Representation of a Fiduciary With Personal Conflict
Adopted: July 19, 2002
Opinion rules that a lawyer for an estate may seek removal of the personal representative if the personal representative's breach of fiduciary duties constitutes grounds for removal under the law.
Inquiry #1:
Several years prior to his death, Decedent was involved in an automobile accident. Decedent's personal injury claim was resolved by a structured settlement agreement calling for monthly payments, with periodic lump sum payments, extending 10 years after his death. The structured settlement documents named Daughter, the child of his first marriage, as beneficiary should he pass away prior to completion of the payouts. However, Decedent subsequently entered into two separate contracts with Company to assign a portion of the monthly and lump sum payments to Company for valuable consideration. As part of the agreement with Company, Decedent gave notice to the annuity carrier of a change in beneficiary from Daughter to his estate.
When Decedent passed away, the annuity carrier refused to honor the change of beneficiary documentation and began sending the monthly annuity payments to Daughter. The estate has two heirs, Daughter and Widow. Widow qualified as administratrix and hired Attorney to represent the estate. Several creditors' claims were filed against the estate. In an attempt to collect all the assets of the estate, including the annuity payments, Attorney filed a declaratory judgment action against Daughter, Company, and the annuity carrier. At the same time, Company filed suit against the estate, the annuity carrier, and Daughter. The annuity carrier thereafter stopped making any payments pending the resolution of the case.
Both the declaratory judgment action and Company's lawsuit were assigned to mediation. A mediated agreement was first reached between Widow, Daughter, and the annuity carrier. The annuity carrier would only agree to make payments to Daughter but did not care how Daughter divided the payments. Daughter and Widow agreed to a percentage split of whatever would be received from the annuity irrespective of the ultimate resolution of Company's claim.
The agreement between Daughter and Widow requires money to be deposited in a trust account and then divided by the trustee between the two heirs of the estate pursuant to their agreement. No money will be paid into the estate to cover creditors' claims. The estate has several creditors, potential creditors including Company, and funeral bills.
Assuming the assets in the estate are sufficient to satisfy the creditors' claims, what is Attorney's duty under these circumstances?
Opinion #1:
Attorney represents the estate and the personal representative in her official capacity. RPC137. As attorney for the estate, Attorney has a duty to see that the estate is properly administered and that funds due to the estate are first used to satisfy the claims of creditors of the estate. (But for the settlement between the sole two heirs, Attorney would also have a duty to see that the remaining funds of the estate are distributed to the lawful beneficiaries.) Attorney must inform Widow of the conflict between her personal interest in receiving a share of the annuity payments and her duties as administratrix. Notwithstanding this conflict, Attorney may conclude that the assets currently in the estate are sufficient to cover the creditors' claims, and therefore no interests are prejudiced if the annuity proceeds are not paid directly into the estate. Attorney need not withdraw from the representation under these circumstances.
Inquiry #2:
If the assets of the estate are insufficient to satisfy all debts of the estate, what are Attorney's duties?
Opinion #2:
Attorney may not continue the representation of the estate under these circumstances because the interests of Widow as an individual are in conflict with the interests of the estate. See RPC 22 and Rule 1.7. If Widow decides that she wants to pursue her personal interest in the annuity proceeds without regard for her fiduciary duties to the estate, Attorney must recommend that she resign as administratrix for the estate in order that a neutral party may be appointed.
Attorney does not represent Widow in her individual capacity and owes no duty to protect her individual interests. RPC 22. If Widow will not step down, and insists upon pursuing her personal interests to the detriment of the estate, Attorney may conclude that Widow is in breach of her fiduciary duty to the estate. Attorney must determine whether Widow's actions constitute grounds for removal under applicable law. If so Attorney must inform Widow that he may petition to remove her as administratrix. If she still declines to resign, Attorney may notify the clerk of court and seek to have her removed. See Rule 1.6(d)(4); but cf. 99 FEO 4 (distinguishable because of representation of co-executors). In any case, Attorney should seek to withdraw from the representation rather than assist or ignore Widow's pursuit of her personal interests to the detriment of the estate. If Widow is removed, Attorney may represent the estate at the request of the new personal representative. See RPC 22.