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Attorney's Responsibility for Client Funds

When you give your attorney money -- or when your attorney obtains money on your behalf -- that transaction comes with legal and ethical obligations.

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In any kind of legal case, from a civil lawsuit to criminal proceedings, an attorney has certain fiduciary obligations when it comes to client funds or property the attorney receives in the course of representing his or her client.

First, the attorney has a duty to keep the client's funds or property secure and separate from the attorney's (and from the firm's) own funds and property. Second, the attorney must notify the client of the receipt of any funds or property intended for the client. Finally, the attorney must provide a full accounting of all client funds or property, if asked to do so, and usually as a standard step in the termination of the attorney-client relationship. Read on to learn more.

"Client Trust" or "Escrow" Accounts

At the onset of representation, and throughout the course of the case, an attorney who receives, maintains, or disburses client funds is almost always required to establish a “client trust account” or “escrow” account, separate from any account used for firm business or for any other purpose.

The client trust or escrow account is usually just a separate bank account that is opened and maintained by the attorney or firm, and which is dedicated solely to money received from and intended for clients.

In some states, attorneys have discretion about whether to deposit client funds in interest-bearing bank accounts, but in states like New York, lawyers are not allowed to place qualifying funds in a non-interest bearing account.

An attorney is usually permitted to charge a reasonable fee for maintaining the account, but all interest earned on the account belongs to the client.

No commingling of funds is allowed. Typically, the only firm-affiliated money that is permitted in a “client trust” or “escrow” account is money deposited to cover fees charged by the financial institution that services the account.

Interest on Lawyers' Trust Accounts (IOLTA)

Interest on lawyer's trust accounts (IOLTA) programs are in place in all states in the U.S. IOLTA allows the state to use interest that is earned on nominal and short-term client deposits to fund non-profit agencies that provide legal services to the poor. As stated on IOLTA.org:

Client funds are deposited in an IOLTA account when the funds cannot otherwise earn enough income for the client to be more than the cost of securing that income. The client - and not the IOLTA program - receives the interest if the funds are large enough or will be held for a long enough period of time to generate net interest that is sufficient to allocate directly to the client.

Look at the "Fine Print" of Your Contract

The details of any “client trust” or “escrow” account that will be set up and maintained in connection with your case should be spelled out in the fee agreement you enter into with your lawyer. If you have any questions relating to this account, or any financial aspect of your case, your attorney will have the answers.

Learn more about How, and How Much, Do Lawyers Charge?

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