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
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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(