Can a North Carolina estate planning lawyer put a clause in the engagement agreement requiring the client's estate to pay the lawyer's fees for responding to subpoenas, discovery, or testimony about the estate plan?

Plain-English summary

A law firm with an estate planning practice asked whether it could put a clause in its engagement agreements requiring the client's estate to reimburse the firm's hourly fees and costs whenever a firm lawyer is deposed, called to testify, or required to respond to discovery in later litigation concerning any aspect of the estate plan. The proposed clause also purported to bind anyone managing the client's affairs, the client's heirs, and the beneficiaries. The committee concludes the proposed provision as drafted does not comply with the Rules of Professional Conduct.

The opinion identifies two defects under Rule 1.5. First, the clause is clearly excessive under Rule 1.5(a) because it contains no exclusion for legal fees resulting from a firm lawyer's own incompetence or negligence; a firm may not charge an estate planning client for future legal services that the lawyer's negligent drafting made necessary. Second, the clause is too vague to satisfy Rule 1.5(b), which requires that the basis or rate of the fee be communicated; the language does not adequately state the basis, rate, or total amount of the future fees. The opinion adds that such a broad provision serves as a deterrent to legitimate probate challenges in violation of Rule 8.4(d), and it notes N.C. Gen. Stat. § 6-21(2) on court oversight of attorney fees in estate proceedings. A separate footnote leaves the legality and enforceability of binding non-clients to the firm, noting Rule 1.5(a)'s bar on illegal fees and Rule 8.4(c).

The opinion does not foreclose all such clauses. Drawing on South Carolina Ethics Advisory Op. 23-01 (2023), the committee concludes a fee agreement may provide for payment of the lawyer's fees and expenses for future testimony or discovery related to the representation if four conditions are met: (1) the scope is limited (to proceedings where the firm is not a party and where the quality, sufficiency, or effectiveness of the firm's work is not in question), (2) the fees and expenses are not clearly excessive, (3) the terms are clearly communicated in a written fee agreement, and (4) the client consents. The firm must make reasonable efforts to minimize time and costs, and a rate that adjusts to the lawyer's prevailing rate at the time of the later litigation is permissible only with safeguards such as caps or a stated maximum annual increase. The opinion supplies sample language that would be acceptable, capped at 3% per annum above the current rate.

In practice

Under this opinion, the proposed broad clause is impermissible: a firm may not bill an estate planning client for future legal services made necessary by the lawyer's own incompetence or negligence (clearly excessive under Rule 1.5(a)), and a clause that does not state the basis, rate, or total amount of the future fees is too vague under Rule 1.5(b); the opinion also treats the broad provision as a deterrent to legitimate probate challenges under Rule 8.4(d). The opinion holds that a future-testimony fee provision is permitted only if its scope is limited to proceedings where the firm is not a party and its work is not in question, the fees are not clearly excessive, the terms are set out in a written fee agreement, and the client consents; any rate adjustment must carry safeguards such as a cap. The opinion provides sample language meeting these conditions.

Common questions

Q: Can a North Carolina estate planning firm charge a client's estate for time spent responding to subpoenas or testifying about the estate plan?

A: Only within limits. The opinion concludes a fee agreement may provide for payment of the lawyer's fees and expenses for future testimony or discovery related to the representation if the scope is limited, the fees are not clearly excessive, the terms are in a written agreement, and the client consents.

Q: Why was the firm's proposed clause not allowed?

A: The opinion concludes the proposed clause is clearly excessive under Rule 1.5(a) because it has no exclusion for fees caused by the lawyer's own incompetence or negligence, and it is too vague under Rule 1.5(b) because it does not state the basis, rate, or total amount of the future fees.

Q: Can the fee provision cover work needed because the lawyer drafted the estate plan negligently?

A: No. The opinion states a firm may not charge an estate planning client for future legal services necessitated by a lawyer's incompetence or negligence in drafting the estate plan, and limits the permissible scope to proceedings where the firm is not a party and the quality, sufficiency, or effectiveness of the firm's work is not in question.

Q: Can the agreed rate go up over time?

A: Yes, with safeguards. The opinion permits the rate to adjust to the lawyer's prevailing hourly rate at the time of the later testimony or discovery, but only with safeguards such as a cap (its sample language limits any increase to 3% per annum above the current rate), and the potential increase must be clearly explained in the agreement.

Background and rules framework

The opinion interprets North Carolina Rule 1.5(a) (a lawyer shall not make an agreement for, charge, or collect a clearly excessive or illegal fee) and Rule 1.5(b) (when the lawyer has not regularly represented the client, the scope of the representation and the basis or rate of the fee and expenses must be communicated, preferably in writing, before or within a reasonable time after commencing the representation), with Comment [2] to Rule 1.5 on what the writing should state. It also invokes Rule 8.4(d) (conduct prejudicial to the administration of justice, as to a clause deterring legitimate probate challenges) and references Rule 8.4(c) in a footnote on illegal or unenforceable provisions. These correspond to ABA Model Rules 1.5 and 8.4. The opinion relies on South Carolina Ethics Advisory Op. 23-01 (2023) and cites N.C. Gen. Stat. § 6-21(2) on court oversight of attorney fees in estate proceedings.

Citations and references

Rules of Professional Conduct:

• Model Rule 1.5 / NC Rule 1.5(a), 1.5(b) (fees; clearly excessive and illegal fees; communication of basis or rate; Comment [2])
• Model Rule 8.4 / NC Rule 8.4(c), 8.4(d) (dishonesty; conduct prejudicial to the administration of justice)

Statutes:

• N.C. Gen. Stat. § 6-21(2) (court oversight of attorney fees in estate proceedings, including general administration and disputes such as will caveats)

Other opinions cited:

• S.C. Ethics Advisory Op. 23-01 (2023) (lawyer may charge an hourly rate for future time spent testifying as a fact witness, if reasonable and consented to at engagement)

See also

• SC Bar Op. 23-01: Charging for Future Fact-Witness Testimony
• DC Bar Op. 380: Conflict Issues Related to Witnesses
• FL Bar Op. 66-63: Partner Representing Executor When Lawyer May Testify

Source

• Landing page: https://www.ncbar.gov/for-lawyers/ethics-and-governing-rules/ethics-opinions/opinions/2024-formal-ethics-opinion-3/

Original opinion text

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

Law Firm is experiencing a substantial increase in the number of estate planning lawyers who are being subpoenaed in collateral litigation proceedings. Law Firm is investigating ways to recoup estate planning lawyers’ billable time in responding to subpoenas, discovery requests, and providing testimony.

Law Firm would like to include a provision in their engagement agreement with estate planning clients providing that the client agrees that the client’s estate will reimburse Law Firm for fees and expenses incurred when a firm lawyer is required to respond to inquiries concerning any aspect of the estate plan. Law Firm is considering including the following provision outlining obligations regarding future legal proceedings:

Client agrees that if a member of or person rendering services to Law Firm is deposed, called to testify, or required to respond to discovery in the context of legal proceedings concerning any aspect of Client’s estate plan, Law Firm will be compensated for that person’s services at his or her hourly rate to clients at the time of the deposition, other testimony, or other discovery. Client also agrees that Law Firm will be entitled to full reimbursement for costs incurred in connection with the production of documents in response to subpoenas and demands for the production of documents issued in any such legal proceedings. This agreement will bind not only Client but also anyone managing Client’s financial affairs (before and after Client’s death), Client’s heirs, and the beneficiaries under Client’s estate planning documents.

Inquiry:

Do the Rules of Professional Conduct permit inclusion of Law Firm’s proposed provision in Law Firm’s engagement agreements with estate planning clients?

Opinion:

No. Even presuming the proposed fee provision is legal and enforceable,1 the proposed provision fails to comply with other requirements set out in Rule 1.5. Rule 1.5(a) provides that a lawyer shall not make an agreement for, charge, or collect “a clearly excessive fee.” The proposed provision requires the client’s estate to compensate any lawyer in the firm who is deposed, called to testify, or required to respond to discovery in the context of legal proceedings concerning any aspect of the client’s estate plan. There is no exclusion in the provision for legal fees resulting from a firm lawyer’s incompetence or negligence. Law Firm may not charge an estate planning client for future legal services necessitated by a lawyer’s incompetence or negligence in drafting the client’s estate plan. Such charges would be clearly excessive in violation of Rule 1.5(a).

In addition, the proposed fee agreement provision is too vague to comply with Rule 1.5(b). Rule 1.5(b) provides that when a lawyer has not regularly represented a client, the scope of the representation and the basis or rate of the fee and expenses for which the client will be responsible must be communicated to the client, preferably in writing, before or within a reasonable time after commencing the representation. Comment [2] to Rule 1.5 states that the writing should state “the general nature of the legal services to be provided, the basis, rate or total amount of the fee, and whether and to what extent the client will be responsible for any costs, expenses or disbursements in the course of the representation.” The language in the proposed provision does not adequately provide the “basis, rate or total amount” of the future fees. The inclusion of such a broad fee provision violates Rule 1.5(b) and also serves as a deterrent to individuals bringing legitimate challenges in probate matters in violation of Rule 8.4(d). See also N.C. Gen. Stat. § 6-21(2) for court oversight on attorney fees in estate proceedings, including both general administration and disputes like will caveats.

This is not to say that it is always impermissible to include a provision in an employment agreement requiring the payment of legal fees arising after an estate planning client’s death. Nor is it impermissible for a lawyer to seek reimbursement from the estate for lost wages or expenses incurred as a result of the lawyer’s compelled participation in an estate proceeding. Without some payment assurances, a lawyer might be hesitant to represent a client who wants to change his estate plan when aged or infirm, or when the change diverges from the expected plan of distribution. A lawyer may not be willing to take the risk of spending many unbillable hours testifying as a witness or otherwise participating in a will contest. Therefore, it may be reasonable, and not clearly excessive, to include a provision providing payment of certain future legal services rendered in furtherance of a difficult or complicated estate planning representation.

The South Carolina Bar addressed this issue in S.C. Ethics Advisory Op. 23-01 (2023). The South Carolina opinion considers whether a lawyer who prepares estate planning documents for clients may include in his retainer agreement a provision providing that the lawyer is to be paid his hourly rate for time spent responding to discovery or testifying as a fact witness after the lawyer’s legal work is concluded. The advisory opinion provides that, because Rule 1.5 allows a lawyer to charge his hourly rate for potential future time spent testifying as a fact witness relating to a representation, the lawyer is permitted to include such a provision in the retainer agreement. The advisory opinion concludes that, “as long as the lawyer’s hourly rate complies with the reasonableness requirement of Rule 1.5(a), this kind of charge is not categorically unethical, provided the client agrees to it when the lawyer’s services are first engaged.” S.C. Ethics Advisory Op. 23-01. (South Carolina Rule 1.5(a) states that a lawyer “shall not make an agreement for, charge, or collect an unreasonable fee or an unreasonable amount for expenses. (emphasis added)).

We similarly conclude that including a provision in a fee agreement for payment of the lawyer’s fees and expenses for future testimony or discovery related to the services rendered is permissible, provided that (1) the scope of the provision is limited, (2) the fees and expenses are not clearly excessive, (3) the terms of the provision are clearly communicated to the client in a written fee agreement, and (4) the client consents to the provision.

The scope of the provision must be limited to proceedings where the law firm is not a party to the proceeding in which the information is sought, and where the quality, sufficiency, or effectiveness of the law firm’s work is not in question. As stated above, Law Firm may not charge an estate planning client for future services necessitated by a lawyer’s incompetence or negligence in drafting the client’s estate plan. In addition, any contemplated fees and expenses must not be clearly excessive based on the factors set out in Rule 1.5(a). Furthermore, the law firm must make reasonable efforts to minimize time, costs, and expenses. Finally, the firm needs to ensure that the circumstances under which the client’s estate is responsible for payment of future fees and expenses are clearly communicated to the client and specifically set out in a written fee agreement.

It is important that the client understands that this provision means the estate could incur additional fees and costs in the future if the lawyer’s involvement is required beyond the original scope of the estate planning services. The client also needs to understand that the rate for fees may change over time. In order to provide fairness and predictability to the law firm and the client, it is permissible to allow the rate for services to adjust to reflect the lawyer’s prevailing hourly rate at the time of the collateral litigation, with appropriate safeguards such as caps or adjustment clauses. For example, the fee provision may specify that the rate will be the lawyer’s prevailing hourly rate at the time of the testimony or discovery with the qualification that any increase in the hourly rate shall not exceed [X%] per annum, or a maximum rate of [$XXX] per hour, or some combination of factors. This approach ensures that the law firm is fairly compensated for their services while also protecting the client or estate from unexpectedly high fees. Whatever method is chosen, the potential rate increase must be clearly explained in the retainer agreement.

By way of illustration, we conclude that the following fee provision would be acceptable:

Client agrees or directs Client’s estate to compensate Law Firm at our normal hourly rates, not to exceed 3% per annum above Law Firm’s current rate as specified in this agreement, plus costs and expenses, for work done by Law Firm where (1) Law Firm is requested or authorized by you or your estate, or required by government regulation, subpoena, or other legal process, to produce information or our personnel as witnesses with respect to your estate plan or our work for you in the representation; (2) Law Firm is not a party to the proceeding in which the information is sought; and (3) the quality, sufficiency, or effectiveness of the Law Firm’s work is not in question in the proceeding. This obligation applies even if our representation of you has ended. Any fees and expenses charged to Client or Client’s estate shall not be clearly excessive, and Law Firm will make every reasonable effort to minimize time, costs, or expenses related to such a request.

The sample language is not the only language that would be permissible. Law Firm may utilize a unique fee provision specifically tailored to their estate planning practice and clientele as long as the scope of the provision is limited, the fee and expenses are not clearly excessive, and the terms of the provision are clearly communicated to the client.

Endnote

1. Rule 1.5(a) provides that a lawyer shall not make an agreement for, charge, or collect “an illegal fee.” The proposed provision purports to bind not only the estate planning client, but also anyone managing the client’s financial affairs (before and after Client’s death), Client’s heirs, and the beneficiaries under Client’s estate planning documents. The legality/enforceability of the proposed provision is outside the purview of the Ethics Committee. Law Firm has a duty to determine whether such a provision is illegal or unenforceable and may not include an illegal or unenforceable provision in the engagement agreement. See Rule 1.5(a). See also Rule 8.4(c) (professional misconduct for a lawyer to engage in conduct involving dishonesty, fraud, deceit, or misrepresentation).