Why Trust Accounts Exist

Client Trust Accounts

Why Trust Accounts Exist

Lawyers handle money that is not theirs: a settlement check on its way to a client, funds collected from a client's debtor, cash a client hands over for a later business transaction. Rule 1.15 of the Model Rules of Professional Conduct tells the lawyer what to do with that money: hold property of clients and third persons, received in connection with a representation, separate from the lawyer's own property.¹ For money, the separate place is a client trust account, a bank account, usually interest-bearing, in which a lawyer deposits money belonging to a client.² Every later requirement in this chapter (where the account sits, what may go into it, how prepaid fees are handled, who receives the interest) applies that one command.

Safekeeping is a fiduciary duty, and it sits where a lawyer's financial interest and a client's can collide, because the lawyer has custody of money that belongs to the client.³ Disciplinary authorities respond accordingly. When a lawyer misappropriates unearned funds from the trust account, even intending to replenish them (a so-called loan from the account), the state disciplinary authority invariably imposes one of the more severe sanctions, presumptively disbarment.⁴

The safekeeping rules are per se rules: a violation is complete once the forbidden act occurs. Rule 1.15 contains no element requiring that the lawyer meant to steal or that the client lost anything.⁵ The treatment of the 'loan' shows why the rule does not wait for harm. A lawyer who takes client money intending to repay it has still misappropriated it, and the intent to replenish does not lift the presumption of disbarment.⁶ Good faith and the absence of loss may matter later, when a sanction is chosen, but they do not decide whether the rule was broken. The section on mitigation takes up how far they carry.

The two lawyers differ in one respect: whether the money was someone else's when it reached them. The duty is triggered by the lawyer's possession, in connection with a representation, of money that belongs to a client or third person. Payment for work already done is the lawyer's own on arrival, so there is nothing to safeguard. Money that belongs to someone else is covered from the moment of receipt, whatever the lawyer's state of mind.

That trigger gives you a frame for the rest of the chapter. Each later requirement does one of three jobs: it keeps client money identifiable, so anyone can tell whose dollars are whose; it keeps the money available, so the client or third person can receive it when entitled; and it keeps the money away from the lawyer's own use. A separate account and complete records do most of the first job. Rule 1.15(b) confines the lawyer's own money in the account to what is needed to pay bank service charges, which serves identifiability and protection together, because a pool mixed with the lawyer's own funds cannot be cleanly traced.⁸ Rule 1.15(c) sends prepaid fees and expenses into the account and lets the lawyer withdraw them only as fees are earned or expenses incurred, so the lawyer's claim on the money ripens only as the work is done.⁹

The interest rules follow the same pattern: interest earned on trust money is not the lawyer's to keep. When a deposit is too small, or will be held too briefly, for the bank to calculate and pay interest on it separately, and a separate account's service charges would likely exceed any interest earned, states typically require the lawyer to use a pooled interest-bearing trust account. The bank pays the accrued interest to a state commission, which typically applies it to law-related programs.¹⁰