Trust Accounting Questions and Answers with the Experts

At the CBA’s recent 2 hour CLE program “Everything You Need To Know About Trust Accounting” (now available to watch on demand) we had so many questions for our panelists that they didn’t have time to answer them all. However, our intrepid experts – Dan Cotter, David Holterman and Mary Andreoni – took the time to respond to some of the attendee’s questions below. Please note: The responses expressed here are solely those of the individual panelists. They are provided as only general input and should not be considered advisory opinions regarding any specific factual scenarios.

Q: If you work as a  Guardian Ad Litem & receive money before you perform your duties, does that money need to be in an IOLTA account since you really don’t represent a client?

A: [Mary Andreoni] If the “GAL” does not represent a client,  ILRPC 1.15 is not triggered and the  money in question does not go into an IOLTA  account.

Q: Scenario: – Lawyer/Lawfirm is holding Settlement proceeds in IOLTA account. – Client can’t be located despite reasonable efforts made. – There is a clear, signed, contingent fee agreement setting forth lawyer’s percentage of fee to be earned for services rendered. Question: Can a lawyer/lawfirm take its portion of the proceeds pursuant to the signed fee agreement and leave the remainder of client’s proceeds in the IOLTA account?

A: [Mary Andreoni] No.  The law firm can withdraw its fees if the client specifically authorized the law firm to withdraw its contingent fee from the settlement proceeds before the client disappeared. See, In re Walner, 519 N.E.2d at 908, and ISBA Opinion Nos. 95-11 (Jan. 1996) and 88-4 (Feb. 1989).  Without the client’s authority to the settlement distributions, the law firm must maintain the settlement proceeds in the IOLTA account until authority is obtained from either the client or elsewhere (e.g., court).  See ISBA Op. 02-02 (Nov. 2002).

Q: Do you need to maintain an IOLTA account for ARDC purposes (it’s part of annual registration) if you are not holding client funds?

A: [Mary Andreoni] No.  Supreme Court Rule 756(d) requires all Illinois lawyers to disclose whether they or their law firm maintained a trust account during the preceding year and to disclose whether the trust account was an IOLTA (Interest on Lawyer Trust Account) trust account, as defined in ILRPC 1.15(f) of the Rules of Professional Conduct. If a lawyer did not maintain a trust account, the lawyer is required to disclose why no trust account was maintained.

A: [David Holterman] I agree.  Rule 1.15 and its specific requirements to hold funds in an IOLTA or other client trust account are “triggered” when a lawyer comes to possess funds of a client or third person in connection with a representation. (See paragraph a.)

Q: How would you handle an emergency matter (e.g., an Order of Protection) where the client retains you and asks you to file a case (for which the client must incur costs) on the same day, before the retainer check is able to clear?

A: [Mary Andreoni]  The lawyer may pay the expense on behalf of the client, which is permitted under ILRPC 1.8(e)(1), and deposit the client’s check into the lawyer’s business account as reimbursement for the lawyer’s advance.

A: [David Holterman] If the check is only for court costs and/or a flat fee charged by the lawyer, I agree it can be deposited in the lawyer’s business account. If the client’s check includes any additional amounts – e.g. for a security retainer – then the check should be deposited in the IOLTA account with the appropriate amounts withdrawn by the lawyer for reimbursement.

Q: Is it permissible to state in one’s Client Engagement Letter that the attorney may withdraw funds from the security retainer account as the work is performed, and then send a statement at the end of the month? Must a statement actually be sent each time a withdrawal is to be made to give the client an opportunity to say “NO” even if it’s agreed up front that the lawyer may withdraw funds as and when earned?

 A: [Dan Cotter] Yes, it is permissible.  While a statement is not required by the rules, it is best practices to stay in communications with the client.  One of the biggest reasons for complaints against attorneys is lack of communication.  The invoice or notice of work done for withdrawal is an opportunity to communicate with the client and keep the client informed of where the case or matter is at.

 Q: Can the client advance a retainer for tax benefit (deductability)?

 A: [Mary Andreoni] No. The client’s desire to minimize the client’s tax obligations is not an appropriate use of an advance payment retainer. Advances covered by ILRPC 1.15 are funds received by a lawyer in connection with the payment of legal fees and expenses of the representation.  An advance payment retainer must meet the requirements of ILRCP 1.5(c).  The requirements of Rule 1.15(c) must be read in conjunction with the Dowling case.  As such, an advance payment retainer must be used sparingly and only where it is in the client’s interest as it relates to the client’s responsibility to pay the lawyer’s fees and expenses.

A: [David Holterman] In addition to Dowling, Comments [3A] – [3D] to Rule 1.15 are useful for understanding the requirements of paragraph (c).

 Q: What does a sole practitioner do about succession/access to Iolta funds after incapacity or death?

A: [Catherine Sanders Reach] There is guidance from the IARDC for succession planning and your IOLTA funds in The Basic Steps to Ethically Closing a Law Practice, from the Michigan Bar Association’s guide “Planning Ahead: A Guide to Protecting Your Clients’ Interests in the Event of Your Disability or Death” and in the Chicago Bar Association CLE program “Succession Planning to Cover Bumps in the Road 

Q: If you charge a fixed fee but the fee does not include a government fee and the client pays it separately and provides it to the attorney so that it can be included with the file that the attorney will mail to the government institution, does the government fee have to go in an IOLTA account?

 A: [Dan Cotter] I don’t believe so.  If the check is made payable to the government, then the fees do not appear from this scenario to be entrusted to the attorney as fiduciary.

A: [David Holterman] I agree that a separate check made payable to the government entity can be passed on to the entity. If it is a separate check payable to the attorney, then it should be processed through the IOLTA account.

Q: If I represent a client who resides or works in another state, and I hold funds for him/her in a trust account, am I subject to trust accounting rules of the client’s home state? Do the rules of one state or the other govern in the event of a conflict?

 A: [Mary Andreoni] You should follow the rules of the jurisdictions in which you open the trust account.  To the extent there are any inconsistencies between the rules of one state and the lawyer’s licensing jurisdiction, those inconsistencies should be resolved by reference to ILRPC 8.5(b).

 A: [David Holterman] Under the framework of Rule 1.15, the client trust account requirement follows the lawyer, not the client. Paragraph a states that funds should be deposited in a client trust account “maintained at an eligible financial institution in the state where the lawyer’s office is situated, or elsewhere with the informed consent of the client.” If the client trust account is maintained in the client’s state, the lawyer must follow the trust account/IOLTA requirements of that state.

Thanks to our panelists for being so generous with their time and knowledge!