ETHICS IN PROBATE PRACTICE By Anne Debelius LoPiano, Esq. GETTING PAID -- EXECUTIVE SUMMARY Q. When Can You Take Your Fee? From What Funds? What Approval Do You Need? and What Trouble Will You Be In If You Don't Follow the Rules? Answer: This subject is controlled by three (3) statutes, Maryland Rule of Civil Procedure 6-416, plus case law. In a nutshell, You can be paid from probate estate funds only: WHEN: A. After approval of the court, upon verified petition, for services reasonably required, that benefit the estate, and after proper notice to all interested persons and creditors with open claims, in a reasonable amount, even if it does exceed the statutory maximum for the personal representative commission; or B. After filing written consent of all interested persons and creditors with open claims, up to, and no more than, the statutory maximum for personal representative (PR) commissions, assuming no PR commission will be paid; FROM WHAT FUNDS: o Never from probate estate funds without one of the above procedures A or B; o Make sure your retainer agreement with the PR specifies that the PR may never pay you, in the first instance, nor reimburse herself after paying you, from probate funds unless A. or B. above has happened. WHAT CAN HAPPEN IF YOU FORGET/FAIL TO DO A. OR B. ABOVE? You can lose your license to practice law and be required to pay back all you were paid. A. 1. Can you accept payment of your fees from your client's (the PR's) NON-Probate Funds? Answer: Probably, but perhaps at some personal risk. Here's why. a. There is no statute or opinion in Maryland that specifically either permits or prohibits attorneys to be paid from anyone's non-probate assets for legal work done to assist a personal representative in his/her administration of the probate estate (with or without written consent of interested parties). Many attorneys reasonably just assume that this is so because the right to enter into contracts is lawful unless made unlawful by statute or case law. b. There is an apparently controlling 1971 Maryland Court of Appeals case on which many attorneys rely, which states: "The laborer is worthy of his hire. By this opinion we are not to be understood as in any way setting the total compensation to which the attorney may be entitled. He should be compensated by Goeller [the personal representative or PR] individually for the many duties of the executor which he has performed on Goeller's behalf. That is a matter between him and the executor. It is not a part of this proceeding." Riddleberger v. Goeller, 263 Md. 44, 58 (1971). c. Though never cited again in Maryland for this proposition, neither Riddleberger, nor this aspect of its holding, has been overturned either explicitly or implicitly, or even discusses in a Maryland appellate opinion (that this writer can find) and this writer sees no possibility, consistent with common sense and basic constitutional rights, that it ever will be. It is true that the Riddleberger decision was based on facts that existed before E&T ?7-602 was enacted in 1969, which now instructs that attorney fees and PR commissions should be considered in the aggregate as to reasonableness. That change in the law however, is a mere red herring, and does not alter the part of the holding of the Riddleberger decision that asserts the right of a PR to hire a lawyer (laborer) from his own non-probate funds. d. In 2005, the Maryland Attorney general last addressed the issue of the payment of attorney fees from probate funds in 90 OAG 145 (2005). In this comprehensive 8 page opinion which clarified when, how, and under what circumstances, attorney fees may be paid from probate funds, the opinion never mentioned payment of attorney fees from non-probate personal funds. e. In fact, the Court of Appeals had opportunity to address this question again in 2002, on appeal from the Court of Special Appeals, and it did not do so, when it affirmed a holding concerning the impropriety of paying attorney fees from probate estate funds (far above the statutory maximum PR commission) without prior court approval, in Beyer v. Morgan State Un. 139 Md. App. 609 (2001); aff'd 369 Md. 335 (2002). f. Even the distinguished Allan J. Gibber, MICPEL 2008, (see Gibber On Estate Administration, page 7-16 to 7-17, at section 7.20)widely recognized as "the bible" on Maryland Estate Administration, acknowledges that the language from the Riddleberger case (see page 2 above herein) is the support for his assertion, at page 7-16, that: "It should be noted that the decisions have unanimous proclaimed that any limitation which they may be placing on attorney's fees are limitations on the amount chargeable to the estate. " [and not to the personal representative] f. However, some attorneys still do worry about accepting any fees (from probate or no-probate funds) without prior court approval in light of Attorney Grievance Commission v. Owrutsky, 322 Md. 334, 587 A.2d 511 (1991)--which, being issued pre-1997 (and therefore pre- E&T ?7-604 , instructs that there always must be a court order for attorney fees, not being convinced that the Riddleberger decision case really can mean what it says, or, not being convinced that "the laborer is worthy of his hire" is more than dicta. Matters are not helped by the fact that, as of this writing, Frederick R. Franke, Jr., a renowned sage and well respected professor of Maryland estate and trusts law, posts on his web site the assertions that: "Several Maryland cases make clear that the Orphans' Court must approve counsel fees whether for administration or litigation services" and "The Court is sending a clear signal: a personal representative must get all fees approved by the Orphans' Court regardless of the nature of the work involved before paying counsel fees (unless, presumably, the fees are by consent under ?7-604)." In fairness to Professor Franke , the web page where these assertions are posted does not discuss whether attorney fee payment may be had from non-probate sources; rather it focuses on the limits of when it is appropriate to use probate funds for this purpose. BOTTOM LINE: Thus it seems fair to say there exists for some practitioners a level of controversy over the propriety of accepting legal fees, even from a personal representative's personal, non-probate funds, for work done to administer the probate estate, without a court order. B. MAXIMUM PR COMMISION AS MEASURE OF ALLOWABLE ATTORNEY FEE Estates & Trusts Article ? 7-601. Compensation of personal representative and special administrator " (a) Right to compensation. -- A personal representative or special administrator is entitled to reasonable compensation for services. If a will provides a stated compensation for the personal representative, additional compensation shall be allowed if the provision is insufficient in the judgment of the court. The personal representative or special administrator may renounce at any time all or a part of the right to compensation. "(b) Computation of compensation. -- Unless the will provides a larger measure of compensation, upon petition filed in reasonable detail by the personal representative or special administrator the court may allow the commissions it considers appropriate. The commissions may not exceed those computed in accordance with the table in this subsection. If the property subject to The commission may administration is: not exceed: Not over $ 20,000.......................................................... 9% Over $ 20,000........................................ $ 1,800 plus 3.6% of the excess over $ 20,000 "(c) Appeal. -- Within 30 days a personal representative, special administrator, or unsuccessful exceptant may appeal the allowance to the circuit court, which shall determine the adequacy of the commissions and increase, but not in excess of the above schedule, or decrease them. "(d) Commission on sale of real property. -- If the personal representative retains the services of a licensed real estate broker to aid in the sale of real property, the commissions paid to the real estate broker are an expense of administration and may not be deducted from the commissions allowed by the court to the personal representative in accordance with subsection (a) of this section." "HISTORY: An. Code 1957, art. 93, ? 7-601; 1974, ch. 11, ? 2; ch. 579; 1975, ch. 428; 1978, ch. 247; 1989, ch. 656, ? 2; 1991, ch. 216. The following selected case summaries are quoted verbatim from the LexisNexis 2008 publication of the Maryland Estates and Trusts Article, annotation to ? 7-601(with emphasis supplied) . "TRAVEL EXPENSES INCURRED IN COURSE OF ORDINARY BUSINESS OF ADMINISTERING ESTATE should not be allowed as costs of administration in addition to the personal representative's commissions. 59 Op. Att'y Gen. 613 (1974). ***** ???? "RESPONSIBILITY OF FIDUCIARIES, ATTORNEYS IN PARTICULAR. --Fiduciaries in general, and attorneys in particular, must remember that the entrustment to them of the money and property of others involves a responsibility of the highest order; therefore, they must carefully administer and account for those funds and appropriating any part of those funds to their own use and benefit without clear authority to do so cannot be tolerated. Att'y Griev. Comm'n v. Owrutsky, 322 Md. 334, 587 A.2d 511 (1991)." "APPROVAL UNDER THIS SECTION OR ? 7-602 REQUIRED. --An attorney has no right to estate funds, either as a commission or as an attorney's fee, unless and until an approval pursuant to this section or ? 7-602 of this article. Att'y Griev. Comm'n v. Owrutsky, 322 Md. 334, 587 A.2d 511 (1991)." [NOTE: This Owrutsky case and many similar decisions pre-date the enactment in 1997 of E&T ?604, authorizing limited attorney fees to be paid form probate funds with written consents.]