The State Bar Association of North Dakota Summer 2015 Gavel Magazine | Page 32

STATE BAR ASSOCIATION OF NORTH DAKOTA ETHICS COMMITTEE OPINION NO. 15-03 This opinion is advisory only QUESTION PRESENTED: Whether a revocable living trust may own stock in a professional corporation authorized to practice law for a profit, if as least one of the trustees is a licensed attorney. FACTS PRESENTED Attorney individually owns 100 percent of the stock in the professional corporation through which Attorney practices law for profit. Attorney and Spouse, a non-attorney, have created a revocable living trust for estate planning purposes. Attorney and Spouse are named as co-trustees of the trust. owners of 100 percent of the stock in the professional corporation upon transfer to the trust. See N.D.C.C. § 59-12-01 (“A trust may be created by transfer of property to another person as trustee during the settler’s lifetime or by will or other disposition taking effect upon the settlor’s death . . . .”) (Emphasis added). As a result, such ownership is prohibited under N.D.R.Prof.C. 5.4(d)(l ) unless the arrangement meets the exception for “a fiduciary representative of the estate” where such representative “hold[s] the stock or interest of the lawyer for a reasonable time during administration.” Attorney wishes to transfer 100 percent of the stock in the professional corporation to the revocable living trust. Attorney and Spouse would name a North Dakota licensed attorney as the Successor Trustee for the revocable living trust. The trust would specifically provide that Successor Trustee assumes the position upon the death of Attorney, and Successor Trustee is solely authorized to deal with the stock in the professional corporation. The above scenario does not meet such exception. Attorney and Spouse are the original co-trustees. As such, Spouse, as a nonlawyer, owns an interest in the stock of the professional corporation, even if such ownership is in Spouse’s capacity as trustee. Spouse is not a fiduciary representative of Attorney’s estate, nor is Spouse’s ownership as trustee limited to a reasonable period of time during administration of Attorney’s estate. DISCUSSION The structure of the relationship between Attorney, Spouse, and the revocable living trust presents problems that Rule 5.4(d) (l) sought to avoid. Specifically, Attorney and Spouse are “settlers” of the revocable living trust. See N.D.C.C. § 59-09-03(19). While the revocable living trust remains revocable, “the duties of the trustee are owed exclusively” to the settlers. N.D.C.C. § 59-14-03. Attorney and Spouse must therefore administer the trnst for the benefit of both Attorney and Spouse, which provides potential for Spouse, a nonlawyer, to direct or regulate the lawyer’s professional judgment in rendering legal services to another. OPINION APPLICABLE NORTH DAKOTA RULES OF PROFESSIONAL CONDUCT Rule 5.4 -Professional Independence of Lawyer Rule 5.4(d)(l ), N.D.R.Prof.C., provides in whole: A lawyer shall not practice with or in the form of a professional corporation or association authorized to practice law for a profit, if: A nonlawyer 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. Comment 2 to Rule 5.4 indicates: “This Rule also expresses traditional limitations on permitting a third party to direct or regulate the lawyer’s professional judgment in rendering legal services to another. See also Rule l.8(f ).” Under the above scenario, the co-trustees of the revocable living trust become the legal 32 THE GAVEL Furthermore, even if Attorney is the sole original trustee of the revocable living trust, followed by the appointment of Successor Trustee upon the death of Attorney, the arrangement would still likely violate N.D.R.Prof.C. 5.4(d)(l ). While the trustees would all be lawyers under this alternative, if the beneficiaries of the trust are nonlawyers, then nonlawyers would still own an interest in the professional corporation in violation of the rule. 1 Under N.D.C.C. § 59-09-03(