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1.0 The Roles of the Lawyer The Maryland Lawyer’s Rules of Professional Conduct Rule are derived from the ABA Model Rules of Professional Conduct. These rules were designed to apply in general to all lawyers regardless of the nature of their practice. The general nature of these rules, however, presents a problem for the estates and trusts lawyer: "[MRPC] is composed largely of general, litigation-based rules that do not address many of the difficult problems that arise in specific areas of practice. Rather than recognize the need to consider ways in which the MRPC might be adapted to meet the needs of lawyers in specific practice areas, the American Bar Association appears to insist that one rule fits all – without regard to any differences in the nature of a client and the type of representation provided." John. R. Price, Reporter's Note to ACTEC Commentaries on the Model Rules of Professional Conduct (2nd ed. 1999). The ACTEC Commentaries were designed to tailor the general MRPC to the estates and trusts practice. These Commentaries reflect the estates and trusts lawyer’s traditional role as the lawyer for several members of a family and takes into account that estates and trusts lawyers frequently represent the fiduciary of the estate or trust and one or more of the beneficiaries. Additionally, the estates and trusts practice is not essentially adversarial. The ACTEC Commentaries can be found at http://www.actec.org/ . 1.1.1 Maryland Ethics Opinions/Confidentiality In a will contest, Maryland has a long standing rule that a scrivener may be called to testify in a will contest. In Benzinger v. Hemler, 134 Md. 581 (1919), the court held that the attorney engaged in the estate planning for a decedent may be called to testify and produce documents in a will dispute. In that case, the court stated that special considerations come into play for will contests. For example, it is implicit that the client would want the true circumstances of his or her testamentary disposition known to the trier of fact. Hence, if the estate planning documents were not discoverable, the client's primary interest would not be protected. The court held that the purpose of a will contest is to determine whether or not a particular document reflected the final dispositional intent of the client. Therefore, there is no reasonable ground to conceal the discussions the client had with attorneys if those discussions would shed light on whether or not the client's dispositional intent is truly reflected by the will. Indeed, the court asked rhetorically: "If, therefore, the document produced is not actually his will, but rather that of another who induced him by undue influence over him to make it, can it be said that the deceased wants such a will established as his own? Would not the law in holding to such a policy (of permitting the attorney/client privilege to stand) foster that which it abhors, namely, deceit and fraud?...If a particular beneficiary obtained the bequest through duress, deceit, or undue influence over the mind of the testator, should such beneficiary be permitted to invoke this most salutary privilege against the real heir, and thus, perhaps, be enabled to conceal the very thing the law abhors, and for which it wisely requires the probate of all wills? Moreover, is the right to invoke the privilege to be given to one heir who proposes the will, and denied to the other who opposes it? The authorities cited above make it reasonable clear that the right to invoke the privilege was withheld from both at common law when the issues involved affected the integrity of the will." The Maryland State Bar Association has indicated that the Benzinger rule is not without limits. In MSBA’s Ethics Opinion 94-37, the decedent's personal representative was his daughter. The issue was whether the attorney for the decedent was required to turn everything in his files over to the personal representative, including "matters concerning a sensitive criminal matter." The MSBA Committee on Ethics held that the duty to preserve attorney confidences transcend the client's death. It held that the personal representative may generally authorize disclosures but the extent of the disclosures may be limited to the turning over of "all relative information to aid in a probate process." In other words, the Committee suggested that the criminal matters may be withheld unless related to the probate process. In Ethics Opinion 02-08, the issue presented was whether the attorney for a deceased client could reveal confidences that may touch upon the deceased client's murder. In that ruling, the issue was framed as follows: "You seek guidance as to an attorney's responsibilities with regard to client information that the attorney received through communications with a former client who has been murdered. The information came to the attorney by way of communications relative to spousal abuse that the client had with the attorney years prior to his/her murder. The information does not appear to reflect adversely on the now-deceased client's interests. The information is, nevertheless, inconsistent with information attributed to the alleged perpetrator, the victim's surviving spouse, appearing in the media. The attorney never represented the alleged perpetrator. You ask what responsibility the attorney has to provide (or not to provide) information that appears to be material to the administration of justice in light of the attorney-client privilege against disclosing client information. The attorney is motivated to see to the proper administration of justice by not having a guilty party go free, possibly because pertinent information may have to be kept confidential." The Committee held that the disclosure was permitted but only if the personal representative requests the information. Another advisory opinion involved revealing information when the attorney had represented both spouses and the information could impact one of the clients. MRPC Rule 1.6 provides, however, that "a lawyer may reveal such (confidential) information to the extent the lawyer reasonably believes necessary: (i) to prevent the client from committing a criminal or fraudulent act that the lawyer believes is likely to result in death or substantial bodily harm or in substantial injury to the financial interest or property of another..." In Ethics Opinion 89-56, a lawyer drafted estate planning documents for a husband and wife. These documents provided that at the husband's death certain bequests were to be made to members of his family. Upon his death, however, it became evident that the widow had no intention to establish the trust per the estate planning documents but was instead transferring all of the assets to her sole name. The estate planning attorney pointed out that it is a crime to willfully secrete or destroy a will that is in a person's possession for safe custody. The MSBA Committee on Ethics used this criminal act as part of its analysis that the attorney may need to whistle-blow in these circumstances: "A resolution of your ethical dilemma requires you to make a legal determination as to whether or not the acts of Mrs. X constitute a violation of Article 17, Section 127, or, in the alternative, constitute a fraudulent act. It should be noted that Rules of Professional Conduct define "fraud" or "fraudulent" as denoting "conduct having a purpose to deceive and not merely negligent misrepresentation or failure to apprise another of relevant information." This Committee must refrain from opinion on legal issues. If you in fact determine that Mrs. X's actions constitute a criminal act or a fraudulent act, then you have the discretions to reveal such information to the extent that youreasonably believe it necessary to do so." 1.1.2 Maryland Ethics Opinions/Conflicts of Interest Ethics Opinion 99-03 deals with a conflict of interest between a mother and daughter. The attorney represented the mother in the preparation of a will. After the attorney prepared the will but before the mother signed the will, he received a telephone call from the daughter who said that the mother wanted a power of attorney naming the daughter as agent and also wanted to deed certain property to the daughter. The lawyer prepared those documents and the daughter retrieved them from the office and paid the lawyer for his services from her mother's checking account. The power of attorney and deed were apparently signed by the mother and returned to the lawyer. Before the lawyer recorded the deed, he received a call from the mother saying that she was revoking the power of attorney and did not want the deed recorded. The attorney wrote a letter to both mother and daughter saying that he was "in the middle of both" and stated that each should engage their own lawyer to resolve the matter. He heard nothing since that letter and wanted to know what obligation he has regarding either mother or daughter. The Committee determined that "based on the facts as you presented them" the mother continued to be the client and the daughter was simply an agent for the mother. Unless the lawyer determined that the mother no longer enjoyed competence, the lawyer was obligated to take his instructions from the mother. The lawyer needs to follow-up with the mother to see how to handle that. Identification of the actual client was also pivotal in Ethics Opinion 92-23. There, an attorney represented an individual in her individual capacity. Later, the client was appointed personal representative of an estate and she wanted to sell estate property to herself. After her appointment as personal representative the attorney represented the client in that capacity. The analysis was based on treating the individual as the former client of the attorney and the personal representative – in her fiduciary capacity – as the current client. Under these circumstances, "the attorney may have an ethical duty to advise the client acting as personal representative of the estate of her legal obligations as a personal representative, which obligations may include a fiduciary obligation to disclose fully to all beneficiaries of the estate any self-dealing between herself individually and as personal representative of the estate." An attorney should not enter into an arrangement whereby a financial advisor pays the attorney to provide a client estate planning services. In Ethics Opinion 04-11, such an arrangement was seen as necessarily creating a conflict of interest and it would involve an impermissible fee-sharing arrangement with a non-lawyer because such payments would come from the non-lawyer's commissions. 1.1.3 The Ethics of Asset Protection Planning Increasingly, the estate planning lawyer is asked to structure a client's assets in a way that protects those assets from the future creditors of the client. Such planning is a natural part of estate planning. For the practitioner, however, asset protection planning and implementation raises ethical issues irrevocably tied to the substantive law. A creditor seeking to set aside a transaction that otherwise might place assets beyond the creditor's reach uses the fraudulent conveyance or fraudulent transfer act applicable to the debtor. The ABA model rules governing a lawyer's conduct and the Maryland Rules of Professional Conduct ("MRPC") 1.2(d) state: "A lawyer shall not counsel a client to engage, or assist a client, in conduct that the lawyer knows is criminal or fraudulent, but a lawyer may discuss the legal consequences of any proposed course of conduct with a client and may counsel or assist a client to make a good faith effort to determine the validity, scope, meaning or application of the law." (Emphasis added.) ABA model rule and MRPC 4.4(a) state: "In representing a client, a lawyer shall not use means that have no substantive purpose other than to embarrass, delay, or burden a third person…" Also MRPC 8.4(c) provides that a lawyer shall not "engage in conduct involving dishonesty, fraud, deceit or misrepresentation." These rules reflect directly the language used under the Uniform Fraudulent Conveyance and Transfer Acts. In Attorney Grievance Comm'n v. Pak, 400 Md. 567 (2007), cert. denied 128 S. Ct. 905 (2008), a Maryland lawyer was disbarred for executing a series of actions designed to prevent a judgment from attaching to property of her client (who were her parents): "Using her knowledge of the law, respondent aided and advised her parents in creating shell corporations to transfer title in order to avoid a judgment lien." The Court upheld the circuit court finding that the creation of "shell" business entities and other actions violated the Fraudulent Conveyance Act and therefore violated MRPC 8.4(c): "Judge Martin (the trial judge) concluded that respondent undertook fraudulent actions in order to protect her parents and their assets and thus violated MRPC 8.4(c). He found that her actions to create shell business entities (H&K, L.L.C. and CACHA, L.L.P.) had no legitimate business purposes and were used to transfer title to the Pak's properties, without consideration. The evidence before the hearing court was sufficient for Judge Martin's conclusions. The hearing court also noted that respondent advised her parents when to send the funds to Korea and orchestrated the purchase of the Autumn Frost property in her husband's name only. Lastly, the hearing court found that the Respondent's actions were within the definition of fraud, as outlined in Maryland Code (1975, 2005 Repl. Vol.), § 15-207 of the Commercial Law Article." The Court of Appeals agreed: "We accept Judge Martin's findings and conclusions on the issue and hold that the respondent did violate MRPC 8.4(c), because there is clear and convincing evidence that her actions were an effort to delay, hinder, or defraud her parents' creditors." In Pak, there was ample evidence that the attorney instituted the series of questionable transactions for the specific purpose of frustrating the creditor's collection of a judgment. Indeed, part of the transaction involved a transfer to the lawyer's husband. Additionally, the attorney became a defendant in the collection suit and as a party (as well as in her representative capacity) she made misleading statements in depositions, in pleadings and in open court. The Pak case involved unique facts arising, no doubt, from her love of her parents and her desire to protect them. The case, however, demonstrates the willingness of the Court to wed the language of the Rules of Professional Conduct with that of the Fraudulent Conveyance Act. Maryland uses the "strict privity" theory in malpractice suits by beneficiaries against the attorney-drafter. This generally precludes beneficiaries from being able to hold the attorney liable for apparent drafting errors. In Noble v. Bruce and Fauntleroy v. Blizzard, consolidated in 349 Md. 730 (1998), the Court of Appeals considered two cases on the scope of the attorney-drafter liability. Noble v. Bruce involved mirror-image wills for a husband and wife that failed to use credit shelter trusts although the combined assets of the couple exceeded the unified credit amount. The heirs complained that the failure to use the federal tax credit upon the first death cost the estate and the heirs an unnecessary federal estate tax. In the second case, Fauntleroy v. Blizzard, a surviving spouse made a specific bequest of closely held stock to her brother-in-law's children (the stock representing part ownership in a company held by her late husband's family) and bequeathed the residuary estate to her primary heirs. There was correspondence from the decedent's attorney explaining that the specific bequest would trigger a large federal and state tax as the value of the stock was approximately $1.4 million. From this correspondence it appeared that the will was meant to contain a tax clause directing the burden of the taxes generated by the stock to the stock. In fact, the will did the opposite – it shifted the tax generated by the specific bequest to the residuary estate. Thus, the share of the residuary legatees carried the tax for the specific bequest. Given the intention of the decedent not to have this result, the residuary beneficiaries sued the drafting lawyer. The court reviewed three theories applied by various courts in attorney malpractice cases arising out of will drafting or estate planning: (i) the strict privity theory; (ii) the balancing of factors theory; (iii) the third-party beneficiary theory. Citing Jacques v. First Nat'l Bank, 307 Md. 527 (1986), the court examined the concept of duty where a plaintiff's injury is purely economic. In the rule of that line of cases, no tort duty will be shown absent a showing of privity "or its equivalent." Strict privity in will drafting or estate planning cases, the court noted, is justified on several public policy grounds. The rule protects the attorney's duty of loyalty to the client. If the lawyer must look over his or her shoulder to worry about liability to the client's beneficiary, the duty of unfettered loyalty to the client may be compromised. Additionally, the elimination of a rule requiring strict privity could expose the lawyer to limitless liability. This, in turn, would place an undue burden on the attorney-client relationship. The court examined and rejected the balancing of factors theory of liability. California developed a balancing of factors theory to address malpractice actions in will drafting and estate planning cases. The factors to be balanced include: (i) the extent to which the transaction was to benefit the plaintiff; (ii) the foreseeability of the harm to the plaintiff; (iii) the closeness of the connection between the conduct and the injury; (iv) the policy of preventing future harm. The Maryland Court of Appeals rejected the balancing of factors theory, finding it overly broad and unworkable in application. The court noted that use of this standard has led to ad hoc determinations and inconsistent results. Maryland recognizes the third-party beneficiary theory of contract recovery in limited circumstances: a third-party beneficiary may recover if the third party is shown to be the person meant to be directly benefited by the transaction. The intent of the client to benefit the non-client must be shown as the direct purpose of the transaction. In the context of a testamentary instrument, "intent" is as expressed in the instrument. Thus, no liability will be found when a will is valid and the testamentary intent as expressed in the will is carried out. Extrinsic evidence is not permitted to refute such expressed intent. Under this narrow view of the third-party beneficiary theory, the plaintiffs could not prevail in either of the consolidated cases. The court held that in cases involving wills, the beneficiary of the will is not necessarily the beneficiary of the attorney-client relationship. The purpose of the will may not be to benefit a named beneficiary but simply to avoid the intestate distributions of assets. The court supported its decision to deny relief by reciting several policy reasons to uphold the strict privity theory. First, it protects the integrity and solemnity of the will. The strict privity rule also protects the attorney-client relationship. The court points out that the use of a credit shelter trust necessarily gives a spouse less control over the assets than an outright distribution to a surviving spouse. Because of the unlimited marital deduction, the tax planning not used in Noble would only benefit the secondary heirs, not the surviving spouse.1 In Ferguson v. Cramer, 349 Md. 760 (1998), the court examined the duty of the attorney representing the estate during administration to the beneficiaries of the estate. In that case, the plaintiffs claimed that the personal representative hired the lawyer with the specific intent to benefit the beneficiaries as heirs of the estate. The court disagreed, holding that the personal representative has other obligations beyond simply benefiting the distributees of the estate such as obligations to creditors and all other beneficiaries and obligations to implement the terms of the will as indented by the decedent. Under the strict privity rule, the personal representative has redress against the lawyer for the estate. 1.2.2 The Law of Other Jurisdictions Maryland’s treatment of the attorney liability issue may be contrasted with certain other jurisdictions. In Simpson v. Calivas, 650 A.2d 318 (N.H. 1994), the New Hampshire Supreme Court refuted the granting of a directed verdict in favor of an attorney in a malpractice case. In Simpson, the attorney drafted a will leaving a life estate in "our homestead" to the stepmother and the remaining property, in fee, to the decedent's son. The issue was whether "our homestead" included simply the house or the 100 acre tract of land also owned by the decedent, which included buildings used in the family business. The probate court found that the term "our homestead" was ambiguous and admitted certain extrinsic evidence in its determination. The probate court did not, however, admit notes taken by the defendant attorney during consultations, which stated that the house but not the entire 100 acres was to be subject to the life estate. The son, therefore, bought out the widow so that he could continue the family business. The son then sued the drafting attorney based on a third-party beneficiary theory. The New Hampshire Supreme Court stated that the issue whether the third-party beneficiary could bring suit was one of first impression and therefore it looked to other jurisdictions. The court found: "The overwhelming majority of courts that have considered this issue have found that the duty runs from an attorney to an intended beneficiary of the will." The reason for this expansive view of the duty was justified by the “obvious” foreseeability of injury to the beneficiary when an attorney carelessly drafts the will. In Simpson, although the court identified a duty of decedent's attorney to the intended beneficiary, the intention of the testator had already been decided by the probate court. Indeed, it was only after the probate court held that the language in the will expressed an intention to grant a life estate in the entire 100 acre tract that the son brought suit against the drafting attorney. The New Hampshire Supreme Court distinguished between the "construed intent" of the testator, that which was expressed in the language of the will, and the "actual intent", that which the testator had wanted the lawyer to draft. It would seem that making this distinction would highlight the deficiency of the rules of construction used in interpreting testamentary instruments. In Hotz v. Minyard, 403 S.E.2d 634 (S.C. 1996), the South Carolina Supreme Court looked at a situation where the attorney had a direct relationship with both the decedent and the beneficiary. In that case, the testator had executed two wills on the same day, the second one revoking the first. The first will was more favorable to the decedent's daughter than the second will. The decedent's daughter was also a client of the lawyer, and there is evidence that she had "a special confidence" in that lawyer. The daughter wanted to look at the will, and the testator told the lawyer to show the daughter the first will. The lawyer showed her the first will allegedly representing that it was the final will when, in fact, the lawyer knew that it had been revoked. The court held that the case should have been submitted to the jury as to whether the lawyer breached a fiduciary duty to the daughter. In this case, the court found it significant that the lawyer actively misrepresented facts to the beneficiary who was, of course, also a client of the lawyer. 1 Given that a surviving spouse may be appointed sole trustee and given a testamentary power of appointment, one might question the genuine substantiality of conflict of interests alleged.
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