Should Lawyers Serve as Trustees? What to Consider Before Saying Yes

“Should Lawyers Serve as Trustees? What to Consider Before Saying Yes,” that is the subject of today’s ACTEC Trust and Estate Talk.

This is ACTEC Fellow John Challis of St. Louis, Missouri.

Today, we’re discussing an important decision that many trust and estate lawyers face: whether to serve as a trustee. While acting as a trustee can strengthen client relationships and provide valuable continuity, it also brings significant legal, ethical, and practical responsibilities that shouldn’t be overlooked.

Joining me today is ACTEC Fellow Amy K. Kanyuk from Concord, New Hampshire. We’ll discuss the factors lawyers should consider before accepting a trusteeship, including ethical considerations, fiduciary responsibilities, potential conflicts of interest, and how the structure of a trusteeship can affect both the lawyer and the client. Welcome, Amy.

Amy K. Kanyuk: Thanks, John.

Should a Lawyer Serve as Trustee?

If you’re a lawyer who’s thinking about serving as a trustee, what in particular should you consider before taking the plunge? The first thing you should do is look in the mirror and conduct an honest assessment of whether you’re competent to serve. Like parenting, being a trustee is harder than it looks and the decisions you have to make are often neither obvious nor instinctual. Fortunately, it’s hard for a disgruntled child to sue you for being a bad parent, but it’s not that hard for a disgruntled beneficiary to sue you for being a trustee, even if you’re doing a good job. Anyone can bring a lawsuit.

So, you need to keep in mind that any trustee is subject to potential civil liability for breach of fiduciary duty, including the duty of care to the beneficiaries. But a lawyer serving in a fiduciary role is governed not only by fiduciary and civil malpractice law but also by the ethical standards of the rules of the legal profession. Remember, no good deed goes unpunished and agreeing to serve as trustee as a favor or accommodation to a client when you’re not prepared to do that or if you know from the outset that things are likely to go south, will lead to trouble. And if something goes wrong, no one’s going to remember or care that you were doing someone a favor by agreeing to serve in the first place.

At last year’s Annual ACTEC meeting in Palm Springs, Steve Akers gave the Trachtman Lecture, and the topic was the science of well-being for trust and estate professionals (Counting Down, Counting Up, Flourishing). In the lecture, Steve quoted another ACTEC Fellow, Mike Graham, who said, “it’s better to feel guilty for saying no than resentful for saying yes.” That’s a really good thing to remember if you’re thinking of serving as trustee. It’s much easier to say “no” and feel guilty than to say “yes” and later have to extract yourself from a situation you know you shouldn’t have gotten into in the first place.

I’m not trying to dissuade anyone from serving as a trustee, but it’s important to be thoughtful about the trusteeships you will accept. Trusts often last for a very long time and you’re going to be tied to a family and beneficiaries in a very intimate way. You want to make sure that these are people you want to deal with for the long term.

Ethical Considerations for Lawyers Serving as Trustees

If you get over that hump, you need to think about the ethical rules. There’s no one single rule that governs lawyers serving as trustees. The Model Rules of Professional Conduct broadly deal with conflicts, as does the Uniform Trust Code, the Restatement of Trusts, and local law. You should review and become familiar with Model Rules 1.7 and 1.8, both of which cover conflicts of interest. These rules are the primary ones dealing with the ethical issues that arise when lawyers serve as trustees. Keep in mind that the Model Rules may differ from those that apply in a particular state.

Also, you should be sure to review the 2002 ABA Formal Opinion on lawyers serving as fiduciaries. It’s Opinion number 02-426. This opinion is based on the model rules of professional conduct and gives important insight into the ethical norms in this area.

Conflicts of Interest When a Lawyer Serves as Trustee

Finally, ACTEC 2023 Commentaries on the Model Rules of Professional Conduct give guidance about how the conflict of interest rules – particularly Rule 1.7 – apply to lawyers serving as fiduciaries and to a drafting attorney serving as a fiduciary. The commentaries are available on the public side of the ACTEC website. As a side note, if you’re drafting the trust agreement and inserting yourself in as the trustee, you’re raising a host of additional ethical and conflict issues, so you want to make sure that you’re aware of those. In some jurisdictions, you need a written conflict waiver from the client before you can draft a trust and name yourself as the trustee.

You need to promise yourself that if you’re serving as trustee and you find yourself in trouble that you’ll hire a lawyer to help you and that you will not hire yourself. You also need to know whether your conversations with your lawyer, who is not you, will be privileged. In some jurisdictions, the attorney-client privilege doesn’t apply to communications between the trustee and the trustee’s lawyer. This is known as the fiduciary exception to the attorney-client privilege. State law is all over the place on this issue. Some states have statutes adopting the exception, some states have statutes rejecting the exception, and other states have nothing at all. If you’re going to serve as trustee, you should be familiar with local law on this.

If after all of this you do want to serve, you need to determine the structure of your trusteeship. Individual lawyers can serve as trustees, but law firms themselves cannot. In order for an entity to serve as trustee, the entity must have a charter from and be regulated by the federal or state government. Assuming you’re serving individually, you need to determine whether you will be a unitary trustee or a directed trustee.

Choosing Between a Unitary and Directed Trusteeship

The trustee of a unitary trust has three primary fiduciary duties: administration, distributions, and investments. As a trustee, you have a personal obligation to perform these duties unless it’s prudent to delegate them. Delegating duties that you aren’t personally qualified to perform is especially important with respect to the investment of trust assets since many individual trustees don’t have the expertise required to manage assets. However, delegating doesn’t relieve the trustee of liability for the agent’s performance of the delegated task. The trustee has to monitor the agent’s performance and take appropriate action if the agent’s performance isn’t sufficient.

Contrast this to a directed trust, where a fiduciary other than the trustee — and we’ll call that fiduciary a trust advisor — possesses some duty that the trustee otherwise would have. Often trusts are directed with respect to distributions, investments, or both, and sometimes other things. State law determines which trustee duties can be directed by another fiduciary. With a directed trust, the trustee follows the directions of the trust advisor and doesn’t make those decisions itself, with respect to whatever powers the trust advisor has. The trustee of a directed trust generally doesn’t have to monitor the performance of the trust advisor or take action if the trust advisor’s performance is insufficient, which is a major advantage of a directed trust over a delegated trust. However, state law differs on this as well. And in some places, the directed trustee is required to notify the beneficiaries of the trust advisor’s actions in certain situations.

In order to create a directed trust, the trust agreement has to include that structure and state law must allow it. Nearly every state now has some form of a directed trust statute. State law differs a lot on how much protection will be provided to a directed trustee with respect to the acts of the trust advisor. As the trustee of a directed trust, you want to make sure that you understand how much liability you have with respect to the actions of the trust advisor, keeping in mind that you don’t have any control over the trust advisor’s actions.

Professional Liability Insurance for Lawyer-Trustees

Finally, you should confirm that your professional liability insurance policy covers your service as a trustee. It’s also possible to purchase separate insurance for serving as a trustee. But either way, you don’t want to serve as a fiduciary without insurance coverage.

That concludes my overview of what a lawyer should be thinking about when deciding to serve as a trustee. There are a lot of things to consider, but serving as a trustee can be a fun and rewarding experience for lawyers who prepare themselves ahead of time.

John Challis: Thank you, Amy, for your presentation today and a discussion of the factors that lawyers should consider before they decide to serve as trustee.

 

You may also be interested in

• Counting Down, Counting Up, Flourishing (Aug 2025)
• Lessons From Lisa Marie Presley’s Estate: Why Use a Corporate Trustee (Mar 2023)

 

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