Lawyers are frequently hired to counsel wealthy clients on their philanthropy, and they often dispense legal advice to private foundations in their capacity as board members. But some attorneys take advantage of their privileged positions by charging enormous fees for relatively little work, the Boston Globe reports.
IRS rules permit lawyers, accountants, and financial advisers to charge foundations for their services, even if they serve as trustees of those institutions, as long as the fees are reasonable. But what constitutes "reasonable" varies greatly. For instance, Attorney Thomas A. Keller III collected $3,849 from the Minneapolis-based Edelstein Family Foundation for services rendered as a co-trustee in 1997. But after the last member of the Edelstein family died in 1998, he subsequently received $130,624 in 1999 and $206,498 in 2000. Those payments were in accordance with a previous arrangement that calculated his pay as a percentage of foundation assets, but the fees were later adjusted through an agreement with the state attorney general's office. "We felt that amount was excessive," said Stephen K. Warch, an assistant state attorney general who went to court to reduce the payments. Keller now receives about $108,000 a year for three hundred hours of work.
The Globe investigation also uncovered several instances of lawyers billing more than one philanthropic entity for long hours worked. According to tax returns, Chicago lawyer James L. Alexander works full time as trustee for the Elizabeth Morse Charitable Trust and twenty hours a week for the Elizabeth Morse Genius Charitable Trust, receiving combined annual fees of more than $500,000. And in New Jersey, Attorney John P. Keegan draws $213,203 as full-time president of the Charles Edison Fund, which was created by the son of Thomas Alva Edison, while collecting $170,000 for the thirty hours a week he bills the Thomas Alva Edison Preservation Foundation. In addition, from 1998 to 2002 the Edison Fund paid more than $400,000 in legal fees, much of that to Keegan's law firm for additional work he performed.
"There is an inherent conflict of interest in making the decision to employ his own firm to do this work," said Stephen Gillers, professor of legal ethics at New York University Law School. Gillers said lawyer-trustees should recuse themselves from making decisions about whether their law firms receive foundation business. "That's the cleanest way to do it."