Ezel / Ethics Opinions / NYSBA
NYSBA 2021-10-06

Can an estate-planning lawyer own a separate company that manages the assets of trusts the lawyer sets up for clients?

Short answer: Yes, with safeguards. The opinion concludes the lawyer's interest in the management company is a consentable Rule 1.7 conflict requiring informed written consent at the outset, that nondistinct nonlegal services are subject to the Rules under Rule 5.7, and that Rule 1.8(a)'s business-transaction protections apply either way.
Disclaimer: Advisory only. Not binding precedent.
About this page: The plain-English summary, reader guidance, and Q&A below were written by Ezel based on the official ethics opinion. The original opinion (linked at the bottom of this page) is the authoritative source for any reliance.

NYSBA Ethics Opinion 1231: An Estate Lawyer's Stake in a Trust Asset-Management Company

Short answer: The opinion concludes that an estate-planning lawyer who owns a separate company he hopes to recommend to manage clients' trust assets has a consentable Rule 1.7 conflict that requires informed written consent at the outset of the representation, and must also satisfy Rule 5.7 (nonlegal services) and Rule 1.8(a) (business transactions with clients).

Disclaimer: This is an advisory ethics opinion. Advisory opinions are not binding; they interpret the New York State Bar Association's view of New York's Rules of Professional Conduct and are persuasive authority. This summary is for research purposes only and is not legal advice. Verify current rules before acting on any specific guidance.

About this page: The plain-English summary and Q&A below were written by Ezel based on the official opinion. We do not reproduce the opinion text on this page; follow the linked source for the official text, which controls.

Plain-English summary

The inquirer is an estate-planning lawyer who establishes revocable and irrevocable trusts for clients. He wants to form a separate financial management company, in which he would hold an ownership interest, to be retained by the trustees (often the client-settlors or their family members) to manage the trust assets. The company would charge a fixed percentage of assets under management, take no transaction or commission-based fees, and disclose the firm's interest and that it does not provide legal services. He asks whether he may hold a financial interest in that company.

On Rule 1.7, the committee finds a significant-risk personal-interest conflict under Rule 1.7(a)(2): the lawyer's hope of later managing the trust assets could influence his advice about whether to recommend a trust over alternatives like an annuity or insurance. It distinguishes its line of nonconsentable-conflict opinions (N.Y. State 619 (1991) on selling life insurance, and N.Y. State 1200 (2020) on simultaneous wealth management) on the ground that here the legal advice about whether to create a trust and the later financial-management decision are not intertwined, and the retention decision is made by a trustee who may not be a client. On those facts, the lawyer's belief that he can give competent and diligent advice is reasonable under Rule 1.7(b)(1), so the conflict is consentable. The lawyer must disclose his financial interest, the material risks, and the alternatives, and obtain each client's informed consent confirmed in writing at the outset of any representation that might lead to advice about forming a trust.

On Rule 5.7, the opinion applies the framework of N.Y. State 1155 (2018). If the legal and nonlegal services are "not distinct" (integrated, as where the lawyer drafts a trust naming the company as manager or advises on investments while advising on the trust), the Rules apply to the nonlegal services regardless of any disclaimer. Services are most likely distinct only if the company does not provide management advice until after the trust is established.

On Rule 1.8(a), even where the legal and nonlegal services are distinct, the lawyer must satisfy the business-transaction protections summarized in N.Y. State 896 (2011): fair and reasonable terms, full written disclosure in understandable form, advice to seek independent counsel, and the client's informed written consent to the terms and the lawyer's conflict.

In practice

Under this opinion, an estate-planning lawyer may own a company that manages client trust assets, but only after disclosing the financial interest, the risks, and the alternatives, and obtaining each affected client's informed written consent at the outset; the conflict is consentable on these facts because the trust-formation advice and the later management decision are not intertwined (Rule 1.7). Per the opinion, where the legal and nonlegal services are integrated, the Rules govern the nonlegal services too (Rule 5.7(a)), and in all cases the lawyer must meet Rule 1.8(a)'s business-transaction requirements, including advising the client to seek independent counsel.

Common questions

Q: Can an estate lawyer recommend his own asset-management company to manage a client's trust?

A: Per the opinion, yes, but the arrangement is a Rule 1.7(a)(2) personal-interest conflict that requires the lawyer to disclose his interest, risks, and alternatives and obtain informed written consent at the outset of the representation.

Q: Why is this conflict consentable when selling clients insurance is not?

A: Per the opinion, here the advice about whether to create a trust is not intertwined with the later financial-management decision, which a trustee makes, so the benefit is attenuated; that distinguishes N.Y. State 619 and 1200, where legal advice and product sales were simultaneous and nonconsentable.

Q: Do the ethics rules reach the company's nonlegal management services?

A: Per the opinion, yes if the services are "not distinct" from the legal services (Rule 5.7(a)); integrated estate-planning and trust-investment work is treated as nondistinct, so the Rules apply regardless of any disclaimer.

Q: What else must the lawyer do beyond getting consent to the conflict?

A: Per the opinion, the lawyer must comply with Rule 1.8(a): fair and reasonable terms disclosed in writing, advice to seek independent counsel, and the client's signed informed consent to the transaction.

Background and rules framework

The opinion interprets New York Rule 1.7(a)-(b) (concurrent conflicts and consent), Rule 5.7(a) (nonlegal services through a separate entity), and Rule 1.8(a) (business transactions with clients), with the definitions in Rule 1.0(e) and 1.0(j). These correspond to ABA Model Rules 1.7, 5.7, and 1.8.

Citations and references

Rules of Professional Conduct:

  • New York Rules of Professional Conduct 1.0(e), 1.0(j), 1.7(a)(2), 1.7(b)(1) & (4), 1.8(a), 5.7(a)
  • ABA Model Rules 1.7, 5.7, 1.8 (analogues)

Other opinions cited:

  • N.Y. State 1155 (2018): legal and nonlegal services framework under Rule 5.7
  • N.Y. State 619 (1991), 1200 (2020), 536 (1981): nonconsentable conflicts and dual legal/financial roles
  • N.Y. State 896 (2011): Rule 1.8(a) requirements for nonlegal services to clients

See also

Source