeguarding the interests of a protected individual, which is especially important given the level of financial exploitation that currently threatens the security of many vulnerable individuals.
D. Differences of Interest Between Fiduciaries and Principals
In cases in which a fiduciary continues to be represented by the attorney who drafted the original plan — a common scenario — the first days, weeks, or months of estate administration may be a whirlwind of time-critical tasks and difficult choices. Named fiduciaries may see documents for the first time when they are called upon to begin administering an estate, such as when a principal or grantor becomes incapacitated or a testator dies. In these cases, it may be helpful to the fiduciary for counsel to step back, look at the documents and plans, and ask:
• Should my client, the named fiduciary, just say “no”?
• Should my client, the named fiduciary, determine the status of beneficiary relationships, the potential for problems, and the options for modification of the documents prior to jumping right in?
It may be expedient for the attorney who drafted the documents to represent the fiduciary when the fiduciary has asked the attorney to do so. The drafting attorney understands the history, plans, property, and parties. However, it is possible that the principal’s goals were overly ambitious; in such a case, the fiduciary may benefit from having independent — or additional — representation as early as possible to focus specifically on risks to the fiduciary.
E. The Importance of a Private Meeting
Standard B, Section 3, points out that a private meeting with clients or prospective clients should occur as soon as practicable. In some cases, a private meeting would be especially important if the attorney is considering representation of the fiduciary individually. Standard B, Section 3, Comment, notes that the meeting:
helps the attorney identify the client, assess the prospective client’s capacity, and understand his or her wishes, unencumbered and uninfluenced by others.
Once again, this is a pivotal point in determining relationships, the principal’s objectives, the fiduciary’s commitment to fulfilling fiduciary duties, and the roles of other parties. In some cases, an attorney may agree to represent a fiduciary only if the principal has separate representation. When an attorney suspects undue influence, the attorney may wish to limit or decline representation unless he or she determines that, with assistance and guidance, the principal may be able to overcome the impact of such undue influence. In some cases, the attorney may decide to take further protective action; in some states, the attorney may be required to do so. Standard B, Section 3, Comment, describes three common scenarios in which a private meeting may be considered:
• When the attorney represents a guardian, in which case the attorney generally will not have a private meeting with the ward.
• When no fiduciary is involved, in which case only the principal (or a court) will have authority to enter into agreements. An attorney should meet with the principal to determine capacity and objectives, explain duties of confidentiality, and determine how to communicate with the client if the engagement proceeds; the attorney could also determine whether the attorney would be able to represent the fiduciary individually.
• When a fiduciary seeking representation is the agent under a power of attorney, in which case the attorney may determine that he or she still prefers a private meeting with the protected individual. If the fiduciary objects, the attorney may decide to decline representation.
VII. Standard C — Engagement Agreements and Document Drafting
Standard C, Section 1, states that the elder and special needs law attorney should use engagement agreements to clearly identify clients and nonclients, relationships between parties, conflicts, disclosures permitted, steps, goals, fee structures, and costs. Engagement agreements, which provide an opportunity to clarify disclosures and roles, could include the following:
• Clarification on whether the attorney may speak directly to the protected individual and
• A warning that the attorney may withdraw if the fiduciary violates a fiduciary or other duty to the protected individual and does not take timely corrective action.
Standard C, Section 2, states that the attorney drafts documents reflecting clients’ intentions and the informed choices of protected individuals if known or, if not known, choices that are in a protected individual’s best interests. Standard C, Section 3, goes further, noting that the elder and special needs law attorney:
Recognizes the unique challenges in drafting documents at the request of a fiduciary.
Only if a fiduciary is acting for the principal, with the principal as client and with the fiduciary holding authority to direct the attorney, will the attorney be able to draft documents to be signed by the client or by the agent on behalf of the client. Further, Standard C, Section 3, Comment, emphasizes special steps, including the following, and care to be exercised when a fiduciary asks the attorney to draft documents transferring property to the fiduciary or others:
• Confirm that the fiduciary has sufficient authority to act;
• Confirm that actions are consistent with the protected individual’s current documents or with the individual’s known goals, wishes, and best interests;
• Meet privately with the protected individual; and
• Refuse to act on the fiduciary’s request if the proposed action represents a change in the individual’s existing documents that the attorney believes is inconsistent with the individual’s best interests.
The example in the Comment on Standard C, Section 3, describes a protected individual who lacks capacity but has a power of attorney and a will. When the agent asks the attorney to draft a revocable trust to avoid probate, naming the same beneficiaries named in the will, the attorney can draft the trust.
Standard C, Section 4, provides other examples of a fiduciary acting on behalf of a protected individual. Standard C, Section 4(c), notes that if a fiduciary asks an attorney to draft a special needs trust for a protected individual, the attorney should ensure that the fiduciary has authority to engage the attorney and to create a trust.
Section 4(d) notes that when an attorney drafts documents for a client, such as a power of attorney or trust, and the documents are to be signed by a nonclient (e.g., as agent or trustee), the principal’s attorney should advise prospective fiduciaries to seek independent legal counsel. Representation should again be clarified, and the following questions must be answered: “Is the principal the sole client?” “Is the fiduciary a joint client?” “If the principal’s attorney recommends that the fiduciary consider separate counsel, shouldn’t the fiduciary consider separate counsel?” Ideally, the principal’s attorney would explain the benefits of separate counsel for the fiduciary. All parties could consider the type of representation that best protects the principal’s plans and intended beneficiaries under the circumstances, without automatically putting the fiduciary in harm’s way.
Long-term plans cannot be administered without fiduciaries. Fiduciaries are held to a high standard when it comes to carrying out their duties; accusations of breach of fiduciary duties will generally be costly even when the outcome is inconclusive or indicates that the fiduciary did not breach his or her duties. Attorneys representing fiduciaries should help them meet their fiduciary duties, identify problems, and work to reduce disputes in order to honor and carry out the intent of grantors who are seeking to preserve property — and promote better lives — for beneficiaries. Further, attorneys could implement defensive measures (such as suggesting that a prospective fiduciary decline to serve, seek modification, or work toward collaborative plans with beneficiaries) in cases where it appears that it will be difficult for a fiduciary to administer an estate without disputes. Reducing costly disputes ultimately helps retain estate property for the protection of individuals who need such property in order to have safer and healthier lives.