I recently came across the following rule form the Florida Rules of Professional Conduct:
Unidentifiable Trust Fund Accumulations and Trust Funds Held for Missing Owners. When an attorney’s trust account contains an unidentifiable accumulation of trust funds or property, or trust funds or property held for missing owners, such funds or property shall be so designated. Diligent search and inquiry shall then be made by the attorney to determine the beneficial owner of any unidentifiable accumulation or the address of any missing owner. If the beneficial owner of an unidentified accumulation is determined, the funds shall be properly identified as the lawyer’s trust property. If a missing beneficial owner is located, the trust funds or property shall be paid over or delivered to the beneficial owner if the owner is then entitled to receive the same. Trust funds and property that remain unidentifiable and funds or property that are held for missing owners after being designated as such shall, after diligent search and inquiry fail to identify the beneficial owner or owner’s address, be disposed of as provided in applicable Florida law.
I sent the rule to my friends at the offices of the Statewide Bar Counsel and the Chief Disciplinary Counsel and told them that if they adopted it, I could avoid about half of the calls I get every week from confused and frightened lawyers who find themselves with too much money in their clients’ funds account. They laughed (yes, they do laugh) and said that the rule mirrors exactly the “best practice” enforced by them, usually after a random audit.
You might have thought that the biggest problem with attorney trust accounts was missing money. Well, yes, that is a perennial problem, but is takes second place to accounts with too much money. How does this happen?
Some attorneys leave earned fees in the account to cover overdrafts. You are allowed to keep a reasonable amount (say $500) in the account to cover fees and expenses, but some folks keep tens of thousands of dollars to cover the occasional burp when a client takes a settlement check to the bank and it is charged against the account before the deposit clears. When this happens, an automatic overdraft notice goes to the state bar counsel’s office, and they start to ask questions. If it is just uncleared funds, the file is quickly closed. But often these speed bumps turn into craters when they lead to an audit and it is discovered that the account has been out of trust. Bad things happen when there isn’t enough money to cover the client obligations.
Often, after a period of years, these fees accumulate in the account and the lawyer is not sure what belongs to her and what to her clients. As the account is supposed to only contain client funds, it is a scary thing to write a check to clear them out, as there is always the specter of some client with an uncashed check you forgot about.
In other instances, what I call “client fund lint” accumulates in the account. Maybe you held $25 to cover recording some releases and when they came in your secretary paid the recording fee from the operating account instead. Or maybe you sent a check to a doctor for a medical report and he never cashed it. Yes, if you are doing a proper job of reconciling the account, you will have identified the owner of every penny, and can determine what to do. But my experience has been that many lawyers quit the reconciliation when they determine that they have enough to cover the clients’ claims. After a few months (or years) a lot of this lint builds up. Whose money is it? And what do I do when the bar counsel comes in for an audit?
Connecticut law provides that if property is unclaimed for more than three years, it must be escheated to the state. The state Treasurer has a great website (www.state.ct.us/ott/holderoutreachoverview.htm) which contains links to rules and forms. I have also found the office to be very helpful when I have had questions. You have to send “due diligence” letters to everyone who might own the money at least 90 days before the end of the year. You must them file a report and remit the funds by March 31 of each calendar year. The site contains downloadable forms to use for multiple client submissions and shorter manual forms for less than three reports. Anyone who has a claim on these funds may assert it at any time. There is no statute of limitations.
Cut this article out and give it to your bookkeeper.