A Rhode Island attorney is seeking guidance on whether it is permissible to transfer his or her law firm equity interest into a revocable trust as part of a business succession plan. The attorney currently practices law through a limited liability entity in which he or she owns an equity stake, and wishes to continue owning the interest during the remainder of his or her life. However, the attorney is uncertain whether the Rules of Professional Conduct allow such a plan.
The attorney’s inquiry raises an important question about the ownership structure of trusts that hold law firm equity interests. While some states allow non-lawyers to have ownership interests in trusts that hold law firm equity, Rhode Island’s Rules of Professional Conduct prohibit such arrangements. As such, any ownership interests at all levels of the trust must be held by licensed Rhode Island attorneys in good standing.
The Panel has reviewed other state opinions on this issue and has found that only licensed attorneys may hold ownership interests in trusts that hold law firm equity interests. Therefore, if an attorney wants to transfer his or her law firm equity interest into a revocable trust as part of a business succession plan, all trustees, successor trustees, if any, and beneficiaries must be licensed Rhode Island lawyers in good standing.
In summary, while it may be possible for an attorney to transfer his or her law firm equity interest into a revocable trust as part of a business succession plan, all ownership interests at all levels of the trust must be held by licensed Rhode Island attorneys in good standing. This is necessary to comply with Rule 5.4(d)(1), which prohibits non-lawyers from having any kind of ownership interest in a law firm via a revocable trust.
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