Must a lawyer who holds money as a guardian, trustee, personal representative, or executor (not as the client's counsel) deposit it in the RPC 1.15A trust account?

Plain-English summary

The inquiring attorney serves as a personal representative or executor in complex estate matters, as a director of a guardianship service, and as a professional guardian and trustee. In those non-attorney capacities, she invests funds in vehicles such as mutual funds, rather than FDIC-insured trust accounts, to seek a better return. She noted that RPC 1.15A, and particularly its Comment [3], seems to conflict with the statutes and case law that govern how a fiduciary handles investments, and asked how to apply RPC 1.15A in that setting.

The opinion observes that RPC 1.15A(h) requires trust accounts to be interest-bearing and to allow prompt withdrawals, and bars placing trust-account funds in mutual funds, stocks, bonds, or similar investments. It notes that Comment [3] says the rule applies to property held in any fiduciary capacity in connection with a representation, including as trustee, guardian, personal representative, or executor, which appears to be at odds with the statutes that let a fiduciary manage assets in the beneficiaries' best interests.

Because no opinions addressed the new RPC 1.15A (which replaced former RPC 1.14), the opinion analyzes the predecessor rule and Informal Opinion 1202 (1998). Informal Opinion 1202 held that when a lawyer holds funds in a fiduciary capacity, those funds should not be deposited in a trust account and should be maintained by the standards of a prudent fiduciary under Washington law. It reasoned that a lawyer who is a trustee, court-appointed guardian, or named personal representative holds legal title to the assets, the beneficiaries or wards are not clients, and so the funds need not go into the lawyer's trust account; if the lawyer acts in a dual capacity (as both lawyer and fiduciary), the same reasoning applies, though the lawyer might pay estate funds into the trust account to pay estate obligations in furtherance of completing the proceedings.

The opinion concludes that, although RPC 1.15A's wording differs from former RPC 1.14, the intent does not appear to have changed, and the key focus is whether the funds relate to the lawyer's duties as an attorney rather than the lawyer's role as a fiduciary. It also points to Comment [5] of ABA Model Rule 1.15 (a lawyer serving only as an escrow agent is governed by fiduciary law, not the rule) as support. Accordingly, Informal Opinion 1202 still appears valid and controls, even though RPC 1.14 was superseded by RPC 1.15A. The opinion adds that if RPC 1.15A was intended to replace the statutory fiduciary functions, a formal opinion should be drafted or the rule revised.

In practice

Under this opinion, and under the Washington rule as it stood at the time, the dividing line is the capacity in which the lawyer holds the funds. Funds a lawyer holds purely as a fiduciary other than as an attorney, for example as a court-appointed guardian, trustee, or personal representative, are not deposited in the RPC 1.15A trust account and are instead managed under prudent-fiduciary standards under Washington law, which can include investments the trust-account rule would prohibit. Funds held in connection with the lawyer's representation of a client remain subject to RPC 1.15A. The opinion treats Informal Opinion 1202 as still controlling on that distinction and flags that the rule's text could be clarified.

Common questions

Q: Must a lawyer acting as a guardian or executor deposit those funds in the trust account?

A: The opinion concludes no. Following Informal Opinion 1202, funds a lawyer holds purely in a fiduciary capacity other than as an attorney should not be deposited in the trust account and should be maintained under prudent-fiduciary standards.

Q: Can those fiduciary funds be invested in mutual funds?

A: The opinion notes RPC 1.15A bars placing trust-account funds in mutual funds, stocks, bonds, or similar investments, but reasons that funds held purely as a fiduciary are outside the trust-account rule, so the fiduciary may invest as a prudent fiduciary would under Washington law.

Q: What is the test for whether RPC 1.15A applies?

A: The opinion says the pertinent focus is whether the funds held by the lawyer relate to the lawyer's duty as an attorney, as opposed to the lawyer acting as, for example, a guardian.

Q: What if the lawyer acts as both the estate's lawyer and its personal representative?

A: Following Informal Opinion 1202, the same reasoning applies, but the lawyer might pay estate funds into the trust account to pay estate obligations in furtherance of completing the estate proceedings.

Background and rules framework

The opinion interprets Washington RPC 1.15A (the safekeeping-of-property rule; counterpart to Model Rule 1.15) and its predecessor, former RPC 1.14. RPC 1.15A applies to property of clients or third persons in a lawyer's possession in connection with a representation, and its Comment [3] extends to property held in any fiduciary capacity in connection with a representation. RPC 1.15A(h) requires interest-bearing trust accounts with prompt withdrawals and bars investing trust funds in mutual funds, stocks, bonds, or similar instruments. The opinion reconciles the rule with Washington's fiduciary statutes (Title 11) by following Informal Opinion 1202 (1998) and citing Comment [5] of ABA Model Rule 1.15.

Citations and references

Rules of Professional Conduct:

• Model Rule 1.15 / Washington RPC 1.15A (safekeeping of property; trust-account requirements; Comments [3] and [5])
• Former Washington RPC 1.14 (predecessor safekeeping rule, superseded by RPC 1.15A)

Other opinions cited:

• WSBA Informal Opinion 1202 (1998): funds held in a fiduciary capacity should not be deposited in the trust account and should be maintained under prudent-fiduciary standards

See also

• WA Ethics Op. 2156: An LPO as a Trust-Account Signatory
• WA Ethics Op. 1084: Running a Lawyer's Own Transactions Through the Trust Account
• ABA Formal Op. 02-426: Lawyer Serving as Fiduciary for an Estate or Trust

Source

• Landing page: https://ao.wsba.org/print.aspx?ID=1599

Original opinion text

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

Advisory Opinion: 2158
Year Issued: 2007
RPC(s): RPC 1.15A & I.O. 1202
Subject: How RPC 1.15A applies to monies held as a fiduciary for guardianship and probate matters

INQUIRY

The inquiring attorney is appointed as a personal representative or executor in complex and contested estate matters, acts as a director of a guardianship service, and also acts as a professional guardian and trustee. In these capacities, her “routine” is to invest monies in other than FDIC insured trust accounts under RPC 1.15A, such as “mutual funds” for the purpose of securing a better rate of return on the funds invested. The inquiring party notes that RPC 1.15A, specifically Comment 3, seems to conflict with statutes and case law concerning handling investments when acting in a fiduciary capacity other than as an attorney.

The inquiring party requests an opinion as to how the attorney is to apply the RPC 1.15A “in this setting, since the comments indicate something other than what statutes and case law allow”.

APPLICABLE RULES

RPC 1.15A provides as follows:

(a) This Rule applies to (1) property of clients or third persons in a lawyer’s possession in connection with a representation and (2) escrow and other funds held by a lawyer incident to the closing of any real estate or personal property.

The comments to RPC 1.15A, § [3], provides as follows:

[3] This Rule applies to property held in any fiduciary capacity in connection with a representation, whether as trustee, agent, escrow agent, guardian, personal representative, executor, or otherwise.

RPC 1.15A(c)(1) provides that:

A lawyer must “deposit and hold in a trust account funds subject to this Rule pursuant to paragraph (h) of this Rule.

RPC 1.15A(h)(I) provides as follows:

Trust accounts must be interest-bearing and allow withdrawals or transfers without any delay other than notice periods that are required by law or regulation. In the exercise of ordinary prudence, a lawyer may select any bank, savings bank, credit union or savings and loan association that is insured by the Federal Deposit Insurance Corporation or National Credit Union Administration, is authorized by law to do business in Washington and has filed the agreement required by ELC 15.4. Trust account funds must not be placed in mutual funds, stocks, bonds, or similar investments.

DISCUSSION

What is not clear from the inquiry, but must be assumed, is that the lawyer is acting in a capacity other than a lawyer when acting as a “professional guardian and trustee” or as a “personal representative or executor”.

Comment (3) to RPC 1.15A applies to “property held in any fiduciary capacity in connection with a representation, whether as a trustee, agent, escrow agent, guardian, personal representative, executor, or otherwise”. As such, this does appear to be at odds with the statutes dealing with, for example, guardianships, which vest in the fiduciary the ability to manage assets in a manner in the best interests of the beneficiaries.

There are no opinions, informal or otherwise, dealing with the application of the new rule, RPC 1.15A (formerly RPC 1.14) regarding safeguarding of client property. Accordingly, it is necessary to discuss the application of RPC 1.14, the predecessor Rule of the present RPC 1.15A. A comparison of the two rules shows similar language regarding handling of client funds.

It is clear that RPC 1.15A(I) provides that trust accounts “must be interest-bearing and allow withdrawals or transfers without any delay”. Just as clear is that trust accounts may not be invested in mutual funds, which the inquiring attorney says is often done with funds he is managing as a fiduciary other than an attorney. RPC 1.15(A)(c)(1) notes that a lawyer “must deposit and hold in a trust account funds subject to this Rule, pursuant to (h) of this Rule”. RPC 1.15(A)(h) provides that funds belonging in part to a client or a third person and in part presently, or potentially, to the lawyer must be deposited and retained in a trust account.

Informal Opinion #1202 (1998), which deals with RPC 1.14, the predecessor of the current RPC 1.15A, discusses the responsibilities of an attorney relative to safeguarding property belonging to a “client”. Specifically, Informal Opinion #1202 posed the following question and answer:

Question: When a lawyer holds funds or property in a fiduciary capacity as a trustee, guardian, or executor, must those funds be held in a trust account regulated by the requirement of RPC 1.14, and must such property be maintained in conformance with that rule?

Answer: If a lawyer holds funds or property in a fiduciary capacity, those funds should not be deposited in a trust account, as required by RPC 1.14. The funds or property should be maintained by the standards of a prudent fiduciary under Washington law.

RPC 1.14 applied to accounts that were “funds of a client paid to a lawyer” or “securities and properties of a client”. RPC 1.15 provides that the rule applies to “property of clients or third persons in a lawyer’s possession in connection with “a representation”.

RPC 1.15(A)(b)(2) provides that a lawyer must “identify, label, and appropriately safeguard any property of clients or third persons other than funds. (Emphasis Added).

Comment 2 to RPC 1.15(A), provides that client funds “include, but are not limited to, the following: legal fees or costs that have been paid in advance, funds received on behalf of the client, funds to be paid by a client to a third party through the lawyer, other funds subject to attorney and other liens, and payments received in excess of amounts paid for fees.”. Since the Rule requires that a lawyer must “deposit and hold in the trust account funds subject to this rule”, funds the lawyer may manage as a guardian, trustee, or executor do not appear to fall within the confines of this particular Rule.

While the wording in RPC 1.14 and RPC 1.15A is different, it would appear that the spirit and intent is the same with both, in that the pertinent focus is whether the funds held by the lawyer are related to the lawyer’s duty as an attorney as opposed to his/her acting as, for example, a guardian.

Informal Opinion #1202, in this respect, is particularly instructive in that it differentiates between funds paid to an attorney in the scope of a “representation”, as opposed to the obligation of the lawyer acting as a trustee or executor. As a fiduciary other than as an attorney, Informal Opinion #1202 addressed this difference as follows:

If a lawyer is designated as a trustee under terms of a testamentary or other trust document, appointed as guardian by a court, or named as a personal representative of a will, then the lawyer would hold legal title to the assets of the trust or estate. The beneficiaries or wards would not be clients and would only hold an equitable ownership in the property. Therefore, a lawyer would not be required to deposit such funds into a trust account maintained pursuant to RPC 1.14. In the situation where a lawyer acts in the dual capacity as a lawyer and fiduciary, e.g. acts as a personal representative and lawyer for an estate, that same reasoning would apply. The lawyer might, however, pay funds from the estate into the lawyer’s trust account, for the purpose of paying obligations of the estate in furtherance of the lawyer’s obligation to complete the estate proceedings.

In noting that the duties imposed upon a fiduciary in fact may actually require the fiduciary to invest in assets in such a manner that would not be possible with an interest bearing account established by the lawyer, Informal Opinion #1202 held that a lawyer acting in the capacity of a fiduciary should not deposit funds into the trust account when acting as a guardian or personal representative.

Thus, although the wording of RPC 1.15A differs in some respect from the previous RPC 1.14, the intent does not appear to have changed. If so, it is certainly not clearly articulated in the new rule. Further, it poses an interesting question as to whether or not the terms of the Rules of Professional Conduct can in effect override the statutory directives of Title 11, dealing with guardians, trustees, personal representatives, and executors. If the new Rule as intended to replace the functions outlined therein, then a formal opinion should be drafted or the rule revised to clearly state what the responsibility of the attorney is when handling monies in a capacity other than an attorney. It would seem unusual to impose a standard on an attorney to invest monies in a manner less prudent that a non-attorney might be required to do in his/her capacity as a guardian or a personal representative.

Comment (5) of Rule 1.15 of the ABA Model Rules of Professional Conduct, states as follows:

[5] The obligations of a lawyer under this Rule are independent of those arising from activity other than rendering legal services. For example, a lawyer who serves only as an escrow agent is governed by the applicable law relating to fiduciaries even though the lawyer does not render legal services in the transaction and is not governed by this Rule.

While under RPC 1.15A, a lawyer acting as an escrow agent does have an obligation to deposit monies held in a trust account, this comment does support the notion that a different ethical obligation is imposed when a lawyer is acting in a fiduciary capacity other than as an attorney.

CONCLUSION

Accordingly, Informal Opinion #1202 still appears to be valid and will control in this case, even though RPC 1.14 has been superseded by the present RPC 1.15A.