Can a lawyer who is the guardian of an incapacitated person also appoint himself trustee of that person's special needs trust?

Plain-English summary

The inquiring lawyer was the guardian of an incapacitated person and the lawyer for the guardianship. As guardian, he concluded a special needs trust should be established for the incapacitated person, and he asked whether he could appoint himself trustee of that trust.

The committee concluded that he could not. It noted the question involved underlying issues of law, including whether a guardian's duties fully coincide with a trustee's and whether establishing the trust terminates the guardianship, on which it did not provide statutory analysis. But because the committee believed that establishing a special needs trust does not necessarily terminate the guardianship and that the duties of guardian and trustee do not necessarily coincide, it concluded that a conflict would exist under RPC 1.7(b): the lawyer's representation could be materially limited by his responsibilities in the other role or by his own interests, and the conflict could not be waived because the incapacitated person likely lacks the capacity to give informed consent. The committee added that, regardless of how the legal questions came out, appointing himself trustee would violate RPC 1.8(a), because serving as a paid trustee is a business transaction with, and a pecuniary interest adverse to, the client, with predictable disputes over trustee fees. The committee recommended that the guardian instead recommend some other person as trustee, and that, because an incapacitated person is entitled to independent counsel under Washington law, counsel be appointed for the incapacitated person, consistent with the lawyer's duty under RPC 1.2(a) to abide by the client's decisions.

In practice

Under this opinion, and under the Washington conflict rules as they stood in 2006, a lawyer who is already a guardian (and counsel for the guardianship) should not take on the additional role of trustee of the incapacitated person's special needs trust. The opinion holds that the dual fiduciary role is a conflict under RPC 1.7(b) that cannot be cured by consent where the client lacks capacity, and that self-appointment as a compensated trustee independently violates RPC 1.8(a) as a business transaction with a pecuniary interest adverse to the client. The opinion's recommended course is to nominate a different person as trustee and to see that the incapacitated person has independent counsel.

Common questions

Q: Can a lawyer-guardian also serve as trustee of the ward's special needs trust?

A: The committee said no on these facts. Because the trust does not necessarily end the guardianship and the two roles' duties do not necessarily coincide, the dual role is a conflict under RPC 1.7(b), and the conflict cannot be waived where the incapacitated person lacks capacity to consent.

Q: Does the RPC 1.8 problem depend on the guardianship question?

A: No. The committee concluded that regardless of the legal questions, appointing himself a paid trustee would violate RPC 1.8(a) as a business transaction with the client and a pecuniary interest adverse to the client, given likely disputes over trustee fees.

Q: What did the committee recommend instead?

A: The committee recommended that the guardian recommend some other person as trustee of the special needs trust, and that independent counsel be appointed for the incapacitated person.

Background and rules framework

The opinion applied RPC 1.7(b) (Model Rule 1.7, material-limitation conflicts), RPC 1.8(a) (Model Rule 1.8, business transactions with and interests adverse to a client), and RPC 1.2(a) (Model Rule 1.2, abiding by the client's decisions), as those Washington rules stood in 2006. The committee referenced Washington's guardianship statutes (RCW chapters 11.88 and 11.92) and the federal special-needs-trust provision (42 U.S.C. section 1396p(d)(4)) to frame the duties at issue, while noting it does not provide statutory interpretation.

Citations and references

Rules of Professional Conduct:

• Model Rule 1.7 / Washington RPC 1.7(b) (material-limitation conflicts)
• Model Rule 1.8 / Washington RPC 1.8(a) (business transactions; interests adverse to a client)
• Model Rule 1.2 / Washington RPC 1.2(a) (abiding by the client's decisions)

Statutes:

• RCW chapters 11.88 and 11.92 (guardianships; duties of a guardian)
• 42 U.S.C. section 1396p(d)(4) (special needs trusts)

Cases:

• Matter of Guardianship of K.M., 62 Wn. App. 811 (Wash. Ct. App.), independent counsel for an incapacitated person

See also

• ABA Formal Op. 98-410: Lawyer as a Client's Director
• NY State Bar Op. 746: Lawyer as Guardianship Petitioner
• WSBA Ethics Op. 947: Employing a Nurse as Guardianship Staff

Source

• Landing page: https://ao.wsba.org/print.aspx?ID=1562

Original opinion text

Reproduced from the official source for research purposes. The linked source is authoritative.

Advisory Opinion: 2107
Year Issued: 2006
RPC(s): RPCs 1.2(a), 1.7(b), 1.8(a)
Subject: May a guardian for an incapacitated person can become the trustee of a Special Needs Trust for the person?

I. Facts and Question The inquiring lawyer is guardian of an incapacitated person. He also serves as the lawyer for the guardianship. In his capacity as guardian, the lawyer has concluded that a special needs trust should be established for the benefit of the incapacitated person. The inquiring lawyer wishes to know if he, as the guardian, can appoint himself to be the trustee of the Special Needs Trust. II. Short Answer This inquiry involves questions of law: Do the duties of a guardian for an incapacitated person coincide completely with the duties of a trustee for a Special Needs Trust in which the incapacitated person is the beneficiary? In addition, does the establishment of a Special Needs Trust automatically or practically result in the termination of the guardianship? If the duties of guardian and trustee do not coincide and/or the guardianship is not terminated at the establishment of the Special Needs Trust, then it would be a conflict for the lawyer to seek appointment as trustee under RPC 1.7. Because we believe that the establishment of the Special Needs Trust does not necessarily result in termination of the guardianship and the duties of the guardian and the trustee do not necessarily coincide, we conclude that such a conflict would exist. Furthermore, and regardless of how the legal questions posed above are answered, appointment of the lawyer/guardian as trustee would violate RPC 1.8. III. Analysis Originally, the inquiring lawyer posed his question to the Committee in a somewhat different context. He implied, if not stated, that he was both the lawyer for the incapacitated person, as well as that person’s guardian. The committee offered the opinion that, based upon RPC 1.7(b) and 1.8(a), there was a conflict between his duties to his client, the incapacitated person, and his obligations as trustee. The lawyer now says that he is not the lawyer for the incapacitated person, rather is the guardian of the incapacitated person and the lawyer for the guardianship. He still wants, however, to appoint himself the trustee for the special needs trust. At the outset, it should be noted that the Committee does not provide statutory analysis or interpretation. However, we include the statutory references hereinafter set forth to aid in the discussion of the potential conflicts under the Rules of Professional Conduct presented by this inquiry. RCW Chapters 11.88 and 11.92 address guardianships for incapacitated persons. RCW 11.92. 040 and 043 describe the extensive duties of a guardian. They include not only the expected fiduciary obligations to act in the best interest of the incapacitated person, but also to inventory property, periodically report and account to the court, invest and reinvest property of the incapacitate person in a manner consistent with statute, etc. RCW 11.88.140 provides that termination of a guardianship without court order occurs only if and when an incapacitated person attains full and legal age, an adjudication of termination of incapacity, or death. Termination by court order occurs only if the court determines that the guardianship is no longer necessary. A Special Needs Trust is defined by, and is a creation of, federal law. 42 U.S.C.A §1396p(d)(4) describes such as a trust containing assets of an individual under 65 and disabled, which is established for his/her benefit by a parent, grandparent, legal guardian or the court, if the state will receive all amounts remaining in the trust upon the death of such individual up to an amount equal to the total medical assistance paid on behalf of the individual under a state plan. This mechanism allows the incapacitated person to receive greater benefits from the State, conditioned on the right of the State to claim reimbursement from the trust following the incapacitated person’s death. Notably absent is any reference that by seeking establishment of such a trust, the guardianship is terminated. We also find no reference to the same reporting and accounting obligations (or other duties) that exists for the guardian. It is noteworthy that the Special Needs Trust can be established for the benefit of the incapacitated person by, among others, the guardian. This is precisely what the inquiring attorney is suggesting should be done, although he is further recommending that he be appointed the trustee. Therefore, it follows that, at least at the outset, he would be the guardian and trustee at the same time. While the inquiring lawyer says there are no differences between the responsibilities of a guardian and trustee, we are not so sure. From the above discussion about RCW Chapters 11.88 and 11.92, and 42 U.S.C.A. §1396p(d)(4), there appear to be some differences. Therefore, we question the inquiring lawyer’s claim that the “guardianship would be subsumed into the trust.” Unless it can be affirmatively proven that there are no differences, we believe that there is the potential for a conflict between the two roles. If there is, clearly the inquiring attorney cannot occupy both positions at the same time. RPC 1.7(b) provides that (a) lawyer shall not represent a client if the representation is materially limited by the lawyer’s responsibilities to another client or to a third person, or by the lawyer’s own interests. This is the situation present, or at least potentially present, when the lawyer tries to act as both guardian and trustee. Of course, since the incapacitated person probably lacks the mental capacity to understand a full disclosure and consent to the dual representation, the conflict cannot be waived pursuant to RPC 1.7(a) or 1.7(b). Under RPC 1.8(a), it is a conflict of interest for a lawyer to enter into a business transaction with a client or knowingly acquiring . . . a pecuniary interest adverse to a client. In appointing himself to be the trustee of the special needs trust, the lawyer is entering into a business transaction with his client, the guardianship. Assuming that the lawyer would be receiving a fee for serving as trustee, the self appointment as trustee would also constitute a pecuniary interest adverse to the guardianship. One can easily imagine a potential disagreement between the guardian and the trustee over the proper fees to be charged, even if the actual fees allowed would ultimately have to be approved by the court. If the same person is wrestling that issue, a conflict exists. Therefore, we believe that the guardian should recommend the appointment of some other person as trustee of the Special Needs Trust. Finally, the record is silent on whether the incapacitated person has her own legal counsel. As noted in the Committee’s early response, statutory and case law make it clear that an incapacitated person is to have independent counsel in guardianship matters. RCW 11.88.045; Matter of Guardianship of K.M., 62 Wn.App. 811 (1881). Pursuant to RPC 1.2(a), the attorney is obligated to abide by the decisions of the client. In contrast, the guardian is obligated to act in the best interests of the client, even if it conflicts with the client’s decisions. Therefore, we recommend the appointment of an attorney for the incapacitated person.