A recent ruling by the Pennsylvania Superior Court clarifies the boundaries of the fiduciary exception to attorney-client privilege in trust and estate cases. The court decided that a trustee can protect certain communications with their lawyer from disclosure to a beneficiary, specifically those related to a lawsuit the trustee filed against that beneficiary.
The case involved Gerald L. Hempt, the trustee of the Max C. Hempt Trust and co-administrator of the Estate of Jean D. Hempt. The other party in the case, Max J. Hempt (the “Objector”), is the grandson of Max and grandnephew of Jean, and a beneficiary of both the Trust and the Estate.
The central issue was whether the trustee had to disclose communications with his attorneys to the Objector. These communications concerned a civil action (the “Civil Action”) the trustee initiated against the Objector. The Civil Action sought to recover money the Objector allegedly owed the Trust. The Objector, in turn, requested an accounting of the Trust and Estate and filed objections to both accounts. As part of this process, the Objector sought access to communications between the trustee and his lawyers. The trustee argued that these communications were protected by attorney-client privilege and the work product doctrine and should not be disclosed.
The Superior Court reviewed the legal principles at play. It recognized that attorney-client privilege is a fundamental right, meant to encourage open communication between a lawyer and their client. Similarly, the work product doctrine protects an attorney’s mental impressions and work from being used against their client.
However, neither of these protections is absolute. Pennsylvania law recognizes a “fiduciary exception” to these privileges. This exception means that communications between a trustee and their attorney are not privileged as to the beneficiaries of the trust. The rationale behind this is that a trustee has a duty to keep beneficiaries informed about the trust’s administration.
The court cited previous cases, including *In re: Trust Established Under Agreement of Sarah Mellon Scaife*, which established that the fiduciary exception is consistent with Pennsylvania law. In *Scaife*, the court determined that a trustee must disclose documents related to trust management, including opinions of counsel used to guide the trustee, but may withhold communications related to the trustee’s personal protection in the course of litigation.
In the current case, the Superior Court acknowledged the general rule established in *Scaife*. However, it found that the specific circumstances of this case warranted a modification of that rule. The court drew a distinction between communications related to general trust administration and those related to the Civil Action, which was a lawsuit brought by the trustee against the Objector.
The Superior Court held that the trustee did not have to disclose communications with his lawyers related to the Civil Action. The court reasoned that these communications concerned an adversarial relationship between the trustee and the Objector, and that the Objector had no good-faith basis for seeking these communications. The court noted that the trustee was required to act in the best interest of all beneficiaries and that the other beneficiaries would be harmed if the Objector gained an unfair advantage in the Civil Action by learning the privileged information. The court stated that the fiduciary exception should not apply to communications about the Civil Action, just as it doesn’t apply to communications related to the defense of a challenge to the trustee’s management.
The court affirmed the lower court’s order in part and reversed it in part. The court affirmed the order to the extent that it directed the trustee to disclose all documents relating to the administration of the Trust, including opinions of counsel procured by the Trustee for guidance in the administration of the Trust, and excluding only opinions of counsel obtained for the personal protection of the Trustee in the course or anticipation of litigation. However, the court reversed the order to the extent that it required the Trustee to produce the Trustee’s communications with counsel, and counsel’s work product, related to the Civil Action. On remand, the Trustee may withhold that information, along with materials pertaining to his personal protection, subject to the duty to detail the documents or portions thereof withheld in a privilege log as specified in the order.
This decision clarifies that while beneficiaries generally have access to communications between a trustee and their attorney, this access is not unlimited. When a trustee is engaged in a lawsuit against a beneficiary, communications related to that specific lawsuit can be protected by attorney-client privilege. This decision strikes a balance between the need for transparency in trust administration and the need to protect the attorney-client relationship.