NYSBA Ethics Opinion 1288: A Trust Cannot Hold Ownership of a Law Firm

Succession and estate planning for lawyers presents unique ethical challenges that do not arise in other professions. New York State Bar Association Committee on Professional Ethics Opinion 1288 (December 19, 2025) offers a timely reminder that even carefully structured estate plans must comply with the Rules of Professional Conduct—particularly those governing nonlawyer ownership and fee sharing.

The opinion addresses whether an irrevocable testamentary trust may hold a deceased lawyer’s ownership interest in a professional corporation for the benefit of another lawyer. Despite thoughtful safeguards built into the proposed trust, the Committee concluded that the arrangement violates Rule 5.4 and is therefore impermissible.

The Estate Planning Scenario at Issue

The inquiry arose from an attorney who was a minority equity shareholder in a New York law firm organized as a professional corporation. As part of his estate plan, the attorney wished to create an irrevocable testamentary trust that would hold his ownership interest in the firm upon his death.

The trust was carefully designed:

• The trustee would be a New York–licensed attorney in good standing, unaffiliated with the firm.

• The sole beneficiary would be a lawyer employed by the firm.

• The trustee would have no day-to-day management authority, no officer or director role, and only limited voting rights.

• The trust instrument would categorically prohibit any benefit to nonlawyers.

• Any conflict would require the trustee’s resignation and replacement with another qualified New York lawyer.

Despite these protections, the Committee concluded the arrangement was not permissible.

Why the Trust Structure Failed Under Rule 5.4

The Committee’s analysis centered on Rule 5.4, which is designed to protect a lawyer’s professional independence and prevent nonlawyer influence over the practice of law.

Although both the trustee and beneficiary were lawyers, the trust itself is not a lawyer and is not an entity authorized to practice law. As a result, allowing the trust to hold shares in the professional corporation would make a nonlawyer owner of the firm.

The Committee identified multiple violations:

• Rule 5.4(a) prohibits sharing legal fees with a nonlawyer. As an owner, the trust would receive a portion of the firm’s legal fees for the beneficiary’s benefit.

• Rule 5.4(b) prohibits forming a partnership with a nonlawyer when the business consists of the practice of law.

• Rule 5.4(d) prohibits practicing law through an entity in which a nonlawyer owns an interest, subject to a narrow exception allowing a fiduciary to hold an ownership interest temporarily during estate administration.

That final exception proved critical. While New York permits a fiduciary to hold a deceased lawyer’s interest for a reasonable time during estate administration, the proposed trust would hold the interest on a permanent, ongoing basis, placing it squarely outside the exception.

Professional Independence and Liability Concerns

Commentary to Rule 5.4 emphasizes that ownership restrictions exist to preserve lawyers’ independent professional judgment and to protect clients. The Committee also noted that allowing a trust to own a law firm interest could improperly limit liability for professional misconduct—contrary to public policy and other ethical rules, including Rule 1.8(h).

New York’s statutory framework reinforces this conclusion. Both the Business Corporation Law and the Limited Liability Company Law restrict ownership of law firms to individuals or entities authorized to practice law. A trust does not meet that definition.

The Committee also analogized to prior ethics guidance rejecting similar attempts to route law firm compensation through entities not authorized to practice law, even where the ultimate recipients were lawyers.

Practical Takeaways for Law Firm Succession and Estate Planning

Opinion 1288 highlights a recurring issue in law firm succession planning: good intentions and careful drafting cannot override the ownership restrictions imposed by Rule 5.4.

For lawyers planning their estates or succession strategies, the opinion reinforces several key principles:

• Ownership interests in law firms generally must pass directly to lawyers, not to trusts or other intermediary entities.

• Estate planning tools commonly used in other contexts may be unavailable or severely limited for law firm interests.

• Temporary fiduciary ownership may be permissible, but only for a reasonable period during administration, not as a long-term solution.

• Succession planning for lawyers must be approached with both estate planning and legal ethics considerations fully integrated.

Conclusion

New York State Bar Association Ethics Opinion 1288 serves as an important reminder that law firm ownership is governed by a unique ethical framework. Even when all human actors involved are lawyers, the use of a trust to hold an ownership interest in a law firm is impermissible under Rule 5.4.

For law firm owners, the opinion underscores the importance of early, ethics-informed succession planning. Waiting until estate planning documents are finalized may be too late to design a compliant transition strategy.