1. Do I have to have trust accounts? How do I set them up?

It’s theoretically possible that an attorney who limits his or her practice to work where no up-front costs are involved could get by without a trust account and not violate the rules of ethics. An attorney who did only contracted research for another attorney might fall into this category. But even research attorneys or government attorneys sometimes take in occasional outside work or do favors for friends. If you receive client funds or other property in a fiduciary capacity, you must be prepared upon that receipt to treat the money or property as “in trust”. For a fuller discussion of the rules and a graphic demonstration of their application view the training seminar called “Trust Accounts by the Book.” If you’ve just got a quick question about your trust account, feel free to contact The Practice Resource Center of The Florida Bar; we can usually provide you with the answer.

IOTA forms needed to open a trust account at a financial institution are available in the LegalFuel Document Library. Additionally, LegalFuel’s Trust Accounting Resources page includes links to the relevant Rules, Ethics Opinions, and more.

2. Can I open a trust account at my credit union?

Yes, on November 9, 2017 the Florida Supreme Court issued an opinion amending the Rules Regulating The Florida Bar including Rule 5-1.1 (Trust Accounts) which now allows lawyers to maintain trust accounts in federally insured credit unions.

3. What is a proper trust account title?

Rule 5-1.1(a)(1) requires that all trust accounts, including IOTA accounts, should be clearly labeled and designated as a trust account. A correct IOTA account title is the name of the attorney or law firm and the words “trust account.” Neither The Florida Bar’s name nor Funding Florida Legal Aid’s name (Formerly named The Florida Bar Foundation) should be in the account title. Because the information banks provide to Funding Florida Legal Aid does not necessarily disclose the IOTA account titling error, attorneys and law firms should contact their banks to verify that their IOTA accounts are properly titled. In addition, lawyers and law firms should ensure that any statements, checks, or other documentation related to their IOTA accounts reflect the proper titling.

4. Must all client funds be held in an IOTA account?

An attorney should only place funds that are either nominal or short-term into an IOTA account. Rule 5-1.1 (g)(2)-(3), Rules Regulating The Florida Bar states:

(2) Required Participation. All nominal or short-term funds belonging to clients or third persons that are placed in trust with any member of The Florida Bar practicing law from an office or other business location within the state of Florida shall be deposited into one or more IOTA accounts, unless the funds may earn income for the client or third person in excess of the costs incurred to secure the income, except as provided elsewhere in this chapter. Only trust funds that are nominal or short-term shall be deposited into an IOTA account. The member shall certify annually, in writing, that the member is in compliance with, or is exempt from, the provisions of this rule.

(3) Determination of Nominal or Short-Term Funds. The lawyer shall exercise good faith judgment in determining upon receipt whether the funds of a client or third person are nominal or short term. In the exercise of this good faith judgment, the lawyer shall consider such factors as:

(A) the amount of a client’s or third person’s funds to be held by the lawyer or law firm;
(B) the period of time such funds are expected to be held;
(C) the likelihood of delay in the relevant transaction(s) or proceeding(s);
(D) the cost to the lawyer or law firm of establishing and maintaining an interest-bearing account or other appropriate investment for the benefit of the client or third person; and
(E) minimum balance requirements and/or service charges or fees imposed by the eligible institution.

The determination of whether a client’s or third person’s funds are nominal or short term shall rest in the sound judgment of the lawyer or law firm. No lawyer shall be charged with ethical impropriety or other breach of professional conduct based on the exercise of such good faith judgment.

If an attorney determines that the funds are not nominal or short-term, then the funds must be deposited into an interest-bearing account and all interest must go to the benefit of the client.

5. If I charge clients a flat fee and a payment for costs, do I place the funds in trust?

I have recently decided to start charging clients a flat rate for some of the legal services I provide. Some of the services will require a payment for costs. In order to keep things simple I wish to include the amount for costs in the flat rate that I charge. Do I have to place the funds in my trust account?

According to Florida Ethics Opinion 93-2 “advances for costs and expenses must be deposited in the attorney’s trust account and withdrawn and applied against such expenses as they are incurred and paid.”

The opinion states that a “flat fee’ which includes costs:

….should be first deposited in the trust account. Then that portion, if any, of the payment that is considered an earned fee upon receipt should promptly be withdrawn from the trust account. Any portion that does not constitute earned fees must remain in the trust account.

The fact that costs are to be paid out of this “flat fee” complicates matters somewhat. As required by Rule[] … 5-1.1(a), any advance of costs is to be held in trust until used to pay those costs. Therefore, the attorney must make a good faith estimate of the amount of costs to be incurred and must hold that amount in the trust account. Failure to hold the estimated costs in the trust account would result in the attorney paying the costs out of his or her own funds, which would violate Rule 4-1.8(e) (lawyer may not provide financial assistance to client, except to advance costs and expenses). Not holding the estimated costs in the trust account would also result in a commingling violation under Rule [5-1.1(a)] when those funds, which should have been left in trust, are removed and commingled with the attorney’s own funds.

To summarize, a fee paid to the firm that is understood to be earned upon receipt must be placed in the operating account. If money for costs is part of a prepaid lump sum that includes a fee that is deemed earned when paid, then the entire amount must be placed in trust and the earned fee portion promptly withdrawn. If money for costs is part of a prepaid lump sum that includes an advance deposit against fees to be drawn as the services are performed, then the entire amount must be deposited in the trust account, and the fees must be withdrawn within a reasonable amount of time after they are earned. The costs must be disbursed as they are incurred.

6. Is it permissible to transfer money from operating to trust to cover bank fees taken from my trust account?

I have recently opened an IOTA trust account and have been informed by the bank that there will be fees for checks and other fees associated with maintaining the account. The bank has declined to provide these services for free and has asked for a transfer from my operating account to cover these expenses. I am concerned about commingling my own funds with the clients’ funds, but I cannot think of any other way to pay for these expenses. Is it permissible to do what the bank has asked?

Yes. Rule 5-1.1 (a)(1), Rules Regulating The Florida Bar, states that “[a] lawyer may maintain funds belonging to the lawyer in the trust account in an amount no more than is reasonably sufficient to pay bank charges relating to the trust account.”

The deposit should be treated like an individual client account with a ledger, etc. Once the balance gets low, the attorney can deposit additional sums to maintain a sufficient amount to avoid using client funds to pay the bank fees.

7. What is the minimum account balance required to maintain a trust account?

The Florida Bar does not require a minimum balance on your Trust account.  That is something that your bank may require.

At the end of the first paragraph of Chapter 5-1 of the Rules, there is authorization for the firm to maintain a small amount of firm money in the trust account to cover administrative fees charged by the bank to the account.  From that “Firm Admin Money” ledger you would pay service charges, check printing costs, wire transfer fees, etc, (i.e. those fees the firm must pay) if the bank charged these to the IOTA account.  If you did not have firm money in the account and a charge was made by the bank to the Trust, you would be “using other people’s money” to pay that charge which would be a violation.

The rule does not define how much is “a small amount of firm money.”

Participation by the bank in the IOTA program is voluntary, and neither Funding Florida Legal Aid (Formerly named The Florida Bar Foundation) nor The Florida Bar has any leverage over bank policies.

If you are unhappy with a minimum balance requirement or service charge against your IOTA, then you may want to talk directly with the local bank manager to see if those can be waived, or shop around for a more accommodating bank.

If you do close your IOTA trust account, please call Funding Florida Legal Aid at (800) 541-2195 and report the closing to the IOTA Operations Manager.

8. May I keep the copies of canceled trust account checks?

Rule 5-1.2(b)(3), Rules Regulating The Florida Bar, allows attorneys to maintain copies of canceled checks rather than the originals. Most banks now return copies of canceled checks in the monthly bank statements, but generally provide copies of only the front side of the checks. To comply with the requirement, the copy must include both the front and the back of the check. To maintain a copy of the front-side only does not satisfy this requirement because front-side only copies exclude endorsements and bank clearing stamps that are placed on the back of the checks. Endorsements and bank clearing stamps are important portions of the check that establish that the proper payee actually received the intended distribution of trust account funds. Attorneys should request that their bank provide a copy of both sides of their trust account canceled checks in order to meet the minimum trust account record requirements.

9. What do I do with client trust funds that need to be refunded if I cannot locate the client?

Proper handling of funds held in trust for a missing owner is addressed in Rule 5-1.1(i) of the Rules Regulating The Florida Bar. This rule states:

(i) 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.

This rule requires that the funds in question be designated on the attorney’s trust account records as being held for a missing owner, that the attorney make a diligent attempt to contact the clients, and that, if the attorney is unable to contact the clients, the funds be disposed of pursuant to applicable law.

For information regarding reporting unclaimed funds please contact The Florida Department of Financial Services Division of Unclaimed Property at (850) 413-5522, or visit fltreasurehunt.gov.

The steps for reporting and remitting unclaimed property are available on the Unclaimed Property Reporting Information page. You may also want to review the Florida Division of Unclaimed Property Reporting Instructions Manual.

VIEWS AND CONCLUSIONS EXPRESSED IN ARTICLES HEREIN ARE THOSE OF THE AUTHORS AND NOT NECESSARILY THOSE OF FLORIDA BAR STAFF, OFFICIALS, OR BOARD OF GOVERNORS OF THE FLORIDA BAR.