SBM - State Bar of Michigan


July 16, 1991


A lawyer is not required to establish a trust account if funds of clients or third parties never come into the possession of the lawyer.

A law firm procedure established solely to enable the law firm to avoid establishing a trust account, whereby funds to which a client is entitled are sent by the payor directly to the client and checks made payable to the law firm and the client jointly are returned to the payor to be reissued payable to the client alone, is unethical.

References: MRPC 1.2(b), 1.15, 5.1; RI-92.


A legal aid organization has not established a trust account. The organization proposes a procedure whereby, if a check arrives at the organization's offices payable to a client and the organization jointly, the check is returned to the payor with a request that it be reissued as two separate checks. The organization's staff would be told not to accept funds for any client, but to direct that any payments to clients be sent directly to the client.

The organization asks whether the proposed procedure is ethical, and whether the organization's lawyers are required to "be prepared to receive funds or property of a client"?

MRPC 1.15(a) states:

"A lawyer shall hold property of clients or third persons that is in the lawyer's possession in connection with a representation separate from the lawyer's own property. All funds of the client paid to a lawyer or law firm, other than advances for costs and expenses, shall be deposited in an interest-bearing account in one or more identifiable banks, savings and loan associations, or credit unions maintained in the state in which the law office is situated, . . . . Other property shall be identified as such and appropriately safeguarded . . . ."

A lawyer is not required to establish a trust account. Many types of law practice do not involve the handling of funds of clients or third parties, e.g., government lawyers, inside corporate counsel; other law firms have fee arrangements which avoid the handling of client or third party funds, e.g., a law firm which bills clients after all work has been performed, charges no retainers, and advances all costs and expenses of litigation. Under the proposed procedure, the organization contemplates that funds of clients and third parties will never come into the possession of an organization lawyer.

Even a lawyer's best laid plans to avoid custody of funds of clients and third parties may be thwarted by the unpredictable case. In RI-92 we noted that if a lawyer receives notice of a third party claim to the funds in the lawyer's possession, the lawyer is obligated under MRPC 1.15(c) to distribute the funds not in dispute while separately maintaining disputed funds until the dispute is resolved. Further, MRPC 5.1 requires law firms to make reasonable efforts to ensure the firm has in effect measures giving reasonable assurance that all lawyers in the firm conform to ethics rules. Where, as in the case of a legal services organization, the law firm regularly handles funds of clients and third parties, it should establish a trust account.

Therefore, we conclude that the organization's lawyers are required to "be prepared to receive funds or property of a client."

With regard to the proposed procedure to have payors send checks directly to the client, it appears the procedure is proposed solely to avoid establishing a trust account. See Comment, MRPC 1.3, "A lawyer should pursue a matter on behalf of a client despite . . . personal inconvenience to the lawyer."

A lawyer's duty does not terminate when the release is signed. Although a lawyer and client may limit the objectives of representation, MRPC 1.2(b), a lawyer is not ensured that the representation matter has been properly concluded unless the lawyer verifies the accuracy of the payout under the terms agreed to or ordered.

The proposed procedure prevents the lawyer from ensuring that the check amount is accurate and receipt timely. If the check is sent directly to the client and the amount of the check is wrong, the lawyer who does not correct this error would be derelict. Additionally, there are situations where the interpretation of the settlement is disputed, the client who receives the check may not know he/she is getting short-changed, and the lawyer does not know because the lawyer has never seen the check. Particularly in legal aid cases, the defendant might not be represented by counsel and may therefore not recognize the legal obligation to live up to the settlement. There are also situations, as mentioned, where a lawyer is obliged to protect the interest of a third party in the client funds. This duty is impossible to fulfill if the check is sent directly to the client.

Second, a lawyer who returns a check to the payor for reissuance, solely because the lawyer does not have a trust account, runs the risk that the check will be lost, payment to the client delayed, or that the payor will decline to reissue the check. Such consequences would violate the lawyer's fiduciary duties to the client for prompt disposition of the matter and prompt disbursement of proceeds.