Law Tips: Estate and Trust Administration Tune-up Pt. 2, Dealing with Beneficiaries

Welcome back to our Law Tips series offering pointers from Kristin Steckbeck Bilinski on navigating the bumps, curves and detours along the probate road. This week Kristin’s advice turns toward dealing with beneficiaries.  Here are some important insights from Ms. Bilinski for avoiding ethical problems: 

Comment [11] to Rule 1.2 of the Indiana Rules of Professional Conduct cryptically states that “[w]here the client is a fiduciary, the lawyer may be charged with special obligations in dealings with a beneficiary.” Sounds logical- but what does this sentence really mean?

The American College of Trust and Estate Counsel (ACTEC) commentary to Rule 1.2 may perhaps provide a bit more guidance. This comment states that:

[t]he lawyer for the fiduciary owes some duties to the beneficiaries of the fiduciary estate although he or she does not represent them. The duties, which are largely restrictive in nature, prohibit the lawyer from taking advantage of his or her position to the disadvantage of the fiduciary estate or the beneficiaries. In addition, in some circumstances the lawyer may be obligated to take affirmative action to protect the interests of the beneficiaries. Some courts have characterized the beneficiaries of a fiduciary estate as derivative or secondary clients of the lawyer for the fiduciary. The beneficiaries of a fiduciary estate are generally not characterized as direct clients of the lawyer for the fiduciary merely because the lawyer represents the fiduciary generally with respect to the fiduciary estate.

Some states (Indiana not included) have gone so far as to state that the lawyer for a fiduciary has privity or an affirmative duty vis-a-vis estate or trust beneficiaries. 11

The complex relationship with beneficiaries is perhaps one of the most commonly faced ethical issues when representing a trustee or a personal representative. Most often, estate or trust beneficiaries do not have their own counsel, and instead rely on the fiduciary’s honesty and judgment.  When a beneficiary is thus unrepresented by counsel, it sometimes becomes necessary for the fiduciary’s lawyer to deal with her directly, whether it be providing distributions and receipts, providing a copy of the trust instrument, preparing tax returns, dealing with claims paperwork for life insurance or annuities, etc. When a beneficiary frequently communicates with the fiduciary’s lawyer, he can mistakenly gain the impression that the fiduciary’s lawyer is “his” lawyer too.

Rule 4.3 gives a lawyer some guidance in this situation. In such circumstances, a lawyer should never “state or imply that the lawyer is disinterested.”

Rather, [w]hen the lawyer knows or reasonably should know that the unrepresented person misunderstands the lawyer’s role in the matter, the lawyer shall make reasonable efforts to correct the misunderstanding.

Make every effort to insure- preferably in writing- that the beneficiary completely understands the nature of your representation of the fiduciary. The ACTEC commentary to Model Rule 1.2 states that it is primarily the fiduciary’s responsibility (rather than that of the fiduciary’s lawyer) to communicate with the beneficiaries, so be sure to communicate through the fiduciary whenever possible. Additionally, the ACTEC commentaries suggest an initial meeting between the fiduciary, her lawyer, and all beneficiaries in order to give everyone the opportunity to discuss and understand the complex relationship between all parties in an estate or trust administration.

Rule 4.4 is also sometimes relevant in the lawyer’s dealings with the beneficiaries, especially those who are unrepresented. This rule states that “a lawyer shall not use means that have no substantial purpose other than to embarrass, delay, or burden a third person.” Frequently, there is personal or family animosity between a lawyer’s fiduciary client and a ‘black sheep’ beneficiary.  The lawyer must always be careful not to participate in any way in such animosity. For example, be careful of the wording of correspondence and court filings. Also be sure that your fiduciary client is making distributions in a timely and equal manner among trust beneficiaries, regardless of any strained relationships.

Dealings with beneficiaries can be hazardous, or at the very least may present a few challenges. I appreciate Kristin Steckbeck Bilinski sharing her succinct ethical guidance in this area. The Video Replay for “Estate & Trust Administration Skills: Bumps, Curves and Detours Along the Probate Road,” is available in several locations around the state in the upcoming weeks, plus the On Demand Seminar is available Anytime Anywhere. Click Here for more info.

We’ll continue our road trip around another curve next week as Ms. Bilinski provides her counsel in the Duty of Confidentiality.  Stay tuned as she covers these important issues.

11See, e.g., Charleson v. Hardesty, 839 P.2d 1303 (Nev. 1992); Elam v. Hyatt Legal Svcs., 541 N.E.2d 616 (Oh. 1989); contra Goldberg v. F1ye, 217 Cal. App. 3d 1258, 1269 (1990) (“[P]articularly in the case of services rendered for the fiduciary of a decedent’s estate, we would apprehend great danger in finding stray duties in favor of beneficiaries.”)

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Our Law Tips Faculty Participant:
Kristin Steckbeck Bilinski joined Longsworth Law LLC, Fort Wayne, Indiana, in 2011 as an associate. Prior to joining Longsworth Law LLC, Kristin practiced in the areas of estate planning, estate administration, and general civil litigation. She was admitted to practice in Indiana in 2007 after graduating cum laude from Indiana University Maurer School of Law. Kristin’s community service includes the Juvenile Diabetes Research Foundation, Northern Indiana Family Mentor Coordinator and Fort Wayne Business People.

About our Law Tips blogger:
Nancy Hurley, Law Tips blogger, has long-standing connections with Indiana lawyers. She was formerly a member of the ISBA and IBF staffs for over 30 years. Nancy’s latest lifestyle venture is with ICLEF. We are utilizing her exceptional writing and interviewing skills while exploring how her Indiana-lawyer background fits with ICLEF’s needs. When she isn’t ferreting out new topics for Law Tips, her work can be found in our Speaker Spotlight blogs, postings on the ICLEF Facebook and Twitter pages, and other places her legal experience lends itself.

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