Opinion 1202

Question: When a lawyer holds funds or property in a fiduciary capacity as a trustee, guardian or executor, must those funds be held in a trust account regulated by the requirements of RPC 1.14, and must such property be maintained in conformance with that rule?
Answer: If a lawyer holds funds or property in a fiduciary capacity those funds should not be deposited into a trust account as required by RPC 1.14. The funds or property should be maintained by the standards of a prudent fiduciary under Washington Law.
Discussion: Lawyers are often called upon to represent clients and others in a fiduciary capacity rather than as a legal representative, serving as guardian, trustee or executor. In these situations, lawyers are required to manage funds or other assets of the ward, trust or estate. The question arises as to whether such accounts or assets are "funds of a client paid to a lawyer" which must be held in a trust account pursuant to RPC 1.14 or "securities and properties of a client" to be held in compliance with that rule.
The key to the inquiry is the determination of whether funds and property in the possession of a lawyer are in fact client funds and property. The Rules of Professional Conduct are mandatory, and therefore if the funds and property are client funds and property, the lawyer would have no discretion but to maintain them as required by RPC 1.14.
If, however, they are not client funds or property, then the lawyer as fiduciary is under a duty to beneficiaries to "exercise the judgment and care under the circumstances then prevailing, which persons of prudence, discretion and intelligence exercise in the management of their own affairs" (RCW 11.100.020).
The fundamental characteristic of a trust is that legal and equitable ownership of trust property are divided between two parties. The trustee has bare legal title and the beneficiaries have equitable title. Osteen v. Estate of Weinberg, 30 Wn. App. 923, 932, 640 P.2d 28 (1982). If a lawyer is designated as a trustee under terms of a testamentary or other trust document, appointed as guardian by a court, or named as personal representative of a will, then the lawyer would hold legal title to the assets of the trust or estate. The beneficiaries or ward would not be clients and only hold an equitable ownership in the property. Therefore, a lawyer would not be required to deposit such funds into a trust account maintained pursuant to RPC 1.14.
In the situation where a lawyer acts in the dual capacity as lawyer and fiduciary, e.g., acts as personal representative and lawyer for an estate, the same reasoning would apply. The lawyer might, however, pay funds from the estate into the lawyer's trust account for the purpose of paying obligations of the estate in furtherance of the lawyer's obligation to complete the estate proceedings.
The responsibilities and powers of fiduciaries have been extensively codified by the legislature under RCW Title 11 and are subject to supervision by the Superior Court. Those include explicit standards regarding the investment and management of funds and properties entrusted to fiduciaries, and require inventories and periodic accountings. The powers granted to and duties imposed on fiduciaries make it clear that a fiduciary is empowered and, depending upon circumstances, may be required to invest and manage trust assets in a manner that would not be possible within an interest-bearing lawyer's trust account. The statute expressly applies to "fiduciaries acting under wills, agreements, court orders and other instruments." RCW 11.100.050.
Therefore, the Committee is of the opinion that RPC 1.14 requires that all client funds and property must be maintained in conformance with that rule, but that funds and property held outside of a lawyer/client relationship as a fiduciary need not be held in compliance with RPC 1.14.