Rhode Island Lawyers Weekly: Understanding Business Succession Planning with Rule 5.4(d)(1) for Attorneys

A Rhode Island attorney has expressed interest in implementing a business succession plan by transferring his or her law firm equity interest into a revocable trust. The attorney, who practices through a limited liability entity and owns an equity stake, wishes to maintain ownership of the interest during his or her lifetime but is uncertain about whether the Rules of Professional Conduct allow such a plan.

To clarify this issue, the attorney has sought guidance from the Panel on Professional Responsibility. According to the Panel’s opinion, an attorney may own his or her law firm equity interest via a revocable trust, provided that he or she is the sole trustee and that the successor trustee and beneficiary are also licensed Rhode Island attorneys in good standing.

The Panel looked to guidance from other states for support, finding that non-lawyers are not permitted to hold any kind of ownership interest in a law firm via a revocable trust in order to comply with Rule 5.4(d)(1). Therefore, all ownership interests at all levels of the trust must be held by licensed Rhode Island attorneys in good standing for compliance with this rule.

Thus, the inquiring attorney may transfer his or her equity interest in his or her law firm into a revocable trust as part of a business succession plan, as long as all parties involved meet these requirements.