Can a lawyer transfer shares in a legal professional association to an irrevocable trust for nonlawyer beneficiaries if the trustee is a lawyer?
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This page answers the general question as of 2002. Ezel answers yours: whether it's allowed on your facts, under the current Ohio Rules of Professional Conduct, with citations.
Currency note
The Board withdrew this opinion on April 5, 2019 in Advisory Opinion 2019-02; it is retained here for research only and is not current guidance. The opinion was issued in 2002, before Ohio's adoption of the Ohio Rules of Professional Conduct (effective February 1, 2007), and interprets the former Ohio Code of Professional Responsibility and the Supreme Court Rules for the Government of the Bar. Treat this page as historical context. Verify against current rules and the superseding opinion before relying on any specific requirement mentioned here.
Plain-English summary
The Board considered whether an attorney could transfer his or her shares in a legal professional association (an LPA, the Ohio professional-corporation form for a law practice) into an irrevocable trust whose beneficiaries were individuals not licensed to practice law. The proposal placed a licensed attorney as the trustee holding the shares. The Board concluded the transfer was improper under DR 5-107(C)(1), Gov. Bar R. III section 3(B), and DR 3-102(A).
The Board reasoned that the rules restrict ownership of a law-practice entity to licensed lawyers and bar sharing legal fees with nonlawyers. Interposing a lawyer-trustee did not cure the problem, because the beneficial interest, and the value derived from the practice, would still flow to nonlawyers. The form of the holding (a trust with a lawyer trustee) did not change the substance that nonlawyers would hold the economic benefit of shares in a legal professional association.
Common questions
Q: Can a lawyer leave law-firm (LPA) shares in trust for nonlawyer family members if a lawyer serves as trustee?
A: No, under this opinion. It concluded the transfer is improper under DR 5-107(C)(1), Gov. Bar R. III section 3(B), and DR 3-102(A), even with a licensed attorney as trustee. Note the Board withdrew the opinion in 2019.
Q: Why doesn't a lawyer-trustee solve the problem?
A: Per the opinion, the beneficial ownership and economic value of the shares would still pass to nonlawyers, which the rules on professional-corporation ownership and fee-sharing with nonlawyers do not permit.
Background and rules framework
The opinion interprets former DR 5-107(C)(1) (restricting who may own an interest in a professional legal corporation), DR 3-102(A) (a lawyer or firm shall not share legal fees with a nonlawyer, subject to narrow exceptions), and Gov. Bar R. III section 3(B) (governance of legal professional associations). Professional-independence and ownership limits of this kind are now addressed by Ohio Prof. Cond. R. 5.4 (Model Rule 5.4). The Board withdrew the opinion in Adv. Op. 2019-02.
Citations and references
Rules of Professional Conduct:
- Former Ohio Code of Professional Responsibility DR 5-107(C)(1), DR 3-102(A)
- Supreme Court Rules for the Government of the Bar of Ohio, Gov. Bar R. III section 3(B)
- Current analogue: Ohio Prof. Cond. R. 5.4 (Model Rule 5.4)
See also
- Ohio BPC Op. 1996-003: Inactive Attorney's Shares and Firm Name in an LPA
- Ohio BPC Op. 1989-017: Judge Divesting Former Law Firm Shares
- Ohio BPC Op. 1989-002: Sharing Fees With a Suspended or Disbarred Lawyer
Source
- Landing page: https://ohioadvop.org/advisory-opinion-index/
- Original PDF: https://www.ohioadvop.org/wp-content/uploads/2017/04/Op-02-012-1-1.pdf
Original opinion text
Reproduced from the official source for research purposes. The linked source is authoritative.
The Supreme Court of Ohio
BOARD OF COMMISSIONERS ON GRIEVANCES AND DISCIPLINE
41 SOUTH HIGH STREET-SUITE 2320, COLUMBUS, OH 43215-6104
(614) 644-5800 (888) 664-8345 FAX: (614) 644-5804
www.sconet.state.oh.us
OFFICE OF SECRETARY
OPINION 2002-12
Issued October 4, 2002
Withdrawn by Adv. Op. 2019-02
[CPR Opinion-provides advice under the Ohio Code of Professional Responsibility which is superseded
by the Ohio Rules of Professional Conduct, eff. 2/1/2007.]
SYLLABUS: It is improper under DR 5-107(C)(1), Gov. Bar R. III § 3(B), and DR 3-
102(A) for an attorney to transfer his or her shares in a legal professional association to
an irrevocable trust for the benefit of individuals not licensed to practice law even if the
trustee who holds the share in trust is a licensed attorney.
OPINION: This opinion addresses an attorney’s proposed transfer of his or her shares in
a legal professional association to an irrevocable trust for beneficiaries who are
individuals not licensed to practice law.
Is it proper for an attorney to transfer his or her shares in a legal
professional association to an irrevocable trust for the benefit of
individuals not licensed to practice law if the trustee who holds the share
in trust is a licensed attorney?
For estate planning purposes, an attorney proposes to transfer shares in his or her legal
professional association to an irrevocable trust whose beneficiaries are the attorney’s
minor children who are not licensed attorneys. The attorney would transfer legal title to
the shares of stock to the trustee of the trust. The trustee of the irrevocable trust would be
an attorney licensed to practice law in Ohio. The trust instrument would require each
successor trustee to be an attorney licensed in Ohio. The trustee would not have access to
client files.
According to the requester, the trust would have provisions such that for an initial time,
the Internal Revenue Code would treat the attorney/settlor as the owner of the trust for
income tax purposes. During that time, the attorney/settlor would report the income from
the trust on his or her own individual tax return. After that time, the attorney/settlor no
longer would be the owner of the trust for income tax purposes. The trustee would
receive and retain in the trust the income from the shares of stock. The trustee would
distribute income from the shares of stock to the beneficiaries at the sole discretion of the
trustee.
Upon the attorney/settlor’s death, the stock would continue to be held by the trustee until
one of the following events occurred. The trustee would sell the shares to another
member of the legal professional association pursuant to a buy-sell arrangement, the legal
Op. 2002-12 2
professional association would buy back the shares held by the trust, or possibly the legal
professional association would dissolve. Once the trustee receives the proceeds from the
shares, the trustee would distribute assets of the trust to the non-lawyer beneficiaries and
the trust would be terminated.
Rule III of the Supreme Court Rules for the Government of the Bar of Ohio (adopted,
effective July 1, 1983 and amended several times since) expressly authorizes attorneys to
practice law in Ohio as a legal professional association formed under Chapter 1785 of the
Ohio Revised Code. An attorney who organizes his or her law practice as a legal
professional association must heed state law governing professional associations as well
as the rules of the Supreme Court of Ohio governing attorney conduct—the Ohio Code of
Professional Responsibility and the Supreme Court Rules for the Government of the Bar
of Ohio.
Thus, the question presented involves both legal issues under Chapter 1785 of the Ohio
Revised Code and ethical issues. This Board’s advisory authority is limited to advising
upon the ethical issues under the Supreme Court Rules for the Government of the Bar of
Ohio and the Ohio Code of Professional Responsibility. However, for proper
consideration, the Board must review, while not advising upon, state law.
State law restricts the issuance of stock in a professional association to persons licensed
to render the same professional service as that for which the association was organized.
A professional association may issue its capital stock only to persons who
are duly licensed, certificated, or otherwise legally authorized to render
within this state the same professional service as that for which the
association was organized or, in the case of a combination of professional
services described in division (B) of section 1785.01 of the Revised Code,
to render within this state any of the applicable types of professional
services for which the association was organized.
Ohio Rev. Code Ann. § 1785.05 (West Supp. 2002).
State law also restricts the subsequent transfer of shares in a professional association to
licensed professionals.
A shareholder of a professional association may sell or transfer that
shareholder’s shares in the association only to another individual who is
duly licensed, certificated, or otherwise legally authorized to render within
this state the same professional service as that for which the association
was organized or, in the case of a combination of professional services
described in division (B) of section 1785.01 of the Revised Code, to
render in this state any of the applicable types of professional services for
which the association was organized.
Ohio Rev. Code Ann. § 1785.07 (West Supp. 2002).
As advised upon by the Office of the Ohio Attorney General in Op. 90-072 (1990) and
Op. 85-065 (1985), there is no legal impediment to the transfer of stock in a professional
Op. 2002-12 3
association into trust for the benefit of individuals who are not duly licensed to render the
professional services for which the association was organized, provided the trustee in
whose legal name the share of stock is held is licensed to render the professional services.
Part One of the Syllabus of Ohio Attorney General Opinion 90-072 (1990) states:
Shares of the capital stock of a professional association organized under
R.C. Chapter 1785 for the sole purpose of rendering the dental services
authorized under R.C. Chapter 4715 may be transferred into trust for the
benefit of individuals who are not duly licensed or otherwise legally
authorized to render those dental services, provided the trustee in whose
name legal title to those shares of stock is held is duly licensed or
otherwise legally authorized to render those dental services. (1985 Op.
Att’y Gen. No. 85-065, followed.)
The Syllabus of Ohio Attorney General Opinion 85-065 (1985) states:
R.C. Chapter 1785 does not prohibit the stock of a professional association
from being held in trust, for the benefit of nonprofessionals, by an
individual who is duly licensed or otherwise legally authorized to render
the professional service for which the association was organized, and the
fact that stock is so held provides no basis for cancellation of the articles
of incorporation of that association by the Secretary of State. Since the
trustee is a professional, however, he may not carry out any acts or
exercise any powers which conflict with the performance of his
professional responsibilities or exceed the authority granted to him under
applicable law. (1978 Op. Att’y Gen. No. 78-066, modified).
These opinions by the Attorney General of Ohio, however, are not a “green light” for
attorneys to proceed in transferring shares in a legal professional association into a trust
whose beneficiaries are individuals not licensed to practice law. As stated by the
Attorney General in the footnote 2 of Op. 85-065, “I [the Attorney General of Ohio] am
not considering whether statutes or ethical provisions governing members of particular
professions might operate to make particular trust arrangements impermissible in certain
circumstances.” In that footnote, the Attorney General, gave as an example of other
provisions to consider, DR 5-107(C) of the Ohio Code of Professional Responsibility.
For attorneys, there are several ethical rules, in particular, DR 5-107(C) and Gov. Bar R.
III § 3(B), that countervail these opinions. As explained in Gov. Bar R. III § 3(A),
“[p]articipation in a legal professional association . . . shall not relieve an attorney of or
diminish any obligation under the Ohio Code of Professional Responsibility or under
these rules [the Supreme Court Rules for the Government of the Bar of Ohio].”
One of the obligations under DR 5-107(C) of the Ohio Code of Professional
Responsibility is that an attorney shall not practice in a legal professional association in
which a non-attorney has an interest. The rule provides one exception, permitting the
stock or interest of a lawyer to be held for a reasonable time by the fiduciary
representative of the estate of a lawyer. That exception is not applicable herein.
Op. 2002-12 4
DR 5-107 (C) A lawyer shall not practice with or in the form of a
professional corporation or association authorized to practice law for a
profit, if:
1. A non-lawyer owns any interest therein, except that a
fiduciary representative of the estate of a lawyer may hold
the stock or interest of the lawyer for a reasonable time
during administration;
2. A non-lawyer is a corporate director or officer thereof; or
3. A non-lawyer has the right to direct or control the
professional judgment of a lawyer.
One of the obligations under Gov. Bar R. III § 3(B) is that an attorney is prohibited from
participating in a legal professional association in which a member, partner, or other
equity holder is a person not authorized to practice law in Ohio or elsewhere.
Gov. Bar R. III § 3(B) An attorney shall not use a legal professional
association, corporation, legal clinic, limited liability company, or
registered partnership to share legal fees with a person not authorized to
practice law in Ohio or elsewhere, except as permitted by DR 3-102 of the
Code of Professional Responsibility. An attorney shall not participate in a
legal professional association, corporation, legal clinic, limited liability
company, or registered partnership in which a member, partner, or other
equity holder is a person not authorized to practice law in Ohio or
elsewhere, except as permitted by DR 5-107 of the Code of Professional
Responsibility.
It is this Board’s view that the ethical obligations under DR 5-107(C)(1) and Gov. Bar R.
III § 3(B) are not met by an attorney who transfers shares of his or her legal professional
association to a trust whose beneficiaries are persons not licensed to practice law.
In Ohio Attorney General Opinion 85-065 (1985), the Attorney General referred to the
rights of the beneficiary as an equitable interest. In Ohio Attorney General Opinion 90-
072 (1990), the Attorney General stated, “[t]his arrangement [the transfer of shares of
stock into trust for the benefit of individuals who have not obtained licenses to practice
dentistry] will, accordingly, grant an interest in the transferred shares of stock to the trust
beneficiaries.”
DR 5-107(C)(1) proscribes a non-lawyer from owning “any interest” in a legal
professional association. For purposes of DR 5-107(C)(1), it does not matter that legal
title to the shares of the legal professional association would be held in trust by a trustee
licensed to practice law, for the benefit of individuals who are not licensed to practice
law. Individuals not licensed to practice law, who are the beneficiaries of a trust whose
assets are shares of a legal professional association, would have what DR 5-107(C)(1)
identifies as “any interest” in a legal professional association.
Op. 2002-12 5
Gov. Bar R. III § 3(B) prohibits an attorney from participating in a legal professional
association in which a member, partner, or other equity holder is a person not authorized
to practice law in Ohio or elsewhere. For purposes of Gov. Bar R. III § 3(B), a
beneficiary of an irrevocable trust in which the trust assets are the shares of a legal
professional association is an “equity holder” in a legal professional association. Thus,
an attorney’s proposed transfer of shares in a legal professional association to an
irrevocable trust for the benefit of individuals not licensed to practice law is improper
under Gov. Bar R. III § 3(B) as well as under DR 5-107(C)(1).
The preservation of the professional independence of attorneys is the underlying ethical
basis of these rules. This ethical concern is expressed directly in Ethical Consideration 5-
25 of the Ohio Code of Professional Responsibility: “To assist a lawyer in preserving his
[her] professional independence, a number of courses are available to him [her]. For
example, a lawyer should not practice with or in the form of a professional legal
corporation, even though the corporate form is permitted by law, if any director, officer,
or stockholder of it is a non-lawyer.”
Under DR 5-107(C)(1) and Gov. Bar R III § 3(B), attorneys are not to practice in a legal
professional association in which a non-attorney has an interest and are not to participate
in a legal professional association in which a member, partner, or other equity holder is a
person not licensed to practice law. As to the proposed situation, an attorney should not
participate in a legal professional association in which a licensed attorney who does not
practice law with the legal professional association would hold legal title to the shares of
the legal professional association in an irrevocable trust for beneficiaries not licensed to
practice law.
A further ethical hurdle is that DR 3-102(A) prohibits lawyers from dividing legal fees
with non-lawyers, unless one of four exceptions fit.
DR 3-102 (A) A lawyer or law firm shall not share legal fees with a non-
lawyer, except that:
1. An agreement by a lawyer with his [her] firm, partner, or
associate may provide for the payment of money, over a
reasonable period of time after his [her] death, to his [her]
estate or to one or more specified persons.
2. A lawyer who undertakes to complete unfinished legal business
of a deceased lawyer may pay to the estate of the deceased
lawyer that proportion of the total compensation which fairly
represents the services rendered by the deceased lawyer.
3. A lawyer or law firm may include non-lawyer employees in a
retirement plan, even though the plan is based in whole or in
part on a profit-sharing arrangement.
4. A lawyer participating in a lawyer referral service that satisfies
the requirements of DR 2-103(C) may pay to the service a fee
calculated as a percentage of legal fees earned by the lawyer in
Op. 2002-12 6
his or her capacity as a lawyer to whom the service has referred
a matter. This percentage fee is in addition to any reasonable
membership or registration fee established by the service.
Estate planning by a lawyer is an exception identified in DR 3-102(A)(1), but it is a
narrow exception. The DR 3-102(A)(1) exception permits agreements by a lawyer with
his firm, partner, or associate, to pay money over a reasonable period of time after the
attorney’s death to his estate or to one or more specified persons. The exception does not
permit an attorney’s intervivos transfer of shares in a legal professional association into
an irrevocable trust to be held by a trustee for non-attorney beneficiaries to receive
income during and after the life of the attorney. A lawyer’s transfer of shares in a legal
professional association to a licensed attorney to hold in an irrevocable trust for a non-
attorney beneficiary does not fall within any of the exceptions found in DR 3-102(A) (1)
through (4).
Further, under DR 1-102(A)(2) a lawyer is not permitted to circumvent the disciplinary
rules through the action of another. A lawyer in a legal professional association does not
shed his or her responsibility for compliance with the rules governing attorney conduct
by transferring shares in the legal professional association to another licensed attorney to
hold in an irrevocable trust for the benefit of non-attorneys.
In conclusion, this Board advises it is improper under DR 5-107(C)(1), Gov. Bar R. III §
3(B), and DR 3-102(A) for an attorney to transfer his or her shares in a legal professional
association to an irrevocable trust for the benefit of individuals not licensed to practice
law even if the trustee who holds the share in trust is a licensed attorney.
Advisory Opinions of the Board of Commissioners on Grievances and Discipline are
informal, nonbinding opinions in response to prospective or hypothetical questions
regarding the application of the Supreme Court Rules for the Government of the
Bar of Ohio, the Supreme Court Rules for the Government of the Judiciary, the
Code of Professional Responsibility, the Code of Judicial Conduct, and the
Attorney’s Oath of Office.
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