Trust Accounts - Frequently Asked Questions

What Is A Trust Account? 

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A trust account is a bank account used by a lawyer acting as a fiduciary with respect to holding client funds.

May a Lawyer’s Own Property Be Co-Mingled with Trust Account Money?

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Generally, no. When a lawyer receives money from a client, it must be kept, “separate from the lawyer’s own property.  Funds shall be kept in a separate account maintained in the state where the lawyer’s office is situated, or elsewhere with the consent of the client.”1.

Additionally, lawyers should keep funds received from a third party related to a particular matter separate from the lawyer’s own property.2

1 See MODEL RULES OF PROF’L CONDUCT R. 1.15(a) (1983) (amended 2013).

2 Id.

How Should Trust Property Other Than Money Be Handled?

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  1. Trust property other than money should ordinarily be treated in two ways.1
    • Appropriately Safeguarded: Trust property other than money should be appropriately safeguarded by the lawyer;2 and
    • Complete Records: The lawyer should maintain complete records of the trust property other than money for a certain time period, which the ABA recommends as 5 years, after representation concludes.3
  2. What Are Possible Examples of Trust Property Other Than Money?
    • Documents
    • Valuables

1 Id.

2 Id.

3 Id.

May a Lawyer Keep Funds Belonging to Multiple Clients in a Single Account?

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Generally yes, a lawyer may store multiple clients’ funds in one trust account. However, funds belonging to the lawyer should be kept separate from this trust account.1

1 Id.

May a Lawyer Withdraw Advances Made to the Trust Account Fund as Payment for Attorney Fees?

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Typically, when a client advances attorney’s fees into a trust account, a lawyer may withdraw the trust account funds for payment as they are earned.1 However, if the funds provided to the attorney are not specifically designated as amounts available for payment of fees, attorneys should ask the client’s permission before withdrawing these amount for payment of fees.

1 See MODEL RULES OF PROF’L CONDUCT R. 1.15(c) (1983) (amended 2013).

How Should Deposits and Withdrawals Be Handled?

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  1. When handling deposits and withdrawals, and other recordkeeping procedures, lawyers should adhere to generally accepted accounting practices, and any other applicable laws and regulations.
  2. For an example of recordkeeping procedures, see the Model Rules for Client Trust Account Records.2

1 See MODEL RULES OF PROF’L CONDUCT R. 1.15 cmt. 1 (1983) (amended 2013).

2 See generally MODEL RULES OF CLIENT TRUST ACCOUNT RECORDS (2010).

What Responsibilities Does the Lawyer Have over Trust Property?

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Prompt Notice and Delivery: A lawyer should promptly notify the client and deliver funds to the client when the lawyer receives funds to which the client is entitled.1

  1. The prompt notice and delivery requirement also usually applies when a third-party has an interest in the funds.2
  2. Disputed Fees: In most cases, when a lawyer’s fees are contested, he or she may only withdraw undisputed portions from the trust account.3
    • What if the Lawyer Has a Fee Agreement?
      • Generally, fees are considered in dispute once an inquiry about their validity is made, regardless of whether a fee agreement allows withdrawal during conflicts.  Even where the fee agreement is clear, trust funds should not be touched until the conflict is resolved.4
    • Creditors:
      • Ordinarily, lawyers owe duties to their clients, not to third-party creditors. Accordingly, lawyers “should not unilaterally assume to arbitrate a dispute between the client and the third-party.”5   In some situations, however, a creditor may have “lawful claims against specific funds or other property in a lawyer’s custody, such as a client’s creditor who has a lien on funds recovered in a personal injury action.” Once proper notice of a lien has been provided to the lawyer, there may be an obligation to the creditor.  At this point, lawyers should research the relevant law, and act accordingly.6

1 See MODEL RULES OF PROF’L CONDUCT R. 1.15(d) (1983) (amended 2013).

2 Id.

3 See MODEL RULES OF PROF’L CONDUCT R. 1.15(e) (1983) (amended 2013).

4 Id.

5 See MODEL RULES OF PROF’L CONDUCT R. 1.15 cmt. 4 (1983) (amended 2013).

6 Id.

What is Recent Data on Trust Accounts by State?

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  • A study conducted by the ABA revealed:
    • Trust account overdraft notifications are enacted in forty-three states.1 Overdraft notifications are currently under study in three states.2
    • Trust account record-keeping rules are enacted in thirty-three states.3 Six states have never considered record-keeping rules.4 Record-keeping rules are presently being studied in West Virginia.5
    • A certification of compliance with record-keeping rules is required in sixteen states.6  Sixteen states have never considered a certification of compliance with record-keeping rules.7 A certification of compliance with record-keeping rules is under study in three states.8
    • Random audits of trust accounts have been enacted in ten states.9 Twelve states have never considered random audits of trust accounts.10 Nine states have rejected random audits of trust accounts.11 Random audits of trust accounts are presently being studied in eight states.12

1 ABA Standing Committee on Client Protection, Survey of Lawyers’ Funds for Client Protection: 2011-2013 (2014). Alaska, Georgia, Oklahoma, Utah, and Wyoming are not presently included in the reporting.

2 Id. at 150. The enacted states include Alabama, Arizona, Arkansas, California, Colorado, Connecticut, Delaware, District of Columbia, Florida, Hawaii, Idaho, Illinois, Iowa, Kansas, Kentucky, Louisiana, Maryland, Massachusetts, Michigan, Missouri, Montana, Nebraska, Nevada, New Jersey, New Mexico, New York, North Carolina, North Dakota, Ohio, Oregon, Pennsylvania, Rhode Island, Texas, Vermont, Virginia, Washington, and Wisconsin. Id. Indiana, Mississippi, New Hampshire, South Carolina, and Tennessee did not provide a response to this question. Id.

3 Id. Maine, South Dakota, and West Virginia are currently studying the use of overdraft notifications. Id.

4 Id. The enacted states include Alabama, Arizona, Arkansas, California, Colorado, Connecticut, Delaware, District of Columbia, Florida, Hawaii, Idaho, Illinois, Iowa, Kansas, Kentucky, Louisiana, Massachusetts, Minnesota, Missouri, Montana, Nebraska, New Jersey, New Mexico, New York, North Carolina, North Dakota, Pennsylvania, Rhode Island, South Dakota, Vermont, Virginia, Washington, and Wisconsin. Id. Indiana, Mississippi, New Hampshire, South Carolina, Tennessee, and Texas did not provide a response to this question. Id.

5 Id. Specifically, Maine, Maryland, Michigan, Nevada, Ohio, and Oregon have never considered implementing record-keeping procedures. Id.

6 Id.

7 Id. The enacted states include Colorado, Connecticut, Delaware, Florida, Hawaii, Idaho, Iowa, Kansas, Minnesota, Missouri, Montana, New Jersey, New Mexico, New York, North Dakota, and South Dakota. Id. Indiana, Massachusetts, Mississippi, Nebraska, New Hampshire, South Carolina, Tennessee, Texas, and Virginia did not provide a response to this question. Id.

8 Id. Alabama, Arizona, Arkansas, District of Columbia, Kentucky, Louisiana, Maine, Maryland, Michigan, Nevada, North Carolina, Ohio, Oregon, Pennsylvania, Rhode Island, and Vermont have never considered requiring a certification of compliance for trust account record-keeping procedures. Id.

9 Id. Certification of compliance with record-keeping rules is presently being studied in California, Illinois, and West Virginia. Id.

10 Id. The enacted states include Connecticut, Delaware, Hawaii, Iowa, Kansas, Nebraska, New Jersey, North Carolina, Vermont, and Washington. Id. Indiana, Massachusetts, Mississippi, New Hampshire, South Carolina, Tennessee, and Texas did not provide a response to this question. Id.

11 Id. Alabama, Arizona, Arkansas, District of Columbia, Illinois, Kentucky, Maryland, Michigan, Missouri, New York, Ohio, and Pennsylvania have never considered implementing random audits of trust accounts. Id.

12 Id. Specifically, Colorado, Florida, Minnesota, Montana, Rhode Island, South Dakota, Virginia, and Wisconsin have rejected random audits of trust accounts. Id.

13 Id. Random audits of trust accounts are under study in California, Idaho, Louisiana, Maine, Nevada, New Mexico, North Dakota, and West Virginia. Id.

 

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Information provided by Attorney Protective is not intended as legal advice. This publication provides best practices for use in connection with general circumstances, and ordinarily does not address specific situations. These best practices are not intended to meet or establish the standard of care, and sometimes recommend practices that exceed the standard of care. Specific situations should be discussed with legal counsel licensed in the appropriate jurisdiction. By publishing practice and risk prevention tips, Attorney Protective neither implies nor provides any guarantee that claims can be prevented by use of the suggested practices. Though the contents of Attorney Protective's Best Practice Database have been carefully researched, Attorney Protective makes no warranty as to the accuracy, applicability or timeliness of the content. Anyone wishing to reproduce any part of the Attorney Protective Best Practices Database content must request permission from Attorney Protective by calling 877-728-8776 or sending an email to erin.mccartney@attorneyprotective.com. Additionally the rules cited in the contents of this database may have since changed. You should check the laws and model rules in your state for specific information on the topics addressed here.