11.16 Borrowing and Lending
The commentary to Rule 3.4-13 in the Code of Conduct outlines specific types of transactions covered by the Rule.
Borrowing from Clients:
Lawyers are not to borrow money from clients unless the client is a lending institution which lends money to the public (e.g. a bank, credit union or treasury branch), or the client is a related person who received independent legal advice.
Lending to Clients:
Lawyers who make loans to clients must fully explain the conflict of interest to the client and recommend that the client obtain independent legal representation. The lawyer must obtain the client’s consent after these two requirements have been satisfied.
If a lawyer wants to make a loan to a client who is in dire financial circumstances, the lawyer can only make the loan on a no-interest, no charge, basis due to the inherent inequality of bargaining positions. It is permissible for the lawyer to be repaid from settlement or transaction proceeds. However, such loans are prohibited if the lawyer’s financial stake in the outcome is such that the lawyer could lose objectivity.
A lawyer must not personally guarantee, or otherwise provide security for, any debt of a client unless:
- The lender is providing funds solely for the lawyer or a related person.
- The transaction is for the benefit of a non-profit or charitable organization and the lawyer is a member or supporter of the organization.
- The lawyer has entered into a business venture with a client and the lender requires personal guarantees from all participants in the venture as a matter of course and the lawyer has otherwise complied with the Code.
Gifts and Bequests:
Lawyers who are preparing wills must not accept any gift or bequest that is more than nominal. This includes gifts and bequests to family members and other firm members. A client who wants to make a gift or bequest to a lawyer should have an independent lawyer prepare the will.
You may draft a document making a gift or bequest to yourself or another firm member where the client is a family member of yourself or another firm member.
A lawyer may draft a client’s will to include a clause directing that the executor retain the lawyer’s services in the administration of the client’s estate, but only if the client expressly instructs the lawyer to do so. Express instructions from the client are also required if the will contains a clause dealing with the lawyer’s fees, whether the lawyer is acting as executor, the estate’s lawyer, or both.