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TAX ETHICS: Failure to Account for an Estate Asset or Improperly Depriving a Beneficiary of a Rightful Interest

Paul C. Heintz, Esq. on 5/10/2010

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Obermayer Rebmann Maxwell & Hippel LLP

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What is an attorney to do if the executor he or she represents fails to account for an estate asset or improperly deprives a beneficiary of his or her rightful interest in the estate?

Regardless of the stage of the estate administration, the attorney has the right, and a right that most attor­neys would feel obligated to exercise, to warn the executor-client that the attorney may notify the beneficiary, the court and District Attorney if the executor fails to account for an estate asset or intends to improperly deprive a beneficiary of his or her rightful interest in the estate.

The Rules of Professional Conduct, specifically Rule 1.6, makes that possibility clear. Rule 1.6(c) permits the attorney to reveal the in­formation when necessary to prevent a client from committing a criminal act and when necessary to rectify the consequences of a criminal or fraudu­lent act in the commission of which the attorney’s services had been or are being used.

In fact, the attorney may have a legal obligation to notify the beneficiaries, and even others. The Montgomery County Orphans’ Court has held that, although the attorney’s client is solely the executor, and not the beneficiaries, the attorney, as counsel to a fiduciary, has derivative duties to the beneficiaries in such situations. See Pew Trust, 16 Fiduc. Rep. 2d 73 (Montg. 1995).

If the estate administration is advanced, Rule 3.3 (b), which obligates attorneys to be candid to tribunals, could also apply. Rule 3.3 provides, inter alia, that an attorney for a client who “intends to engage, is engaging or has engaged in criminal or fraudulent conduct related to the proceedings shall take reasonable remedial measures, including, if nec­essary, disclosures to the tribunal.” Accordingly, the attorney may have an obligation to notify the Register of Wills or Orphans’ Court. For instance, if an inventory or Status Report had been filed with the Register of Wills, the attorney has an obligation to see to it that corrected documents are submit­ted. Also, if an executor’s account has been filed with the Orphans’ Court, the attorney has an obligation to have a revised, amended or supplemental ex­ecutor’s account filed with the Court. The definition of tribunals, as used in the Rules of Professional Conduct, has been interpreted to include both the Register of Wills and Orphans’ Court.

Fortunately, an executor will usually take corrective action once the attorney has alerted him or her to the attorney’s obligations if the executor fails to do so.

For more information about the attorney’s obligations in these situations, and for support for the suggested action, see Opinion 2009-21, issued by the Pennsylvania Bar Association’s Legal Ethics
and Pro­fessional Responsibility Committee, and
Opinion 2008-9, issued by the Philadelphia Bar Association’s Professional Guidance Committee.

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