An attorney has certain fiduciary obligations that apply to client funds or property the attorney receives in the course of representing the client. The attorney has a duty to keep the client's funds or property secure and separate from the attorney's own property. In addition, the attorney must notify the client when he/she receives client funds or property and must provide an accounting of all client funds or property.
Client Trust Accounts
Attorneys receiving, maintaining, or disbursing client funds are required to establish a client trust account, which is a special bank account. The client trust account is usually a checking account. By law, attorneys have discretion about whether to deposit client funds in interest-bearing bank accounts.
An attorney is permitted to charge a reasonable fee for maintaining the account, but all interest earned on the account belongs to the client.
Interest on Lawyers' Trust Accounts (IOLTA)
Interest on lawyer's trust accounts (IOLTA) is a program in some states. 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. Interest earned on IOLTA accounts is not subject to income tax.
Generally, a buyer's downpayment that is held by the seller's attorney pending a closing is the buyer's property until title passes to the real estate. The attorney who acts as escrow agent has a fiduciary responsibility to segregate the buyer's downpayment in a special trust account.
By law, an attorney is required to keep various types of records for seven years after they are generated. These include attorney trust account records, bank statements, client fee agreements, and statements showing disbursements of client funds.
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