State Bar Ethics Opinions cite the applicable California Rules of Professional Conduct in effect at the time of the writing of the opinion. Please refer to the California Rules of Professional Conduct Cross Reference Chart for a table indicating the corresponding current operative rule. There, you can also link to the text of the current rule.
Without violating his or her ethical obligations, may a lawyer prepare "living trust" documents for a member of the public at the direction of, or on behalf of, a non-lawyer such as a financial marketer or a life insurance agent who: (1) markets a living trust package to the public; (2) advises individuals about estate plans; and (3) supervises the creation of the living trust documents?
When a lawyer permits a non-lawyer who markets living trust packages to hold out to the public that the lawyer will prepare the documents, but allows the marketer to interfere with the lawyer's ability to exercise independent judgment regarding the type of estate plan involved and other matters, the lawyer acts unethically.
Rules 1-100, 1-320, 1-400, 1-600, 3-110, and 3-310 of the Rules of Professional Conduct of the State Bar of California.
A financial marketer, insurance agent, or other non-lawyer who markets living trust1 packages to members of the public ("marketer") holds seminars during which the advantages of living trusts are discussed, and seminar attendees are urged to order a living trust. Members of the public are invited to attend the seminar free of charge. The marketer advertises the seminar in the local newspaper and in flyers delivered to homes in the area where the seminar will be held. Both types of advertisement strongly encourage seminar participants to attend the seminar.
During the seminar, the marketer describes the benefits of living trusts and repeatedly states that every seminar participant should have a living trust. The marketer does not discuss any other estate planning alternatives that might be appropriate for, or more in the interest of, individual participants. The marketer provides easy-to-complete questionnaire forms so that seminar participants can provide the relevant family and financial information needed to complete their estate plans. The marketer also tells the seminar participants that Lawyer will prepare the living trusts for them, respond to any questions they may have about the living trusts, and supervise the execution of the documents. Participants pay either the marketer in advance, or Lawyer when executing the documents. Immediately following the seminar, a participant orders a living trust. She gives her completed estate planning questionnaire form, which identifies her beneficiaries and personal representatives, and her payment, to the marketer.
The marketer gives the form to Lawyer, who then prepares a living trust for the participant. Lawyer has no discretion to decide that something other than a living trust might be more suitable for the participant. Lawyer sends the living trust to the participant with a cover letter indicating that the participant should make an appointment with Lawyer to sign the documents. The participant executes the living trust at Lawyer's office. The marketer compensates Lawyer.
California adopted its rules of professional conduct2 in part expressly "to protect the public."3 The vice of the conduct in the facts above is its potential to mislead members of the public into believing that they have an attorney whose sole purpose in the transaction is to look after their best interests.4
The best interests of the participant may mean that a living trust should not be an integral part of her estate plan. The best interests of the marketer, however, are most often served only if the participant's estate plan includes a living trust. The lawyer's duty to the participant includes educating the participant as to the available estate planning options and not simply presenting one estate planning format which all must use.5
This portion of the discussion does not attempt to address every factual permutation found in the reported decisions to date. This discussion sets forth the California Rules of Professional Conduct implicated by the attorney's conduct in the factual setting described above. This discussion also identifies, where it may help practitioners avoid the pitfalls of these arrangements, the most common violations found by other ethics committees or courts on variations of these facts, under ethics rules analogous or identical to California's.
In the facts above, the attorney and the seminar participant appear to have a client-lawyer relationship. The participant is told that a lawyer will prepare the living trust documents for the participant, will respond to the participant's questions, and will supervise the participant's execution of the documents. The attorney communicates with the participant by letter, sends the completed living trust to the participant, meets with the participant, has the documents signed in the attorney's office, and may accept the payment for the living trust documents.
Whether a client-lawyer relationship exists in any situation is a matter of contract law. (Responsible Citizens v. Superior Court (1993) 16 Cal.App.4th 1717, 1732-1733 [20 Cal.Rptr.2d 756] (analyzing relationship among lawyer, business partnership, and individual partners where no written contract established client- lawyer relationship among parties; holding that attorney-client relationship is created by some form of contract, express or implied, formal or informal).6) This discussion assumes the existence of such relationship in the facts above.7
Moreover, in the above facts the lawyer may concurrently have a relationship with the marketer. This may give rise to additional obligations on the lawyer's part.8
In arrangements like those described in the facts above, the marketer's only interest is a financial one: closing the sale of a living trust to the individual. The marketer controls the lawyer's access to such individuals and the relationship between them. The lawyer is dependent upon the marketer for employment and compensation in these circumstances.
Rule 1-600(A) provides in part:
(A) A member shall not participate in a nongovernmental program, activity, or organization furnishing, recommending, or paying for legal services, which allows any third person or organization to interfere with the member's independence of professional judgment, or with the client-lawyer relationship . . . .
Under the facts presented, the marketer is controlling the engagement of the lawyer. Here, the lawyer permits the essential estate planning tasks, including fact-finding, to be performed by the non-lawyer marketer without exercising independent professional judgment. In addition, the lawyer has allowed the marketer to perform these tasks without supervision. This is unlike situations where lawyers employ paralegals and others to conduct basic investigation and the like, with the lawyer maintaining adequate supervision over the process. (See Spindell v. State Bar (1975) 13 Cal.3d 253, 260 [118 Cal.Rptr. 480] (attorney has obligation adequately to supervise employees); Discussion, rule 3-110 ("[t]he duties set forth in rule 3-110 include the duty to supervise the work of subordinate attorneys and non-attorney employees or agents.").)
In order to create an appropriate estate plan, relevant family and financial information must be ascertained from the seminar participant. The lawyer must, with the participant's input, determine the proper type and components of the participant's estate plan. The lawyer must counsel a participant regarding all of the options which are appropriate and the pros and cons of each option.9 After such counseling, the participant must decide if a living trust arrangement, a will, or some other arrangement should be the cornerstone of the estate plan. Under the facts presented, the marketer assumes this function. The marketer determines the type, terms, and conditions of the estate plan, without the lawyer's involvement. The marketer decides what information to solicit and to convey to the lawyer. By acquiescing to the marketer's unilateral authority to make these critical decisions, the lawyer allows a third party to interfere with the lawyer's independence of professional judgment and violates rule 1-600(A).10
A lawyer's preparation of living trust documents at the direction of the marketer may create one or more relationships between the lawyer, marketer, and participant. Under the facts presented, the lawyer represents the participant. However, the lawyer also has a relationship with the marketer. In some cases it may be a client-lawyer relationship. When the marketer compensates the lawyer, they may have a business and financial relationship like the third-party payor relationship between an attorney and an insurer. If instead the attorney and marketer divide fees, fee- splitting with a non-lawyer may exist.
The marketer's interests are served only if the participant's estate plan includes a living trust, often with the marketer as trustee of the living trust. However, the best interests of the participant may mean that a living trust should not be an integral part of the estate plan. The lawyer's duty to the participant includes educating the participant as to the available estate planning options and not simply presenting one estate planning format which all must use. The lawyer in these situations is attempting to serve two masters, the participant and the marketer.
Under the facts presented, a lawyer-client relationship is assumed to exist between the lawyer and the participant, and a business and professional relationship exists between the lawyer and the marketer. The lawyer and the marketer have a business and financial relationship because the lawyer obtains employment or compensation through the marketer.
The existence of the business and financial relationship between the lawyer and the marketer triggers certain disclosure obligations by the lawyer under rule 3-310(B). Rule 3-310(B) provides in part:
(B) A member shall not accept or continue representation of a client without providing written disclosure to the client where:
(1) The member has a legal, business, financial, professional, or personal relationship with a party or witness in the same matter; or
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(3) The member has or had a legal, business, financial, professional, or personal relationship with another person or entity the member knows or reasonably should know would be affected substantially by resolution of the matter . . . .
Rule 3-310(B) addresses situations in which a lawyer's relationship could interfere with a lawyer's loyalty and independent professional judgment on a client's behalf. The lawyer's relationship with the marketer here creates the possibility of a conflict of interest that warrants disclosure under the rule.
As noted above, the client and the marketer may have differing interests in the engagement. The best interests of the participant may mean that a living trust should not be an integral part of the estate plan. The best interest of the marketer, however, is most often served only if the participant's estate plan includes a living trust. The lawyer's duty to the participant includes educating the participant as to the available estate planning options and not simply presenting one estate planing format which all must use.
Here, the lawyer's judgment may be influenced by the lawyer's relationship with the marketer, who is a "party" as the facilitator of the transaction, or perhaps as trustee of the living trust. This relationship triggers rule 3-310(B)(1). Additionally, the marketer profits from the sale of the living trust, and receives the opportunity to market other products or services to the participant and this triggers rule 3-310(B)(3). Accordingly, under either subdivision (B)(1) or subdivision (B)(3) of rule 3-310, the lawyer is barred from representing the participant unless the lawyer makes the required written disclosure to the participant. Rule 3-310(A)(1) defines "disclosure" as "informing the client . . . of the relevant circumstances and of the actual and reasonably foreseeable adverse consequences to the client . . . ." Rule 3-310(A)(3) defines "written" as "any writing as defined in Evidence Code section 250."
In this case, the lawyer has a duty to inform the participant- client in writing of the full extent of the lawyer's business and financial relationship with the marketer, and the differing interests of the marketer and participant in the transaction. The lawyer's duty to inform the participant-client of reasonably foreseeable adverse consequences includes informing the participant in writing about how these relationships could cause the lawyer to favor the interests of the marketer and influence the lawyer's advice to the client.11
In some cases a lawyer may have a lawyer-client relationship with both a participant and a marketer. When a lawyer represents both a participant and a marketer in connection with preparation of a living trust, that lawyer must comply with rule 3-310(C)(1) or rule 3-310(C)(2), depending on the circumstances. These rules state:
(C) A member shall not, without the informed written consent of each client:
(1) Accept representation of more than one client in a matter in which the interests of the clients potentially conflict; or
(2) Accept or continue representation of more than one client in a matter in which the interests of the clients actually conflict.
The differing interests of a participant-client and a marketer- client create at least potential conflicts requiring consent under rule 3-310(C)(1). Moreover, to the extent that a lawyer's relationship with one client affects the lawyer's loyalty and independent judgment on behalf of another client, an actual conflict of interest exists. This can occur when the lawyer receives conflicting instructions from the clients, or is called upon to advance inconsistent objectives of the clients. Such circumstances trigger a duty to obtain further consent under rule 3-310(C)(2).12
Rule 1-320 provides that a lawyer shall not "directly or indirectly share legal fees with a person who is not a lawyer" except in limited circumstances. (Emphasis added.) Specifically barred is the giving of anything of value in exchange for recommending or securing employment for the lawyer.
In the facts above, the marketer advertises that a lawyer will review the living trust documents. In the seminar, the marketer tells participants that the lawyer will prepare the documents, respond to their questions, and supervise execution of the documents. Participants deliver payment in hand either to the lawyer or to the marketer for the living trust, and both the lawyer and the marketer are compensated therefrom. As previously noted, under these facts the Committee presumes the existence of a client-lawyer relationship between participant and lawyer.
The lawyer cannot receive payment from participants for legal services and then pay the marketer a share for finding the clients and referring them to the lawyer. Rule 1-320(B) states in part: "A member shall not compensate, give, or promise anything of value to any person or entity for the purpose of recommending or securing employment of the member or the member's law firm by a client, or as a reward for having made a recommendation resulting in employment of the member or the member's law firm by a client. . . ." (The remainder of rule 1- 320 permits "gifts or gratuities" to non-lawyers, a circumstance not raised in the facts above.)13
The prohibition against a lawyer splitting fees with a non-lawyer is directed at the risk posed by the possibility of control of legal matters by a non-lawyer interested more in personal profit than the client's welfare. (In the Matter of Jones (Review Dept. 1993) 2 Cal. State Bar Ct. Rptr. 411.) To the extent this policy is implicated, the lawyer should not be able to "sanitize" such impermissible fee-splitting by the simple expedient of having the marketer receive the funds, make the division, and distribute them to the lawyer.14 Ethics opinions and court decisions in those jurisdictions finding violations of rules barring fee- splitting between lawyers and non-lawyers equivalent to rule 1- 320 in the estate planning context similarly do not turn upon whether the lawyer receives payment for the trust and divides it with the marketer, or vice versa.
In the facts above, the marketer states at the seminars that everyone needs a living trust and does not offer any alternatives. At the seminar the marketer tells participants that Lawyer will prepare the living trusts for them, respond to any questions they may have about living trusts, and supervise their execution of the documents. The marketer provides easy-to- complete questionnaire forms for providing the family and financial information determined by the marketer to be needed to create the living trusts, which the seminar participants fill in and deliver to Lawyer. As previously noted, under these facts the Committee assumes that the resultant relationship between participant and lawyer is a client-lawyer relationship.
The harm to the public in this scenario is two-fold. First, it misleads participants into believing that a living trust is suitable for everyone, and that they need consider no other estate planning options. Second, it constitutes impermissible in-person solicitation by a lawyer through the marketer as his agent. The ethical rules prohibit both false advertising, and in-person solicitations.15 In addition, if the flyers are transmitted by mail or equivalent means and contain the lawyer's name but do not identify themselves as advertisements, the lawyer's involvement may presumptively violate rule 1-400 .16
Rule 1-400 provides in part:
(A) For purposes of this rule, 'communication' means any message or offer made by or on behalf of a member concerning the availability for professional employment of a member or a law firm directed to any former, present, or prospective client, including but not limited to the following:
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(3) Any advertisement (regardless of medium) of such member or law firm directed to the general public or any substantial portion thereof; or
(4) Any unsolicited correspondence from a member or law firm directed to any person or entity.
(B) For purposes of this rule, "solicitation" means any communication:
(1) Concerning the availability of professional employment of a member or law firm in which a significant motive is pecuniary gain; and
(2) Which is:
(a) delivered in person or by telephone . . . .
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(C) A solicitation shall not be made by or on behalf of a member or law firm to a prospective client with whom the member or law firm has no family or prior professional relationship, unless the solicitation is protected from abridgment by the Constitution of the United States or by the Constitution of the State of California. A solicitation to a former or present client in the discharge of a member's or law firm's professional duties is not prohibited.
(D) A communication or a solicitation (as defined herein) shall not:
(1) Contain any untrue statement; or
(2) Contain any matter, or present or arrange any matter in a manner or format which is false, deceptive, or which tends to confuse, deceive, or mislead the public; or
(3) Omit to state any fact necessary to make the statements made, in the light of circumstances under which they are made, not misleading to the public; or
(4) Fail to indicate clearly, expressly, or by context, that it is a communication or solicitation, as the case may be; or
(5) Be transmitted in any manner which involves intrusion, coercion, duress, compulsion, intimidation, threats, or vexatious or harassing conduct.
The statements by the marketer in connection with the marketing of the living trust, whether at the seminar or in writing, regarding the lawyer preparing the living trusts and the availability of that lawyer to respond to questions relating to the trusts, are communications under rule 1-400(A) since they concern the availability of a lawyer for professional employment, and are therefore subject to the requirements of rule 1-400(D). Here, like the communications found violative in Leoni v. State Bar, supra, 39 Cal.3d 609 and People v. Morse, supra, 21 Cal.App.4th 259 at fn. 13, they have potential to mislead members of the public. In Leoni v. State Bar, the letters and brochures inaccurately suggested or intimated that all recipients needed a lawyer, that their property was subject to immediate attachment, that bankruptcy was appropriate for them, and the like. In People v. Morse, the advertisements made inaccurate suggestions and statements regarding the protections afforded recipients by the homestead laws. Here, the statements at the seminar, by their generic, "one-size-fits-all" recommendation of living trusts for everyone, similarly contain untrue statements, and omit facts -- such as that living trusts may not be best in every case -- necessary to make the communications not misleading.
Further, the marketer's statements at the seminar regarding the professional employment of the lawyer in connection with marketing the living trust constitute a prohibited in-person solicitation under rule 1-400(B) and rule 1-400(C). This rule applies because a significant motivation for the promotion of the lawyer's services for the participant is pecuniary gain (rather than communication of general information regarding living trusts). For purposes of rule 1-400, it makes no difference whether the marketer or the lawyer seeks or receives payment from the participant, since the rule regulates employment motivated by pecuniary gain, without regard to whether a lawyer or one acting on his behalf seeks or obtains that gain. Since the solicitation is directed at obtaining prospective clients with whom the lawyer has no prior professional relationship, it is prohibited by rule 1-400(C). The use of the marketer to communicate with the participant will not insulate the lawyer from a violation of rule 1-400(C), which prohibits improper solicitations made by "or on behalf of" the lawyer. In both the advertising and the solicitations, the marketer cannot do on the lawyer's behalf what the lawyer cannot do. Under the facts, the marketer simply becomes the agent of the lawyer. A lawyer cannot avoid the prohibition against in-person solicitation by associating with a non-lawyer who engages in such prohibited conduct on the lawyer's behalf.17
Arrangements between lawyers and marketers like those described in the facts above, and variations thereof, have received intense scrutiny throughout the country by ethics committees, courts, and disciplinary authorities. Decisions in other jurisdictions uniformly hold them unethical on a variety of bases. Discipline has been imposed in California on an attorney participating in one such arrangement. Practitioners should carefully examine their participation in any arrangement of this sort.
This opinion is issued by the Standing Committee on Professional Responsibility and Conduct of the State Bar of California. It is advisory only. It is not binding upon the courts, the State Bar of California, its Board of Governors, any persons or tribunals charged with regulatory responsibility, or any member of the State Bar.
The Committee recognizes that the fact situation presented in this opinion may raise an issue regarding the unauthorized practice of law. Rule 1-300(A) states that "[a] member shall not aid any person or entity in the unauthorized practice of law." However, this opinion is not intended to address or opine on the issue of the unauthorized practice of law. Regarding activities undertaken by an individual who is not an active member of the California State Bar, members should consider California Business and Professions Code sections 6125-6127. Members should also consider rule 1-300 (Unauthorized Practice of Law) and rule 1-310 (Forming a Partnership With a Non-Lawyer). Regarding what constitutes the practice of law in California, members should consider the following cases: Farnham v. State Bar (1976) 17 Cal.3d 605 [131 Cal.Rptr. 661]; Bluestein v. State Bar (1974) 13 Cal.3d 162 [118 Cal.Rptr. 175]; Baron v. City of Los Angeles (1970) 2 Cal.3d 535 [86 Cal.Rptr. 673]; Crawford v. State Bar (1960) 54 Cal.2d 659 [7 Cal.Rptr. 746]; People v. Merchants Protective Corporation (1922) 189 Cal. 531, 535; Birbrower, Montalbano, Condon & Frank v. Superior Ct. (1996) 49 Cal.App.4th 801 [56 Cal.Rptr.2d 857] review granted Jan. 15, 1997; (SO57125); People v. Landlords Professional Services (1989) 215 Cal.App.3d 1599 [264 Cal.Rptr. 548]; and People v. Sipper (1943) 61 Cal.App.2d Supp. 844 [142 P.2d 960].
(5) A 'communication,' except professional announcements, seeking professional employment for pecuniary gain, which is transmitted by mail or equivalent means which does not bear the word 'Advertisement,' 'Newsletter' or words of similar import in 12 point print on the first page. If such communication, including firm brochures, newsletters, recent legal development advisories, and similar materials, is transmitted in an envelope, the envelope shall bear the word 'Advertisement,' 'Newsletter' or words of similar import on the outside thereof.