Assume lawyer (agent) drafts for client (principal) a revocable trust declaration that designates lawyer as successor trustee and confirms trustee’s entitlement to compensation. As lawyer seeks to exploit for his own benefit a collateral employment opportunity the lawyer would not have had but for the representation, the lawyer’s agency-based fiduciary duty of undivided loyalty is implicated no matter how innocent his intentions. By innocent I mean that fraud, duress, or undue influence is not an issue. In some jurisdictions such a designation, however, would create a presumption of undue influence. What applies to designating the lawyer as successor trustee also would apply to designating as successor trustee a third party with whom the lawyer has some economic affiliation. The duty of loyalty also would be implicated if, following death of our settlor, successor trustee were to direct legitimate trust business to enterprises in which the trustee personally had an economic interest. Such transactions are generally voidable by the beneficiaries. Fiduciaries are always free to obtain the informed consent of those to whom fiduciary duties are owed when questionable actions are contemplated. But what exactly is informed consent when caveat emptor is not the rule, such as in the agency and trust contexts? There are two species of informed consent: objective informed consent and subjective informed consent.

Relevant to our fact pattern, objective informed consent is when the competent principal or trust beneficiary, as the case may be, formally records acquiescence to what would otherwise be a breach of the duty of undivided loyalty after having been communicated the relevant facts and the applicable law, even when the consenter lacks a subjective knowledge/understanding/appreciation/awareness of the practical pros and cons of a partial waving of equity’s protections from divided loyalties. Subjective informed consent is when the consenter knows/understands/appreciates/is aware of the pros and cons.

In the context of the attorney-client agency relationship, a partial waiver of equity’s divided-loyalty proscriptions requires subjective informed consent. See Rest. of Restitution §191, cmt. c. Cf., Lawyer’s Model Rules of Professional Conduct (MRPC) Rule 1.7 [18], [22]. So too when it comes to the trustee-beneficiary relationship. See Rest. (Third) of Trusts §97, cmt. e. Having the client or beneficiary merely sign on the fly some consumer-protection disclosure form may be sufficient at law without more, but not in equity. It is inconvenient for the fiduciary to have to ascertain actual state of mind; it is the price, however, of operating in equity’s bailiwick, where intent/substance trumps form.

The MRPC regulates the lawyer’s relationship with the state, not with the one to whom fiduciary duties are owed: “Violation of a Rule should not give rise to a cause of action nor should it create any presumption that a legal duty has been breached. The Rules are designed to provide guidance to lawyers and to provide structure for regulating conduct through disciplinary agencies. They are not designed to be a basis for civil liability.” See MRPC (Scope). In the fiduciary space, the basis for civil liability is general principles of equity.

As to our lawyer who has finagled a conditional successor trusteeship, as a practical matter his real-world exposure is probably close to nil. The client is always free to terminate the representation, as well as revoke the trust. Upon the client’s death, the lawyer could well be in the clear, having owed no fiduciary duties other than to the decedent while decedent was alive. It is not as if the lawyer, say, had been selling confidential information regarding the client’s company to its competitor, information gleaned while preparing the trust. In §7.2.8 of Loring and Rounds: A Trustee’s Handbook (2023) we consider in the trust context equitable remedies for a breach of a fiduciary duty that may be available in absence of economic injury. Section is reproduced in appendix below. Handbook is available for purchase at: https://law-store.wolterskluwer.com/s/product/loring-rounds-trustees-hanbook-2023e/01t4R00000Ojr97QAB.