Can an estate-planning lawyer act as a paid trust administrator for a trust company to which the lawyer refers clients?

Plain-English summary

A trust company created a lawyer/trust-administrator program in which estate-planning lawyers entered an agency relationship with the company, furnished administrative services from their offices for trusts naming the company as trustee, billed clients separately for legal work, and could refer clients to the company. The trust company paid the lawyer/administrator a fee out of the fee the company collected from the client's trust. The lawyer offered no investment advice and disclosed the relationship in a written consent form the client signed.

The opinion concluded the arrangement is not professionally improper if appropriate safeguards address the conflict-of-interest rules. It reasoned that because the lawyer has an incentive to recommend the trust company over competitors, the relationship involves "responsibilities to a third person" and "the lawyer's own interests" under Rule 1.7(b); the lawyer may reasonably believe the representation will not be adversely affected, but must disclose the relationship, the fee arrangement and method of calculation including the source of payment, and obtain consent, with written disclosure the more prudent practice.

The opinion also held, following companion Opinion 97-04, that the investment of the client's trust assets is a business transaction governed by Rule 1.8(a), because the lawyer's fee derives from that transaction rather than from legal services. It noted Illinois case law presumes undue influence where a lawyer benefits from a business transaction with a client, rebuttable only by clear and convincing evidence of full disclosure, a fair and reasonable transaction, and the client's opportunity for independent advice. Because the administrator's fee is affected by the trust's performance (a conservative approach may generate lower fees), the opinion found a potential conflict requiring disclosure and consent, plus a continuing duty to make supplemental disclosures as circumstances develop.

Currency note

This opinion was issued in 1999, before Illinois adopted the 2010 Illinois Rules of Professional Conduct. The ISBA Board of Governors affirmed the opinion in January 2010 as generally consistent with the 2010 Rules (referring to Rules 1.7 and 1.8(a)), while noting the specific standards referenced may differ from the 2010 Rules. Subsequent rule amendments or later opinions may have changed the analysis. Treat this page as historical context, not current guidance. Verify against current rules before relying on any specific rule or requirement mentioned here.

Common questions

Q: Can a lawyer be paid by a trust company to administer trusts for the lawyer's own clients?

A: The opinion concluded yes, if the lawyer satisfies the conflict rules. The lawyer has a Rule 1.7(b) conflict and is in a Rule 1.8(a) business transaction, so the lawyer must disclose and obtain consent.

Q: What exactly must the lawyer disclose?

A: Per the opinion, the lawyer must disclose the relationship with the trust company, the fee arrangement and how it is calculated including the source of payment, and all other aspects of the relationship; written disclosure is the more prudent practice.

Q: Why is the trust investment a business transaction?

A: The opinion held that the lawyer's fee comes from the trust company's fees generated by investing the client's assets, not from legal services, so it is a business transaction with the client under Rule 1.8(a).

Q: Is one-time disclosure enough?

A: No. The opinion stated that a conflict initially addressed by disclosure and consent imposes a continuing duty to make supplemental disclosures as developing circumstances warrant.

Background and rules framework

The opinion interpreted Illinois Rule 1.7(b) (representation limited by responsibilities to a third person or the lawyer's own interests; Model Rule 1.7) and Rule 1.8(a) (business transactions with clients; Model Rule 1.8(a)), read against Illinois case law presuming undue influence in lawyer-client business dealings. It applied prior Opinions 90-02, 90-20, and 97-04.

Citations and references

Rules of Professional Conduct:

• Model Rule 1.7 (conflict of interest) / Illinois Rule 1.7(b)
• Model Rule 1.8(a) (business transactions with clients) / Illinois Rule 1.8(a)

Cases:

• In re Anderson, 52 Ill.2d 202, 287 N.E.2d 682 (1972), presumption of undue influence
• In re Schuyler, 91 Ill.2d 6, 424 N.E.2d 1137 (1982), fiduciary transactions with clients
• Franciscan Sisters Health Care v. Dean, 95 Ill.2d 452, 448 N.E.2d 872 (1982), rebutting the presumption

Other opinions cited:

• ISBA Advisory Opinion No. 97-04: referral fee from an investment advisor as a business transaction
• ISBA Advisory Opinions Nos. 90-02, 90-20: lawyer-fiduciary and living-trust marketing conflicts

See also

• ISBA Ethics Op. 97-04: Referral Fees From Nonlawyer Professionals
• ISBA Ethics Op. 97-07: Lawyer-Owned Public-Notice Advertising Company

Source

• Landing page: https://www.isba.org/ethics/opinions/9906