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Avoiding Disputes - Proper Withdrawal/Disengagement

Proper Withdrawal/Disengagement (sample letter provided)

Written confirmation of the termination of the Fiduciary relationship with a client once the services in connection with the particular matter are complete is not only good for the client relationship, it is an essential risk management tool.

Before you disengage, however, please seek advice – preferably from your lawyer and/or a risk management professional, including via the Lloyd’s of London Fiduciary Risk Management Hotline: (212) 376-8599. We have seen many instances of Fiduciaries “rushing to be disengaged.” At the first sign of trouble, some fiduciaries have an instinct (perhaps natural) to simply want to “get out of there”. It is not always the best strategic move, however. Often it is a very bad one. Once you are “off the case,” you lose certain benefits your prior position entitled you to. You also often lose a degree of leverage in being able to ensure you are treated fairly and properly as you exit the assignment. For example, one of the commonly sought “reliefs” filed in a trustee or guardianship matter is the removal of the fiduciary. So by voluntarily providing that very relief – particularly, for example, prior to getting paid your final fee or having the Court or client “sign off” on the good work you have done - you are effectively giving the claimant what they are after (taking a “bargaining chip” off the table) in many occasions allowing the claimant to focus on other relief– like recovery from you, your carrier, or repayment of you bills (the latter of which is almost always not covered by insurance).

With that said, there are many instances where voluntary disengagement is entirely appropriate. In those instances, setting forth the terms of withdrawal/disengagement is an important way to help prevent claims/lawsuits and help your outgoing clients. Listing all tasks which will be performed during disengagement, the status of the person/inventory of the estate at the time of disengagement, and providing a list of tasks that remain outstanding are a few examples of items which can be discussed during withdrawal. This not only helps provide clarity as to what needs to be done moving forward, from a pure risk management perspective, it also helps to evidence when your professional relationship ended. This could be useful later, for example, in: (1) demonstrating that events occurred “on someone else’s watch”; and (2) starting the applicable statute of limitations period running for claims against you and preventing the “continuous representation doctrine” from keeping you and your practice “on the hook” for any future problems.

Similarly to engagement letter, we recommend that Fiduciaries provide all interested persons with copies of disengagement letters and offer all interested persons sufficient time to contact the Fiduciary regarding any objections they may have to the Fiduciary’s accounting or final settlement of the matter. It is important to do this prior to resignation, as this affords the Fiduciary the opportunity to mitigate the potential damages thereby preventing Claims from being asserted.