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Ethics Opinion

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June 8, 1999


    A lawyer may not ethically deposit personal or non-client funds into an IOLTA account in order to defray bank service charges that have not been waived by the bank.

    A lawyer may not ethically deposit personal or non-client funds into an IOLTA account in order to eliminate the delay between receipt of a settlement draft by the lawyer and disbursement of the settlement funds to the client caused by time needed for the settlement draft to "clear" the bank.

    References: MRPC 1.15; R-7; ABA/BNA Layer's Manual on Professional Conduct §45.101-.113; The Law of Lawyering, Hazard & Hodes, 2d Ed, §1-15:201


The Committee has been asked to give consideration to three issues relating to client trust accounts. Client trust accounts, including IOLTA (Interest on Lawyer Trust Accounts) accounts are governed by MRPC 1.15 and by Formal Opinion R-7 (April 27, 1990). MRPC 1.15(d)(1) permits lawyers or law firms that receive client funds to:

    "Maintain a pooled interest-bearing trust account for deposit of client funds, other than advances for costs and expenses, which at the time of receipt and deposit, the lawyer or law firm reasonably anticipates will generate $50 or less in interest during the period for which it is anticipated such funds are to be held."

The rule prohibits lawyers from depositing personal (or non-client) funds into client trust accounts (regardless of the type) except as otherwise provided in the rule. MRPC 1.15(a). The only exception found in the Rule refers to "advances for costs and expenses." (MRPC 1.15(d)(1)). Formal Opinion R-7 asserts:

    "Funds of the lawyer or law firm must be segregated from client funds.  A lawyer may not deposit personal funds into the lawyer trust account for any reason."

In many cases, lawyers receive client funds which are either of such a small amount or will be held for such a short period of time that the amount of interest generated, if any, would be less than the administrative cost of maintaining the account. The IOLTA program permits these otherwise idle funds to be pooled into an interest-bearing account. The interest generated by the pooled account is then remitted, less a reasonable service charge, to the Michigan State Bar Foundation. MRPC 1.15(d)(1)(E)(i). In many cases, banks have agreed to waive minimum balance and service charge requirements on IOLTA accounts. The Michigan State Bar Foundation maintains an IOLTA honor roll of banks for that purpose. However, some banks have not agreed to do so. This raises two ethical issues:

  1. If a lawyer does not have access to a local financial institution that has agreed to waive minimum balance requirements or service charges, may a lawyer ethically deposit personal funds to the IOLTA account to satisfy the minimum balance requirement and thereby avoid service charges?
  2. Although the Rule permits banks to deduct a reasonable service charge from the interest forwarded to the Michigan State Bar Foundation, there may be instances when lawyers may have little or no balance in their IOLTA account. As a result, service charges may be imposed but there may not be any interest generated from which to deduct those fees. If that occurs, may a lawyer deposit personal funds into the IOLTA account to cover the bank service fees?

At one time, the ABA Model Code (DR 9-102) specifically authorized lawyers to deposit personal funds into their trust accounts in amounts sufficient to pay or avoid bank charges. The ABA Model Rules (1.15) deleted that provision. Certain states, including California, Minnesota, North Carolina, South Dakota, Washington, and Wisconsin, have revised their rules to specifically permit lawyers to deposit personal funds in their trust accounts in order to pay or avoid bank charges. The Michigan rule does not. Therefore, given the clear language of the rule, a lawyer may not ethically deposit personal funds into an IOLTA trust account in order to avoid paying service charges.

The Committee may wish to consider an amendment to MRPC 1.15, permitting lawyers to deposit de minimis amounts of personal funds into their IOLTA accounts in order to avoid the imposition of bank service charges. In the meantime, an alternative may be to make arrangements to pay the bank separately, rather than in the form of a charge against the account. The Law of Lawyering, Hazard & Hodes, 2d Ed §1.15:201. The lawyer may then include the expense of the depository service charge in the client's bill. Formal Opinion R-7. Banks that are unwilling to waive the service charges may also defer any service charges to the next remitting period or to bill the Michigan State Bar Foundation directly. (See Instructions for Financial Institutions, prepared by Michigan State Bar Foundation.)

The Committee was also asked to address a third question:

    May a lawyer deposit personal funds into an IOLTA account in order to permit immediate disbursement of settlement proceeds received in check form? For example, may a lawyer deposit and segregate $25,000 of his or her own funds into the IOLTA account so that the lawyer may immediately pay his or her client a settlement amount received under that amount without waiting for the settlement check to "clear" the bank?

In light of the clear prohibition against the commingling of funds found in the MRPC 1.15, a lawyer may not ethically engage in the conduct proposed by the question.



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