New Zealand Law Society - Conflict of duties when acting for family trust and estate 

Conflict of duties when acting for family trust and estate 

A Standards Committee found that a practitioner had conflicting duties when “effectively wearing four hats” relating to a family trust and a related estate. The Committee made several adverse findings, concluding the conduct was unsatisfactory and fining the practitioner $10,000. 

The practitioner acted both as a trustee (as a director of his firm’s trustee company) and the solicitor of the family trust as well as trustee, executor and solicitor for the deceased grantor’s estate. The beneficiaries of the trust were the grantor’s children whereas the major beneficiary of the estate was their stepmother. The complaint was made by one of the beneficiaries of the family trust. 

The Committee noted that it is not uncommon for a solicitor to have a series of roles as trustee and executor for related parties and that it is a question of whether there are any competing obligations that might lead to a conflict.  In this case the potential for conflict between the duties owed to the trust and the estate, where they had different beneficiaries, meant that there was a “very real risk” of such a conflict. The conflict was realised when a payment of more than $100,000 was made, apparently improperly, from the trust to the estate.  The beneficiaries of the trust brought High Court proceedings for recovery of the payment; the matter was settled out of court. 

The Committee concluded that the practitioner had acted for more than one client in circumstances where there was more than a negligible risk that he would be unable to discharge his obligations to all parties, in breach of Rule 6.1 of the Conduct and Client Care Rules. Related to this, the Committee concluded that the practitioner had acted in the interests of the beneficiaries of the estate at the expense of his duties to the family trust, in breach of Rule 6. 

The practitioner sought from the beneficiaries of the family trust a full indemnity as a condition of resigning as trustees and distributing the trust fund. This would have indemnified not only the trustees (including the practitioner’s firm’s trustee company) but also the practitioner’s firm and the practitioner “from any claims, demands, proceedings or actions relating in any way to the trust or its administration...”  The Committee found that it was inappropriate for the practitioner to seek such indemnity. The Committee said, “It would appear that that indemnity was sought due to concern that there were issued with how this matter was handled and, in an attempt to avoid liability for those issues”. 

The Committee also found that the practitioner had failed to keep the beneficiaries of the trust informed and to adequately communicate with them. 

The Committee also considered issues relating to competence and costs.  The Committee took no further action on those issues. The costs complaint had been withdrawn after the parties settled the issue between themselves. 

Because of its adverse findings, the Committee determined that the practitioner’s conduct had been unsatisfactory. In considering penalty, the Committee characterised the breaches of Rules 6 and 6.1 as “serious” and “even more so” given the very broad indemnity that had been sought. The Committee fined the practitioner a total of $10,000 with costs of $1,500. The Committee noted that the fine would have been higher but for the fact that several issues had been resolved or settled.