You may find this surprising, even laughable, but attorneys are subject to Rules of Professional Conduct that include ethical obligations to their clients.
One of those rules focuses on what should happen if an attorney has, or is likely to have, a conflict of interest in representing a client.
Conflicts of interest happen more often than you may think.
The general rule
California Rule of Professional Conduct 1.7 provides that a lawyer cannot represent a client if the representation is directly adverse to another client, unless informed written consent is obtained from both. Sometimes a conflict can be waived, and sometimes it cannot. Obviously, one attorney or firm cannot represent both the plaintiff and a defendant in a matter. But it also can be more nuanced than this.
For example, two business partners have agreed that one is going to buy out the other, who wishes to spend her time fishing and skiing. The partners have a conflict — and it’s not that the continuing partner hates the outdoors.
The conflict is that one party, the seller, wants the highest price possible with immediate all-cash payment, and the other party, the buyer, would like a very low price and years and years to pay it. The lawyer couldn’t fairly represent both parties in negotiating the sale.
But what if the partners have a well-drafted partnership agreement that already spelled out the terms of the buyout, and the partners were in agreement? The partners have a potential conflict (they are still buyer and seller) but not an actual conflict (they’ve agreed to all the terms). A lawyer could represent the partnership entity in documenting the transfer, but a waiver of conflict by both partners would be required.
And if an actual conflict arose, the lawyer would have to withdraw from representation.
Conflicts in estate planning
We like to think we do such a great job in estate planning for our clients that they send their family members to us. Indeed, I represent members of two different families, four generations deep. But that also required waivers of conflict at each generation.
If a lawyer represents a parent and then that client’s adult child also comes in to get his/her own estate planning done, there is a potential conflict. What if mom or dad one day disinherited the child? The lawyer has to maintain the parents’ confidentiality and cannot inform the child. The child later may think, “You’re my attorney. You were supposed to protect me.”
The waiver of conflict agreement will have to spell out this conundrum and advise all parties that confidentiality will be maintained for each client, even to the detriment of the other.
Conflicts representing spouses
Spouses may also have a conflict of interest in their estate planning, which must be waived. Each spouse is free to plan for his/her share of assets and his/her heirs and beneficiaries independently. If the spouses aren’t in agreement or have secrets from each other, they may need separate counsel.
A standard attorney waiver of conflict between spouses would include language that their conversations are confidential and subject to attorney-client privilege, but not confidential between the two spouses.
Any information provided by one spouse can and will be shared with the other spouse. In other words, if you engage an attorney as a couple and then one spouse contacts the attorney separately to mention he/she has a child the spouse doesn’t know about, the attorney is going to have to withdraw from representation. Worse, the attorney may need to disclose that information to the other spouse.
Conflicts in trust administration
Conflicts of interest can also arise in an attorney’s representation of the trustee or a beneficiary of a trust. Generally, the attorney who drafted the trust represented the grantor (the person creating the trust) as an individual and as trustee. There is no conflict there because the interests of the grantor and the trustee are the same.
However, when the grantor dies and someone else becomes trustee, is the drafting attorney the right attorney to advise the new trustee? Often, the answer is yes, as that attorney understands what the grantor wanted, and the new trustee’s duty is to carry out the terms of the trust and act in the best interests of the beneficiaries.
However, if there is a dispute over the terms of the trust, or whether the grantor had the capacity to sign, or whether there was undue influence, the drafting attorney may be a prime witness and thus is not perhaps the best choice to advise the trustee. If there is a flaw in the trust, the attorney may have a conflict of interest solely because his interest shifts to protecting himself from a malpractice action.
Likewise, if the attorney has represented a trustee who is also a beneficiary, and there is a dispute between beneficiaries, the attorney cannot represent both the trustee in that capacity and that same person in the capacity as beneficiary. The interests and duties as a trustee may conflict with the person’s interest as a beneficiary.
For example, mom and dad have a trust that appoints the oldest, most favored child as successor trustee. Mom and dad die and the Favorite Child takes over as trustee. Trustee’s job is to marshal the assets and distribute them among all three children, with Favorite Child getting 10% more than the others. Three months into the administration of the trust, Least Favorite child argues that Favorite Child unduly influenced mom and dad to benefit himself.
The lawyer may continue representing Favorite Child as trustee, who is neutral on this issue, but should not be representing Favorite Child in the defense against the undue influence claim. Favorite Child will need separate representation, just like Least Favorite Child. (And these arguments always boil down to who mom liked best.)
Attorney as beneficiary
There is also a presumption at law that where a drafting attorney is named in a client’s estate plan, there is undue influence, unless the attorney is a natural heir, or there is a separate certificate of review by another attorney. Most clients aren’t excited about having to see two attorneys for their estate plan. I can only assume this is why none of my clients has left me their fortunes.
Attorneys are supposed to look out for their clients, and the State Bar promulgates rules to facilitate this. But as with most things in life, you should look out for yourself as well. Make sure your attorney has only your best interests in mind.
Teresa J. Rhyne is an attorney practicing in estate planning and trust administration in Riverside and Paso Robles. She is also the No. 1 New York Times bestselling author of “The Dog Lived (and So Will I)” and “Poppy in The Wild.” You can reach her at Teresa@trlawgroup.net.