Feb. 18, 2015 – The new Wisconsin Trust Code provides for the appointment of a Trust Protector1 who is vested with certain broad authorities, such as the authority to resolve disputes between a trustee and a beneficiary, consent to or veto distributions to a beneficiary, and amend or terminate a trust. A Trust Protector can offer valuable planning and protection opportunities. But a major practical issue is determining who to appoint as the Trust Protector.
Clients often have a difficult enough time designating a trustee and a successor trustee. Designating a Trust Protector confronts the client with yet another choice. In many cases, the drafting attorney will be asked to serve in this capacity. Can the drafting attorney serve? Should he or she serve? This question has both ethical and liability considerations.
At this early stage in the development of the Trust Protector rules in Wisconsin, there is no specific ethical guidance. Consequently, attorneys should consider ethics opinions and cases that address situations in which the drafting attorney was appointed to serve as personal representative or trustee. The decisions in such cases generally depend on whether the appointment resulted from the lawyer’s solicitation.
Solicitation Not Permitted
A lawyer generally cannot “solicit” such an appointment. The Wisconsin Supreme Court has concluded that it is both the solicitation and the appearance of solicitation that must be avoided.2 The court has concluded that an attorney may draft a will in which the lawyer is designated as a personal representative only if this designation is at the request of the client and not the result of the lawyer’s solicitation.3 Accordingly, these decisions indicate that the drafting attorney may not solicit the appointment as Trust Protector, and the attorney should not suggest that he or she serve as a Trust Protector.
Last year, State Bar of Wisconsin Ethics Counsel Timothy Pierce and Assistant Ethics Counsel Aviva Kaiser published an excellent summary of these ethical rules.4 The article states that when determining whether the lawyer solicited an appointment as the trustee, personal representative, or lawyer employed to probate the estate, the court will consider three factors.
First, the court will consider whether there is a legitimate reason for the lawyer to be chosen over all other potential trustees, personal representatives, or lawyers employed to probate the estate. In other words, the court will consider whether the case is one of those “fairly rare cases” where the lawyer has unusual familiarity with the testator’s business or family problems or has a relationship that transcends the ordinary client/attorney relationship.
Second, the court will consider whether there is a statement in the will or trust document stating that no solicitation occurred.
Third, the court will consider the number of times the lawyer has drafted wills or trusts as instruments with these types of appointments.5
To avoid the taint of solicitation, it is critical that the attorney advise the client of other options for a Trust Protector, e.g., trust company, relative, his or her accountant. Document this advice, and if possible, the document should contain the client’s acknowledgment.
Can Conflict Be Waived?
Another issue is whether a conflict arises when the drafting attorney is also appointed the Trust Protector, particularly in light of the potentially broad authority of a Trust Protector to modify the trust. If there is a conflict, can it be waived?
While perhaps not binding in Wisconsin, it is interesting to note that the National Academy of Elder Law Attorneys (NAELA) Aspirational Standard B(5) makes it clear that the elder law attorney may “also serve as a fiduciary for the client, if it is in the client’s best interest and if the client gives informed consent after full disclosure.” The NAELA News October/November 2014 features an article that discusses ethical issues.
More tips include: 1) develop a firm-wide mandatory habit of practice when an attorney is being considered as fiduciary, which includes a checklist that all must follow; 2) explain in “plain language” all required waivers and documents to the client; and 3) have the client meet with a separate attorney within the firm for the signing of documents.
This issue is not black and white. The drafting attorney must exercise extreme caution in accepting the appointment of a Trust Protector.
Malpractice Claims
Finally, consider malpractice coverage. Malpractice carriers may exclude services rendered as a Trust Protector.
Wisconsin Lawyers Mutual Insurance Company (WILMIC) has indicated that claims against an attorney acting as a Trust Protector will be evaluated on a case-by-case basis; thus, coverage is not a guarantee. WILMIC intends to examine the nature of the complaint. If the nature of the complaint against the attorney involves an action that could have been performed by a non-lawyer, it is possible that there will be no malpractice coverage.
Caution dictates a careful review of the terms of the firm’s liability policy before accepting an appointment as Trust Protector. For example, my firm’s current policy defines “professional services” as “services you are legally obligated to render to a client in your capacity as a lawyer for the primary purpose of the client obtaining the benefit of your knowledge, skills and experience in the law. Professional services may include other types of services only to the extent such services are incidental and necessary to your performance of services to obtain the benefit of your knowledge, skills and experience in the law.”
This begs the question of whether services as a Trust Protector require the knowledge, skills and experience of an attorney. Professional liability policies also include specific exclusions that need to be closely examined. Again, my firm’s policy excludes the “rendering of or failure to render investment advice.”
Investment advice includes, but is not limited to, managing investments, giving advice regarding the value of an investment, or recommending or promoting purchase of or sale of investments. While it seems clear that under certain circumstances it is appropriate for the attorney to serve as a Trust Protector; it is critical that extreme care and caution be exercised in accepting such appointment and that the attorney carefully review his or her malpractice policy prior to accepting the role of Trust Protector.
In addition, an attorney, who is asked and chooses to serve, should provide a statement within the document that the appointment was not solicited. It is also advisable to have a client sign a separate document which indicates that the client has been advised of other options for a Trust Protector and provides some detail as to why the client requested the attorney to serve.
Editor’s note: The author wishes to thank attorney Peter J. Walsh for his comments and suggestions for this article as well as attorney Sally E. Anderson, WILMIC vice president of claims, for her input and insight.
An original version of this article appeared in the Winter 2015 edition of the Elder Law Journal of Wisconsin, a publication of the State Bar of Wisconsin’s Elder Law Section. Visit the Elder Law Section on WisBar for more information about membership opportunities.
Endnotes
1 Wis. Stat. § 701.0818.
2 Schmeling v. Devroy, 109 Wis. 2d 154, 161 (1982).
3 State v. Gulbankian, 54 Wis. 2d at 612 (1972).
4 See Ethical Dilemmas: Your Client Wants to Name You Trustee in the Will You Drafted, WisBar InsideTrack (March 19, 2014).
5 For other useful guidance on this issue, see Wisconsin Supreme Court Rule 20:7.3 (Direct contact with Prospective Clients) andDisciplinary Proceedings Against Felli, 718 N.W. 2d 70 (2006).