Bill to Safeguard Estates From Lawyers Gains : Legislation: Attorneys would be prevented from making themselves beneficiaries of clients’ estates. Bipartisan support given measure that wins key Assembly panel’s approval.

Two Orange County lawmakers won approval from a key Assembly committee Wednesday for a bill that would prevent lawyers from making themselves beneficiaries of their clients’ estates, a practice that enriched a Laguna Hills lawyer who received millions of dollars from elderly retirees.

In an unusual show of bipartisan cooperation, Assemblymen Tom Umberg (D-Garden Grove) and Bill Morrow (R-Oceanside) joined forces to push the legislation, which now goes to the full Assembly for a vote that could come as early as next week.

The bill, which would invalidate any bequests to attorneys who prepared or arranged for wills or trusts that gave them gifts, comes after revelations in The Times that Laguna Hills lawyer James D. Gunderson, 68, had made himself a major beneficiary of many of his clients’ estates.

Gunderson, who has repeatedly denied any wrongdoing, received the inheritances despite a longstanding California Supreme Court ruling that anything more than a “modest” gift to an attorney from a client’s estate raises questions of impropriety.

The Assembly Judiciary Committee approved the legislation on a 9-1 vote, with Assemblyman Paul Horcher (R-Diamond Bar) the lone dissenting vote. Although several lawmakers welcomed the bill, Horcher raised questions about the necessity of the legislation and suggested that it might create problems in “cow counties” for residents related to the only attorney in town.

“How big a problem is this?” Horcher asked.

Proponents of the bill argued that the problem may be more pervasive than anyone ever dreamed.

“It appears what we uncovered is just the tip of the iceberg,” Thomas Malcolm, past president of the 6,000-member Orange County Bar Assn., told the committee. “It’s developing that many, many attorneys engage in predatory practices around our elderly communities.”

Malcolm estimated that as many as 10 or 15 probate attorneys in Orange County alone could be engaged in unscrupulous dealings with the estates of elderly clients. Assemblyman Phillip Isenberg (D-Sacramento), the committee chairman, said such speculation is “disturbing” and “the potential conflict is quite clear” for ethical attorneys who are called upon to prepare wills or trusts that bequeath them gifts.

Umberg said the bill “addresses a problem that exists not only in Orange County, but I suspect throughout California.” When one lawmaker noted that Gunderson has not been convicted of anything, Umberg argued that the legislation should be enacted “irrespective of the recent examples” and expressed “surprise” that it wasn’t already the law. Members of the legal profession have already been forbidden to engage in the practice in more than three dozen states.

Morrow, who represents a large swath of South County that includes Leisure World in Laguna Hills, said elderly residents are “up in arms, extremely alarmed” about the potential for problems with attorneys handling their wills and estates. “I think this bill goes a long way to rectify that,” he said.

Originally, Umberg and Morrow had introduced separate bills addressing some of the same issues, but the pair met alone on Tuesday and hammered out their differences. Umberg agreed to incorporate a laundry list of changes advocated by Morrow and allow the freshman Republican to join him as an author of the bill.

Although Umberg’s bill initially suggested that lawyers be allowed to receive gifts valued up to $500 from their clients, he adopted Morrow’s absolute prohibition against attorneys drawing wills and trusts in their own favor.

The bill also invalidates “no-contest” clauses in wills, a provision in many of the wills Gunderson prepared that effectively discouraged legal challenges by other heirs. These no-contest clauses said that if any other heirs contested any of the wills’ provisions, including the bequests to Gunderson, their inheritances would automatically be reduced to $1.

The legislation would also make it illegal for trustees or guardians of estates to deposit client funds in a financial institution in which the guardian or trustee had a substantial interest and would prohibit the payment of any additional compensation to an attorney-trustee in the form of attorney’s or conservator’s fees. It would also outlaw payment of attorney’s fees to law partners or family members of guardian conservators.

After an extensive investigation, The Times reported last November how Gunderson prepared numerous wills making himself the recipient of millions of dollars in cash, stock and real estate from the estates of elderly and sometimes senile Leisure World clients.

In one example, Gunderson arranged for the execution of a will and trust that together bequeathed him stock valued at $3.5 million and made the other beneficiaries liable for an estimated $2 million in inheritance taxes he normally would have incurred.

That will, which Gunderson had a blind and bedridden 98-year-old client sign only six weeks before death, included a no-contest provision that would deprive any other beneficiary of his share of the man’s $18-million estate, if that person challenged any part of the will, including the bequest to Gunderson.

In another case, Gunderson persuaded a judge to name him legal guardian of a Canadian woman “suffering from . . . senile dementia” and thus being incapable of managing her assets. Once in control of her affairs, Gunderson drafted a new will that gave him the lion’s share of her estate--nearly $250,000 worth of AT&T; stock. Another heir reluctantly abandoned her court challenge, when Gunderson offered her $60,000 in exchange for dropping the court action.

Gunderson also used his exclusive control over clients’ estates to keep their funds in a savings and loans institution and in a bank that he founded.

The full Assembly could vote on the bill by Feb. 19. It would then move to the Senate, where nearly identical legislation has been introduced by Sen. Marian Bergeson (R-Newport Beach). On Wednesday, Bergeson pledged to engage in a “concerted effort” with Umberg and Morrow to ensure that the legislation is moved quickly.

Morrow and Umberg plan to seek a two-thirds “urgency” vote in both houses, which would allow it to become law immediately instead of next Jan. 1 as is the case for legislation approved by a simple majority. Umberg predicted that if all went smoothly the bill could be signed into law by Gov. Pete Wilson in about a month.

Aside from the efforts in Sacramento, the State Bar of California is proposing a strict new rule forbidding lawyers to prepare wills or trusts that bequeath them gifts. If the new rule is eventually approved by the state Supreme Court and placed among the State Bar’s Rules of Professional Conduct, lawyers who draft wills and trusts in their own favor could face stiff disciplinary action and even disbarment.

The proposed rule is almost identical to an American Bar Assn. model guideline that states that a lawyer “shall not prepare an instrument giving the lawyer or a person related to the lawyer . . . any substantial gift from a client, including a testamentary gift.”