TRUST
ACCOUNT REPORTING FAQS
1)
|
Q.
Must
I open a trust account even though I never hold
funds belonging to someone else?
A. Most
lawyers in private practice need to have a trust
account because they handle client or third
party funds at some point in the course of their
practice. Lawyers should understand which funds
are client and third-party funds that
must be held in trust pursuant to Rule of
Professional Conduct 1.15. While most would recognize that escrow funds or
settlement funds must be deposited into a trust
account, some do not realize the same is true
for funds advanced by a client to pay filing
fees, and for bond deposit refunds where the
lawyer has agreed to retain only a portion of
the refund as his fee and to pay over the
balance to the client or the client's relative.
And very importantly, Rule 1.15 requires that
funds received to
secure payment of legal fees and expenses
be deposited in a
client trust account, to be withdrawn by the
lawyer only as fees are earned and expenses
incurred. See
the
Client Trust
Account Handbook for a detailed discussion
of what funds must be maintained in a trust
account.
|
|
2)
|
Q. What
if I currently have a non-interest bearing trust
account for pooled client funds?
A. Rule
1.15(a) prohibits use of non-interest bearing
trust accounts. Trust funds can be held in
only two types of accounts, 1) an IOLTA account,
a pooled interest-bearing trust account
established with an eligible financial
institution with the Lawyers Trust Fund of
Illinois designated as income beneficiary, for
the deposit of nominal or short-term funds of
clients or third persons; or 2) a separate,
single-client, interest-bearing non-IOLTA trust
account with the client designated as income
beneficiary. A lawyer with a non-interest
bearing account should convert it to one of
these two types of interest-bearing accounts.
Instructions for establishing an IOLTA account
are available from the
Lawyers
Trust Fund.
|
|
3)
|
Q. I
went to my bank to open an IOLTA account, and no
one knew what I was talking about. Now what do I
do?
A. There are more than 400 Illinois
banks eligible to hold IOLTA deposits under Rule
1.15. Unfortunately, not all
bank employees are
familiar with the operation of IOLTA accounts.
Instructions for banks and notice of enrollment
forms are available at
www.ltf.org.
For more assistance, bank employees and lawyers
can also contact LTF Director of Banking Terri
Smith at 312-938-3001 or IOLTAreport@ltf.org.
|
|
4)
|
Q. What
happens if I don’t provide the trust account
information required by Rule 756(d)?
A. You
will not be registered. The failure to provide
the information will be treated the same as a
failure to pay the annual fee. Under Rule 756,
the ARDC is required to strike from the master
roll of attorneys any lawyer who has failed to
comply by February 1 of the registration year,
and if you are stricken from the master roll for
failure to properly register, you will not be
authorized to practice law until you are
reinstated by complying with all of the
registration requirements.
|
|
5)
|
Q. Can I
open a non-IOLTA
trust account for the benefit of one client?
A. When
client funds are neither nominal nor expected to
be held for a short period of time, they should
be deposited into a separate interest- or
dividend-bearing non-IOLTA client trust account
with the client designated as the income
beneficiary. Pursuant to Rule 1.15(f),
client funds that are nominal in amount or
expected to be held for a short period of time
should be deposited in an IOLTA account.
In
determining whether funds are nominal in amount
or are expected to be held for a short period of
time, Rule 1.15(g) provides that a lawyer or law
firm "should exercise reasonable judgment"
taking into consideration such factors as:
(1)
interest - the amount of interest which
the funds would earn during the period they
are expected to be held and the likelihood
of delay in the relevant transaction or
proceeding;
(2)
costs - the cost of establishing and
administering the account, including the
cost of the lawyer's services;
(3)
capability - the capability of the
financial institution, through subaccounting,
to calculate and pay interest earned by each
client's funds, net of any transaction
costs, to the individual client.
Whether it
is an IOLTA account or a non-IOLTA client trust
account, the account must be interest or
dividend bearing. Under no circumstances
may the lawyer or law firm receive the interest
generated on the account.
|
|
6)
|
Q. I
have a license in Missouri and Illinois. Our
firm’s office is in Missouri, but occasionally
I’ll handle an Illinois case for an Illinois
client. Our firm has a trust account at a
Missouri bank. Must I also have an Illinois
account?
A.
Rule 1.15(a) states: "Funds [of clients or third
persons] 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 or third person."
When a lawyer participates in an IOLTA program in
another state where the law office is situated,
the lawyer's ethical obligation is satisfied by
compliance with the IOLTA rule of the state in
which the office is situated. See also
ILRPC 8.5(b) (Choice of Law).
Further
guidance from the
Lawyers Trust Fund states:
"The location of your IOLTA account is
determined not by where you are licensed, but by
the state where your office is situated, where
you practice, and where your clients reside or
do business, unless otherwise directed by your
client.
For example, a Missouri lawyer
whose sole office is in Missouri but who
occasionally represents clients in Illinois need
not establish an Illinois IOLTA account to
handle client funds. However, the lawyer
should handle client funds as required by the
safekeeping of property rules in Missouri,
including participation in that state's IOLTA
program as appropriate. In contrast, a
lawyer or law firm with bona fide offices
situated in both Florida and Illinois would
require an IOLTA account in each state."
Q. Do I
disclose the Missouri trust account on the
report form?
A. Yes.
|
|
7)
|
Q. I
don’t have a trust account now, but what if I
open one during the year after I submit my
registration form, am I required
to supplement my
answers on the report form?
A. The
rule does not require a supplemental report. You
will report the account in the next year's
registration.
|
|
8)
|
Q. I am
also an agent for a title insurance company. Do
I disclose the trust account I maintain as a
title insurance agent?
A. Rule 1.15(a) comes into play when a lawyer comes
into possession of the property of clients or
third persons “in connection with a
representation.” If the funds received are
in connection with the representation of clients in
real estate transactions, the trust account must
be disclosed. If the lawyer’s
holding of property for another was clearly
personal (e.g., treasurer of the high school
alumni association), the lawyer would not
disclose that trust account on the report form.
|
|
9)
|
Q. I am
an associate in a firm, and I have no authority
over the firm's trust account. Can I just let
the firm partners report the firm's account?
A. No.
The rule requires that each lawyer report trust
account information. Each member of a firm,
partner or associate, has responsibility to
ascertain that the firm has an appropriate
account. The ARDC has procedures that allow
partners and associates in firms to join in a
report by a designated firm partner, but the
procedure is available only where the firm
collects registration forms and submits the
collected forms and payment of the firm lawyers'
registration fees as a package.
See
Law Firm
Reporting.
|
|
10)
|
Q. Our
firm has an account that is used to maintain
retainers paid by our clients. Our
agreements with the clients provide that the
firm will bill against the retainer and withdraw
the billed amounts until the retainer is
exhausted, at which time the client will be
billed for any further amounts due. If a
representation is concluded and the retainer has
not been exhausted, the balance is returned to
the client. Is this a 'trust account'
which must be reported on the registration form?
A. Yes.
Rule 1.15(c) requires that
funds received to secure payment of legal fees and expenses
be deposited in a
client trust account, to be withdrawn by the
lawyer only as fees are earned and expenses
incurred. Such a trust account is subject
to all the requirements of Rule 1.15, and
must be reported on the registration form.
Note that Rule
1.15 (c) does provide for some exceptions to the
use of trust accounts for the deposit of fees,
but those only apply to fixed fees, general
retainers, or advance payment retainers.
See Rule 1.15(c)
|
|