Business Succession Planning for Lawyers in Rhode Island: Understanding Rule 5.4(d)(1)

A Rhode Island attorney has expressed interest in creating a business succession plan that would involve transferring his or her law firm equity stake into a revocable trust. The attorney currently practices law through a limited liability entity and owns an equity stake in the firm. However, he or she is uncertain whether the Rules of Professional Conduct would allow such a plan to be implemented.

The attorney seeks clarification on whether it is permissible for an attorney who practices law through a limited liability entity and owns an equity stake in the firm to hold said interest via a revocable trust. The Panel’s opinion is that it is possible for an attorney to own his or her law firm equity interest via a revocable trust, as long as he or she serves as the sole trustee, and the successor trustee and beneficiary are also licensed Rhode Island attorneys in good standing.

To ensure compliance 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, all ownership interests at all levels of the trust must be held by licensed Rhode Island attorneys in good standing. As such, the attorney may transfer his or her equity stake in his or her law firm into a revocable trust, provided that all parties involved are licensed Rhode Island lawyers in good standing.

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