Doing Good, While Doing Right by Your Client: A Guide to Ethical Considerations for Estate Planning Attorneys Serving on Charitable Boards

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1 Magazine November/December 2015 Volume 29 No 6 Doing Good, While Doing Right by Your Client: A Guide to Ethical Considerations for Estate Planning Attorneys Serving on Charitable Boards Richard C. Mills Richard C. Mills is of counsel with the Jackson, Michigan, law firm of Marcoux, Allen, Bower, Nichols & Kendall, P.C., and a vice-chair of the Charitable Planning Committee. A prior version of this article was published in the spring 2015 issue of the Michigan Probate & Estate Planning Journal. Many estate planning attorneys find serving on charitable boards to be one of the more gratifying aspects of their practices. Charitable organizations typically are eager to have attorneys on their boards. As a director or trustee, an attorney is often looked to, not only for her expertise, but also as a valuable connection to potential donors and other grant makers in the community. Because many small charities have little experience with planned giving vehicles beyond simple bequests, it is not uncommon for estate planning attorneys serving on charitable boards to assist small charities in developing a planned giving strategy. For estate planners serving on charitable boards, however, there is a minefield of potential conflicts of interest, which attorneys can walk into unknowingly in their desire to make a positive impact in their communities. In 2003, the Maryland Committee on Ethics of the Maryland State Bar Association issued an ethics opinion, which later was withdrawn without comment, flatly prohibiting an attorney from drafting any bequest benefiting a charitable organization for which she serves as a director. This and subsequent opinions have shocked the charitable gift planning world and pushed this issue to the forefront in the minds of many attorneys who had not considered it before. This article is intended to shed some light on some of the ethical issues confronting estate planning attorneys serving on charitable boards in the absence of clear guidance in the Model Rules of Professional Conduct, the dearth of ethics opinions in most states, and the wide variance nationally among published ethics opinions.

2 ABA Model Rule of Professional Conduct 1.7 Conflicts of Interest The starting point for analyzing any potential conflict of interest between an attorney s duty to his client and his fiduciary duty as a director of a charitable organization is Model Rule of Professional Conduct (Model Rule) 1.7, which provides: (a) Except as provided in paragraph (b), a lawyer shall not represent a client if the representation involves a concurrent conflict of interest. A concurrent conflict of interest exists if: (1) the representation of one client will be directly adverse to another client; or (2) there is a significant risk that the representation of one or more clients will be materially limited by the lawyer s responsibilities to another client, a former client or a third person or by a personal interest of the lawyer. (b) Notwithstanding the existence of a concurrent conflict of interest under paragraph (a), a lawyer may represent a client if: (1) the lawyer reasonably believes that the lawyer will be able to provide competent and diligent representation to each affected client; (2) the representation is not prohibited by law; (3) the representation does not involve the assertion of a claim by one client against another client represented by the lawyer in the same litigation or other proceeding before a tribunal; and (4) each affected client gives informed consent, confirmed in writing. ABA Model Rule of Professional Conduct 7.2 Advertising When a charitable organization recommends a donor to an attorney, who also serves on that organization s board, Model Rule 7.2, which regulates attorney advertising, is implicated. Model Rule 7.2 provides: (a) Subject to the requirements of Rules 7.1 and 7.3, a lawyer may advertise services through written, recorded or electronic communication, including public media. (b) A lawyer shall not give anything of value to a person for recommending the lawyer s services except that a lawyer may

3 (1) pay the reasonable costs of advertisements or communications permitted by this Rule; (2) pay the usual charges of a legal service plan or a not-for-profit or qualified lawyer referral service. A qualified lawyer referral service is a lawyer referral service that has been approved by an appropriate regulatory authority; (3) pay for a law practice in accordance with Rule 1.17; and (4) refer clients to another lawyer or a nonlawyer professional pursuant to an agreement not otherwise prohibited under these Rules that provides for the other person to refer clients or customers to the lawyer, if (i) the reciprocal referral agreement is not exclusive, and (ii) the client is informed of the existence and nature of the agreement. (c) Any communication made pursuant to this rule shall include the name and office address of at least one lawyer or law firm responsible for its content. ABA Model Rule of Professional Conduct 7.3 Solicitation Whenever a charitable organization s employees, other board members, and other volunteers refer potential donors to an estate planning attorney, who also is a board member, member, or volunteer, Model Rule 7.3, which prohibits attorney solicitation, is also implicated. Model Rule 7.3(a) provides: (a) A lawyer shall not by in-person, live telephone or real-time electronic contact solicit professional employment when a significant motive for the lawyer s doing so is the lawyer s pecuniary gain, unless the person contacted: (1) is a lawyer; or (2) has a family, close personal, or prior professional relationship with the lawyer. Drafting a Bequest to a Charity for Which the Attorney Serves as a Director In most states, the representation of a client who wishes to make a bequest to a charity for which the attorney serves as a director is not prohibited, per se, but may rise to the level of a nonwaivable conflict. The conflict can be waived if the attorney reasonably believe[s] the representation will not be adversely affected by his relationship with the charity. In most cases, the representation

4 will not be adversely affected. If for some reason the attorney, in his capacity as a director, is aware of a condition, such as the impending dissolution of the charity, which would adversely affect the client, the attorney would be obligated to disengage from representing the client. Such was the concern of the State Bar of Nevada Standing Committee on Ethics and Professional Responsibility in its Formal Op. No. 47, issued October 27, The committee explained that, hypothetically, if the company is preparing to file bankruptcy or otherwise dissolve, and this information is still unknown to the public, the lawyer s inside knowledge could limit his or her ability to be an independent advocate for a client. Drafting a Bequest to a Charity for Which the Attorney Serves on a Planned Giving Committee or Legacy Society Similarly, in most states, there is no per se prohibition against a member of a planned giving committee, legacy society, or other similar group from serving as an estate planning attorney for an individual who wishes to make a bequest to the organization. As always, if a nonwaivable conflict exists, the attorney should decline representation. The minority rule was followed by Maryland s Committee on Ethics, which found that the attorney s role as a Legacy Committee Chair and/or [his] own interest in advancing the church s financial interests would be the sorts of responsibilities to a third person and/or personal interest that are governed by [ABA Model] Rule 1.7(b). If the estate planning attorney s role on the legacy committee is that of solicitor for the charity (which would likely be the case if the attorney serves as chair), the attorney should refrain from drafting a bequest to that charity. On the other hand, merely serving as a legal resource for the legacy committee and not soliciting gifts does not present a nonwaivable conflict, so long as the individual soliciting gifts is not also soliciting clients for the attorney, in violation of Model Rule 7.3. Representing a Client Regarding a Lifetime Gift to a Charity for Which the Attorney Serves as Director It appears that in most states, an attorney may represent a client regarding a lifetime gift, such as a charitable lead trust or a lifetime contribution, to a charity for which he serves as a director, if the conflict between the charity and the client is waivable and the attorney receives the consent of the client. The attorney should not represent both the donor and the charity as an attorney in the same transaction because such a conflict is nonwaivable. The attorney also should seek the charitable organization s consent to his representation of the

5 donor, even if the attorney had never represented the organization as an attorney. See Oregon Formal Op. No , at 293. Permitting a Charitable Organization for Which the Attorney Serves as a Director to Recommend the Attorney s Estate Planning Services In most states, an attorney may permit a charitable organization to recommend her legal services provided that (a) the person or organization had a prior professional relationship with the lawyer to enable the person or organization to be knowledgeable about the lawyer s services, (b) the lawyer reviews the advertisement prior to publication for compliance with ethics rules, and (c) nothing of value beyond the reasonable costs of the advertising is given to the person or organization by the lawyer. See State Bar of Michigan Professional Ethics Committee Op. RI-147. Although a director typically provides volunteer and financial assistance to the charitable organization, such support has not been determined to necessarily be payment of value for recommending the attorney s services. Such relationships, however, must be weighed carefully. Although a generous and skillful attorney director may be a logical object of the charitable organization s recommendation, such a recommendation raises the appearance of a conflict, which may rise to the level of being nonwaivable. The attorney should make clear to the organization that her volunteer service is not to be construed as value given for any recommendation of the attorney s services. It is good practice for the charity to provide the attorney s name only as part of a list of other competent estate planning attorneys. Also, the attorney should disclose to the client that she is a director of the recommending organization and should seek the client s consent to any conflict, if the attorney determines that the conflict is waivable. Recommending a Charity for Which the Attorney Serves as a Director as the Object of a Bequest An attorney should avoid recommending a charity for which he serves as a director as the object of a bequest to avoid an allegation of undue influence and the appearance that the attorney is acting as solicitor for the charitable organization. If a client informs the attorney of a desire to make a bequest for a certain cause, but is unsure of which charity to benefit, the attorney may provide the name of the charity for which he serves as director, so long as he discloses his relationship to the charity and obtains the client s consent before drafting any bequest to the charity.

6 Accepting Payment for a Client s Estate Planning Services from a Charity Benefitting from the Estate Plan An attorney should not accept payment for a client s estate planning services from a charitable beneficiary because it may affect the attorney s ability to give independent advice to the donor client, in violation of Model Rule 1.7. The ABA Ethics Committee has questioned such transactions. See ABA Informal Op Donating Estate Planning Services to a Charitable Auction In most states, an attorney may donate her estate planning services to a charitable auction. The Nebraska State Bar specifically has addressed this issue and permitted such a donation when the attorney s donated services are only in the lawyer s area of competence, the specific service and identity of the attorney are clearly disclosed, the attorney retains the right to decline the representation for conflicts of interest or other ethical reasons, in which case the attorney will refund in full the auction price paid by the client, and all communications regarding the auction comply with these requirements and are not false or misleading. Nebraska Ethics Advisory Op. for Lawyers No Communicating That the Attorney Will Donate a Portion of His Fees for Estate Planning Services to a Charitable Organization In most states, an attorney is permitted to communicate that he will donate a portion of his fees for estate planning services to a charitable organization. See Michigan Ethics Op. RI-163. The Michigan Ethics Committee determined that the charitable organization may not be involved in the lawyer s offer to donate fees. In the committee s opinion, the proposed action was permitted because the charitable organization [was] not involved in the communication of the pledge by the lawyer, the organization [was] not using the lawyer s offer as an incentive, [was] not endorsing the lawyer s qualifications, and [was] in no way encouraging the use of the lawyer s services, which would otherwise constitute giving of value for a referral from an organization, in violation of Model Rule 7.2(c). Id. Entering into an Agreement with a Charitable Organization to Charge a Reduced Fee to Members of the Organization in Consideration for a Bequest to the Organization An agreement with a charitable organization to charge a reduced fee to members in consideration for a bequest to the organization would appear to violate Model Rule 7.2(c), which prohibits an attorney from giving anything

7 of value to a person for recommending the lawyer s services. The Kentucky Bar Association prohibited such an arrangement in Kentucky Bar Association Ethics Op. KBA E-391. Offering to Provide Estate Planning Services at No Charge for a Client Who Wishes to Make a Bequest to a Charitable Organization for Which the Attorney Serves as a Director In most states, an attorney is permitted to offer to provide estate planning services at no charge to a client who wishes to leave a bequest to a charitable organization with which the attorney is affiliated, so long as the attorney s relationship with the charitable organization is disclosed to the client. The attorney should not permit the charitable organization to advertise that the attorney will provide estate planning services to avoid giving anything of value to the charitable organization for recommending the attorney s services. See Michigan Ethics Op. No. RI-164. Offering to Provide Estate Planning Services at No Charge to Members of a Charitable Organization, Such as a Synagogue, Mosque, or Church It appears that an attorney may agree to provide estate planning services for free to a member of a charitable organization, such as a synagogue, mosque, or church. Such an agreement was permitted by the Kentucky Bar Association, so long as the attorney disclosed the attorney s relationship with the charitable organization and ensured that the attorney s professional judgment was not compromised by his relationship with the charitable organization. See Kentucky Bar Association Ethics Op. KBA E-391. Conclusion This article attempts to provide general guidance to estate planning attorneys serving on charitable boards who wish to volunteer their services without running afoul of the various state versions of the ABA Model Rules of Professional Conduct. There is generally little guidance nationally for what is a very common situation. At the heart of each conflict of interest situation is the weighing that must be done by each attorney between his fiduciary duty as a director and his duty to his client, given the facts at hand. For the estate planner, the key question with any conflict of interest is Is this conflict waivable? If the answer is yes, the attorney should obtain the client s informed consent (and the charity s, if necessary) before drafting the gift. If the answer is no, the attorney should

8 decline the representation. By doing so, the attorney will be doing the client, the charitable organization, and himself a favor.