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Ethics Advisory Opinion 04-03

April 13, 2004

Facts
A Non-Profit Organization (“NPO”) wants to make Lawyer available to prospective donors to prepare estate-related documents (wills, trusts) for those donors who have expressed a desire to make a gift to the NPO, either now in trust or at the donor’s death by bequest. Lawyer would be responsible to meet with donor and fully prepare all documents on donor’s behalf including the provision(s) leaving money to the NPO. The NPO is willing to pay some or all of Lawyer’s fees on behalf of its new benefactor by paying Lawyer a percentage of the amount left to the NPO by the donor.

Questions
1. Who is Lawyer’s client in this scenario?

2. Can the transaction be structured in a way such that Lawyer could properly interact with the donor and the NPO, draft estate-related documents for the donor, and receive payment from the NPO?

Summary
The donor would be a client of the lawyer. Provided that the fee paid to Lawyer by NPO is not a percentage of the amount of the gift made by the donor/client to the NPO and is reasonable under Rule 1.5(a), Lawyer could handle the transaction provided that the lawyer makes full disclosure to the donor/client of the relationship with the NPO (including the fee payment structure with the NPO), obtains the donor/client’s written permission to proceed, and fully protects the donor/client’s confidentiality. Rule 1.8(f).

Discussion
Who is the client?

Whether the NPO refers a potential donor to Lawyer or the NPO has Lawyer contact the potential donor directly, if Lawyer undertakes estate planning or the drafting of testamentary documents on behalf of the prospective donor, the potential donor becomes a client of the lawyer.

It is unclear from the facts presented whether the NPO would be a client of the lawyer because it does not appear that Lawyer is providing any legal services or preparing any legal documents for the NPO. In any event, there is a sufficient relationship between the lawyer and the NPO such that Rule 1.7(b)(2) is invoked. Under that rule, Lawyer would have to reasonably believe that the representation will not be adversely affected and Lawyer would have to obtain the donor/client’s consent after Lawyer fully discloses his relationship with NPO to the donor/client.

How can the transaction be properly structured?

Under the facts presented, any arrangement whereby Lawyer receives payment in the form of a percentage of the amount gifted to the NPO by the donor/client would be prohibited. Rule 1.5(a) provides that “a lawyer’s fee shall be reasonable” and identifies nonexclusive factors which must be considered. A percentage fee arrangement under these circumstances, when the percentage may not satisfy the factors delineated in Rule 1.5(a)(1) through (8), is not permitted. It is likely that donors referred to the attorney by the NPO are contemplating sufficiently large gifts to justify the NPO’s involvement. Furthermore, if such a percentage arrangement did exist, Rule 1.7(b) would prevent Lawyer from representing client. Rule 1.7(b) provides in pertinent part that

A lawyer shall not represent a client if the representation of that client may be materially limited by . . . the lawyer’s own interests, unless: (1) the lawyer reasonably believes the representation will not be adversely affected....

A lawyer may have tremendous influence over his client in the often-complicated realm of estate planning, probate, and taxation. Where the payment received by the lawyer is directly tied to the amount of the gift made by the donor/client, the Committee believes that it is per se unreasonable for a lawyer to believe that the representation will not be adversely affected.

To structure the transaction in a way that it would not be prohibited, Lawyer should be mindful of the following rules:
Rule 1.5(a) - Whatever method for determining the amount of payment Lawyer is to receive from NPO, ultimately the payment must be reasonable.

Rule 1.8(f) - Lawyer must fully inform the client that some or all of his fee is being paid by the NPO and receive client’s consent to that arrangement and must assure the client that the receipt of such payment from NPO will not interfere with Lawyer’s independent judgment (See also Rule 2.1) or with the client-lawyer relationship and that Lawyer will protect the confidentiality of client’s information (See also Rule 1.6).

Rule 5.4(c) - Lawyer must take all necessary precautions to ensure that he does not permit the NPO to direct or regulate Lawyer’s professional judgment in rendering legal services to the donor/client.

Rule 7.2(c) - Lawyer may not give anything of value to the NPO for recommending Lawyer’s services to potential donors. Lawyer should take all necessary precautions to ensure that gifts to the NPO by the lawyer, if any, are not confused as payment for referrals.

In Ethics Advisory Opinion 80-01, we concluded that it would be improper for an attorney to enter into a relationship with a funeral home and accept fees for the preparation of wills for the funeral home’s customers or potential customers. However, in that opinion, the lawyer was on retainer with the funeral home and received a monthly set fee for collections, legal opinions, and other legal work. The only fee received by the attorney would be the monthly retainer. Clearly, there was an attorney-client relationship. Additionally, the funeral home was charging a fee to its customers for the service provided by the attorney. Under DR-2-103(b), which preceded the current Rules of Professional Conduct, the Committee concluded that the attorney was, in essence, turning the fees over to the funeral home in exchange for its referrals. We believe Opinion 80-01 is distinguishable on its facts and does not apply to this inquiry.

We conclude that provided the fee paid to Lawyer by NPO is not a percentage of the amount of the gift made by the donor/client to the NPO and is reasonable under Rule 1.5(a), Lawyer could handle the transaction provided that Lawyer makes full disclosure to the donor/client of the relationship with the NPO (including the fee payment structure with the NPO), obtains the donor/client’s written permission to proceed, and fully protects the donor/client’s confidentiality.

See also Ethics Advisory Opinions 00-01, 00-17, 02-04.

INDEX: Conflict of Interest
Client
Fees - Reasonableness
Fees - Third Party Payment
Independent Judgment

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