Simply put, a trustee is someone is who has been entrusted with authority to hold property or assets, for specified purposes. A trustee holds property or assets in trust for one person, to be transferred to another.
A common example of the creation of a trustee is when a person creates a valid trust and grants authority to a person to hold property and assets. The trustee will hold these until certain conditions have been fulfilled for the transfer from the trustor to the beneficiary.
The term “trustee” can also refer to a person who holds property for another during a bankruptcy proceeding. Additionally, a board of trustees oversees a group’s finances. Many non-profit organizations operate under a board of trustees.
Trusts are regularly drafted by attorneys, so at first glance, appointing your attorney as your trustee seems like a convenient and great idea. However, there are a number of ethical risks that may arise for an attorney when they are appointed as a trustee. Additionally, trustee compensation for trust management may be limited when the drafting attorney is acting as the trustee.
Thus, an attorney may decide it is not profitable to serve as a trustee in addition to their original role as attorney, because the limits on compensation equate more work for less money.
What Potential Conflicts Arise When an Attorney Acts as a Trustee?
Generally, trusts include exculpatory language that protects trustees from liability. Exculpatory language is wording and phrasing that frees one party from certain liability, while waiving the rights of the other.
Exculpatory language is often used in contracts to essentially strip one party of their rights, such as the right to sue. However, exculpatory language may lead to potential ethical violations for attorneys who draft the trust.
The “Model Rules of Professional Conduct”, a guideline for ethical conduct, cautions attorneys against making agreements that potentially limit their liability. An example of this is when an attorney prospectively seeks to limit their malpractice liability.
Although the code is not binding, it does provide guidelines for attorneys to make sense of their ethical and moral choices. As attorneys are held to a higher ethical standard, it is imperative that they ensure they are not acting unethically in their zealous representation of you or they may face penalties.
Further, any attempt made by an attorney prospectively limiting the attorney’s liability is not permitted by law, unless you as the client or the beneficiary are independently represented by another attorney, in making the agreement. Thus, if you are a beneficiary to a trust, you should seek independent representation if an attorney is seeking to limit their professional liability.
Trustees have significant responsibilities in investing, administering, and distributing trust property and assets. Under the law, a trustee has fiduciary duties including a duty of loyalty, a duty of prudence, and subsidiary duties.
If a trustee breaches any of these duties, they will be held personally liable. The duty of loyalty requires that the trustee administer the trust solely in the interest of the beneficiaries. Also, the duty of prudence requires that the trustee is held to an objective standard of care in managing the trust property.
In addition, subsidiary rules include the duty of impartiality, the duty not to commingle trust assets with the trustee’s personal assets, as well as the duty to regularly provide accounting to beneficiaries. Like a trustee, an attorney will not be allowed to make any agreements limiting their liability as to the fiduciary duty owed to a trust beneficiary. In fact, any attempts to do so will be deemed invalid by a court of law.
To put it more simply, attorneys are already held to a higher ethical and legal standard than a layman in managing a trust. There are additional rules and procedures, which an attorney, as a professional, must follow that can make it difficult to amend the trust. Further, an attorney will often prioritize beneficiaries based solely on trust law and their personal liability, rather than do what the trust creator or beneficiaries would do.
If I Appoint My Attorney as My Trustee, Do They Have to Accept?
If you as the creator of the trust appoint name your attorney as trustee, they will likely not accept. Trustees are either appointed by the trust creator or by a court. However, the trustee must voluntarily accept the position. Further, once accepted, a trustee is not allowed to resign without the consent of all of the named beneficiaries to the trust or with the permission of a court of law.
As mentioned above, there are numerous reasons why an attorney will likely not accept the position of trustee, such as limits on their ability to be fully compensated as a trustee and their elevated level of obligations. Thus, your attorney will not likely accept being appointed as a trustee.
Can I Prevent Ethical Violations from Occurring in an Attorney-Trustee Situation?
Yes, there are a few ways an attorney can ensure prevention of ethical violations in attorney-trustee situations. The absolute easiest way to avoid any ethical issues is to not have your attorney act as your trustee.
However, the following suggestions may help mitigate potential ethical conflicts resulting from an attorney-trustee situation, as well as ethical conflicts from the inclusion of exculpatory terms in the trust.
Prior to making your attorney your trustee, you should:
- Seek independent legal advice from another qualified trusts and estates attorney;
- Provide voluntary, informed, written consent to your attorney; and
- Make sure that you are well-informed about the impact of any exculpatory terms in the trust. Be sure that they are fair, and that you have reviewed and fully consent to them.
Should I Hire Another Lawyer If I Wish to Appoint an Attorney as My Trustee?
As can be seen, attempting to appoint an attorney as a trustee may result in difficulties. Every party involved in the creation and administration of a trust may benefit from consulting with a well qualified and experienced trusts and estates attorney.
A licensed trusts and estates attorney (seperate from the attorney you may seek to appoint as trustee) will be able to assist in drafting trust documents , address any potential conflicts, as well as assist you in resolving those conflict.