This column has taken on a life of its own. After a few early meetings out of the office, I need to hurry back to meet with a lawyer who wants to go over his trust accounting system. It’s not clear to me if we’re putting the trust account into our Tuesday or the Tuesday into his trust account. Whatever it is, we’re doing it.
Speaking of “doing it,” here are two things that the trust account rules require lawyers to do promptly:
- notify clients & third persons upon receiving funds in which they have interests; and,
- deliver to clients & third persons funds to which they are entitled.
The relevant rule is 1.15(d). In a moment, I’ll get to a few of the rule’s nuances. I’ll dive deeper in a bonus post that will go up later today.
For now, remember the movie Rounders. When someone is entitled to funds that are in your trust account, channel your inner Teddy KGB: pay them, pay them their money.
Upon receiving funds in which a client or third person has an interest, a lawyer must promptly notify the client or third person. It’s rare that I’ve encountered a failure to comply with this rule. Only two instances jump to mind:
- a lawyer represented a client in a hotly contested dispute over a will. The lawyer resolved the matter and received over $300,000 from the estate’s attorney. The lawyer did not notify the client, preying upon the fact that client had become estranged from the family and would never find out. Eventually, client found out. Lawyer was disbarred. Of course, lawyer’s failure to notify the client paled in comparison to the theft.
- a lawyer represented a client who had been injured. upon settling the claim, the lawyer received a check from an insurance company. despite having actual knowledge of a third-party medical provider’s lien, the lawyer failed to notify the medical provider and disbursed the funds to the client.
Anyhow, each instance spurred discussion as to whether Vermont should adopt a payee-notification rule. We’ve not. Rather, the onus remains on the lawyer, upon receiving funds, to notify clients & third persons who have interests therein. Later today, I will post a blog that addresses the question “when does a third person have an interest in client funds?
This is the Teddy KGB rule: pay people. Here’s a flow chart:
- money comes in and is deposited into trust;
- lawyer notifies people who have interests in the money;
- as soon as it is clear that a client or third person is entitled to the money, lawyer disburses, keeping in mind, as we discussed last week, the duty to wait for a deposit to become “collected funds.”
Two thoughts here.
First, the duty is to deliver funds to which a client or third person entitled promptly. That is, there’s no luxury of delivering “whenever I can get around to doing my bookkeeping.”
Second, lawyers often forget that they themselves are third persons. That is, lawyers seem to have little problem promptly paying clients, but then they leave their share of the money in trust.
That has a name: COMMINGLING.
The first post in the Trust Account Tuesday series was entitled Don’t Commingle.
Once someone is entitled to receive the money that you’re holding in trust, pay that person.
This post assumes that there is no dispute that a client or third person is entitled to the funds in trust. Later today, I will post a blog that addresses a lawyer’s duties when there exists a dispute as to who is entitled to the funds that a lawyer is holding in trust.
- Don’t Commingle
- Trust Accounting; basic requirements
- (Generally) don’t disburse unless you have collected funds