The question whether the trustee acted in a fiduciary capacity cannot be resolved simply by asking who paid for the advice. Under the older Restatement (Second) of Trusts, a trustee was “privileged to refrain from communicating to the beneficiary information acquired by the trustee at his own expense and for his own protection.” Restatement (Second) of Trusts § 173 cmt. b (1959) (emphasis added). The Restatement (Third) of Trusts instead provides that “the question of who has paid for the legal services, or who ultimately will be required to pay those expenses, [***14] although potentially relevant, involves other and complicated considerations . . . so that this matter is not determinative in resolving issues of privilege.” Restatement (Third) of Trusts § 82 cmt. f; see also Randall Roth, Understanding the Attorney-Client and Trustee-Beneficiary Relationships in the Kamehameha Schools Bishop Estate Litigation: A Reply to Professor McCall, 21 U. Haw. L. Rev. 511, 526-27 (1999) (“If the lawyer is to be paid out of trust funds, that suggests (but does not finally determine) that the lawyer will be involved in the administration of the trust and therefore is representing the trustee in the trustee’s representative capacity. If the lawyer is paid out of the trustee’s personal funds, that suggests (but does not finally determine) that the lawyer will be watching out for the personal interests of the trustee, not involved in the administration of the trust, and is therefore representing the trustee in the trustee’s individual capacity.”). To be clear, “it is not the terms of an engagement letter, but rather the nature of the particular attorney-client communication that is dispositive. This communication-by-communication analysis, while perhaps untidy, is crucial if the attorney-client privilege and the fiduciary exception are to coexist.” Mett, 178 F.3d at 1065.
Hammerman v. N. Tr. Co. (In re Kipnis Section 3.4 Tr.), 235 Ariz. 153, 160, 329 P.3d 1055, 1062 (Ct. App. 2014).