The fiduciary exception to the attorney-client privilege: A recent development

Charles E. Rounds, Jr. - Suffolk University Law School
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In a suit by the beneficiary against the trustee, is the trustee entitled to assert the attorney-client privilege against the beneficiary, or is there a fiduciary exception to the attorney-client privilege? As to communications with trust counsel uttered after the onset of hostilities, the trustee may effectively assert the privilege. As to communications uttered before the onset of hostilities, he may well not be able to. In June of 2014 the Court of Appeals of Arizona drew a line between legal advice which the trustee seeks in his fiduciary capacity and legal advice which he seeks in his individual or corporate capacity. See In re The Kipnis Section 3.4 Trust, 2014 WL 2515207 (Ariz.App. Div. 1). The former is discoverable by the beneficiary under the fiduciary exception to the attorney-client privilege. The latter is not. Thus, advice on “matters of trust administration” is discoverable by the beneficiary while legal advice sought by the trustee “for purposes of …[ the trustee’s]… self-protection” is not. How helpful this distinction will prove to be in practice remains to be seen. One South Carolina court in denying a trustee the right to assert the attorney-client privilege against his beneficiary found persuasive the fact that counsel fees had been paid from the trust estate. Floyd v. Floyd, 615 S.E.2d 465, 482 (2005). The Restatement (Third) of Trusts, on the other hand, downplays the significance of “who pays,” as did the Arizona court. See Restatement (Third) of Trusts §82 cmt. f. (Reporter’s Notes). The Arizona court reaffirmed the general principle that all beneficiaries, not just certain beneficiaries such a qualified beneficiaries as defined in the Uniform Trust Code, are entitled to information “that is reasonably necessary to the prevention or redress of a breach of trust or otherwise to the enforcement of the beneficia[ries]' rights under the trust.” Also, “the attorney-client privilege does not permit a trustee to withhold ‘material facts’ from a beneficiary simply because the trustee communicated those facts to an attorney.” The fiduciary exception to the attorney-client privilege is covered generally in §8.8 of Loring and Rounds: A Trustee’s Handbook [pages 1015-1017 of the 2014 Edition].

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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