Summary of Facts Provided
Two trust and estate planning attorneys, who work for different law firms, have formed a Colorado corporation to serve as a fiduciary (trustee, successor trustee, or personal representative) of estates left by clients of each of the attorneys or by residents in the geographic area. The two attorneys are shareholders and directors of the corporation. They are the only officers of the corporation, and the work efforts and products of other employees or agents of the corporation will be subject to their direct supervision and control. Although the two attorneys presently are the only shareholders of the corporation, they anticipate admitting non-attorney shareholders in the future, most likely investment advisors who will be compensated through a year-end profit-sharing arrangement.
The operations of the corporation have not commenced yet, but when they do they will be conducted from the law office of one of the attorneys. The attorneys plan to serve as trust officers for each client of the corporation. The attorneys also plan to review, through their respective law firms, trust and estate documents the corporation administers, thus, in effect, providing legal advice to the corporation.
The attorneys plan to disclose fully their respective interests in the corporation when mentioning the corporation to their respective clients as a fiduciary option for the clients' estate planning purposes. They also plan to disclose fully the corporation's fee schedules, and other possible fiduciaries for their respective clients to consider appointing in the estate planning documents they each prepare through their respective law firm practices. The attorneys formed the corporation to provide trust and estate administration services in their geographic area, where no other business entity currently provides such services.
Issues and Conclusions
May the attorneys ethically conduct the operations of the corporation as planned? Do the services provided by the corporation constitute legal services? How may the attorneys ethically inform their clients of the availability of the corporation to provide fiduciary services?
The CBA Ethics Committee ("Committee") believes it would be very difficult, if not impossible, for the attorneys to conform their respective practices through their law firms and through the corporation with the ethics rules which pertain to dual practices. There is no per se prohibition in the Colorado Rules of Professional Conduct against lawyers engaging in a second occupation or business, provided that the second occupation does not constitute a vehicle for improper solicitation, otherwise known as a "feeder operation," in violation of Rules 7.2(c) and 7.3(a). However, the ethical danger of dual occupations increases if the separate business involves any of the following elements: (a) the second occupation is conducted from the law office premises, (b) the second occupation is related to the practice of law, or (c) the lawyer provides both legal and non-legal services in the same transaction. CBA Formal Op. 98 (adopted December 14, 1996) [26 The Colorado Lawyer 21 (April 1997)]. All three elements exist in the present case. In addition, persons associated with the same law firm may not ethically charge separate fees as an estate fiduciary and attorney for their respective services to the estate. CBA Formal Op. 21 (as amended July 20, 1962, addendum issued 1995). Here, the attorneys would be acting as trust officers of the corporation, and providing legal advice through their respective law firms. Accordingly, the attorneys should make certain their clients consent to such dual representation, coordinate which entity will bill for the services rendered, and explain to the client that the client will be billed only once for the services provided by the corporation and the law firm, together.
The following additional ethics rules also may pertain to the proposed arrangement: Rule 1.5(a) (reasonableness of fees), Rule 1.6 (confidentiality of information), Rule 1.7 (conflicts of interest), Rule 1.8 (prohibited transactions), Rule 1.9 (conflicts of interest relative to former clients), Rule 1.10(a) (imputed disqualification), Rule 1.16(a)(1) (declining or terminating representation), and Rule 2.2 (duties of a lawyer acting as an intermediary).
Whether the services rendered through the corporation constitute the practice of law is a legal question outside the purview of the Ethics Committee. However CBA Formal Op. 87 (revised December 14, 1991, addendum issued 1995) [21 The Colorado Lawyer 219 (Feb. 1992)] provides examples of trust funding tasks, such as assignment of business interests and preparation of deeds for real estate, that are "legal" in nature; whereas, tasks such as changing beneficiary designations, bank account titles and stock account titles are "non-legal." Thus, the attorneys should clearly delineate the non-legal services provided through the corporation from the legal services rendered through their respective law firms. If the corporation's services are legal in nature, its operation would violate Rule 7.5(b), which prohibits lawyers from practicing under a trade name or a name that is misleading as to the identity of the attorneys. In addition, attorneys ethically may not use professional notices containing a trade name or a name that is misleading. CBA Formal Op. 83 (adopted November 18, 1989, addendum issued 1993) [19 The Colorado Lawyer 25 (Jan. 1990)]. Furthermore, if the corporation's services are legal in nature, the plan to allow non-lawyer shareholders would violate Rule 5.4(a) and (b), which prohibit sharing legal fees with a non-lawyer and prohibit forming a partnership with a non-lawyer if any of the activities of the partnership consist of the practice of law. Also, Rule 5.5(b) prohibits a lawyer from assisting another in the unauthorized practice of law.
With regard to informing their clients that the corporation is available to provide fiduciary services, any communication in that regard must comply with Rules 7.1 through 7.4 (as amended January 1, 1998) and Rule 7.5. These rules govern both the context and content of any communication intended to solicit business for the corporation. Likewise, if any clients of the corporation need legal advice or estate planning work, referral to either of the attorneys or their respective law firms must comply with Rules 7.1 through 7.4. See CBA Formal Op. 83 and CBA Formal Op. 98.