Under old English trust law, courts gave trust beneficiaries access to otherwise privileged communications between the trust fiduciary and its lawyer advising him or her on trust administration matters. The main case bringing this doctrine to America articulated what seems like a strange concept that “thus the beneficiaries were the ‘real clients'” of the trustee’s lawyer. Gomez v. Biomet 3i, LLC, Civ. A. No. 21-945 Section “H” (2), 2022 U.S. Dist. LEXIS 78796, at *7-8 (E.D. La. May 2, 2022) (citing Riggs National Bank v. Zimmer, 355 A.2d 709 (Del. Ch. 1976)).
This strangely named “fiduciary exception” (which isn’t an “exception” to anything) itself has several “exceptions.” As a Pennsylvania state court recently explained, trustees may withhold from trust beneficiaries their communications with and opinions received from “counsel retained for the trustees’ personal protection in the course, or in anticipation, of litigation.” In re Trust of Scaife, No. 722 WDA 2021, 2022 Pa. Super. LEXIS 227, at *38 (Pa. Super. Ct. May 23, 2022). In other words, a trustee seeking legal advice in defending herself from a beneficiary’s claim understandably may withhold those communications from the beneficiary. Most courts call this “exception” to the “fiduciary exception” the “liability exception.”
These somewhat counter-intuitive concepts and weird terms can apply far beyond traditional trust scenarios. For instance, the “fiduciary exception” and its “exceptions” apply to ERISA plan administrators who have fiduciary duties to the beneficiaries. ERISA plan administrators can rely on the “liability exception” as well as what is called the “settlor exception” – which allows them to withhold from beneficiaries communications about their non-fiduciary actions such as establishing or terminating an ERISA plan.