TRUST ACCOUNT ETHICS RULES -
SENSIBLE, BIZARRE, OR A COMBINATION?
Roger E. Kohn, Esq.
This article was prompted by Advisory Ethics Opinion No. 2002-4
of the Vermont Bar Association Professional Responsibility
Committee (hereinafter "VBA Ethics Opinion 2002-4")
which drew into question the way many lawyers in the state have
been dealing with their trust accounts. The purpose of this
article is to examine the important issue of when funds deposited
in a lawyer's trust account can ethically be disbursed.
VBA Ethics Opinion 2002-4 deals with a number of issues
regarding trust accounts. This article analyzes in detail only the
question of when checks can be written from trust accounts, based
upon the types of instruments received for deposit. Before
discussing this issue, however, it is worthwhile to take a moment
to note three other trust account ethics issues which are often
First, Rule 1.15(a) of the Vermont Rules of Professional
Conduct ("V.R.P.C.") arguably does not permit a lawyer
to keep money in a trust account to cover bank service charges,
even if the amount proposed to be kept in the trust account is
small(1). Rather, when a bank
assesses service charges, the lawyer must promptly place an equal
amount of funds in the trust account. VBA Ethics Opinion 2002-4
states that the VBA Committee encourages amendment of the Rule
"to allow attorney funds to be held in the client trust
account to cover bank service charges as long as those funds are
separately accounted for and designated for this purpose."
Such a change appears to make a great deal of sense.
Second, it is relatively clear that when funds have been held
in the trust account for an extended period of time, and the
lawyer cannot determine to whom these funds belong,
they should be dealt with in accordance with Vermont law
governing unclaimed property, 27 V.S.A. §§ 1208-1238.
Third, it is important to remember that client funds may never
be co-mingled with the attorney's funds, even for a short period
of time. Accordingly, if a personal injury settlement check is
received, the check may not be deposited in the law firm's general
checking account, and separate checks simultaneously written to
the law firm for its fee and to the client for the balance; the
check must be deposited in the firm's trust account.
With these somewhat unintuitive issues out of the way, this
article now turns to its primary focus - how can one, as a
practical matter, deal with tort settlement checks, real estate
closings, and other client matters, while following the ethical
rules required for lawyers' trust accounts.
II. Historical Background - Rampant
The American Bar Association adopted 32 Canons of Professional
Ethics in 1908; these did not deal with the issue in question. The
American Bar Association adopted a model Code of Professional
Responsibility in 1969, which was adopted by the Vermont Supreme
Court in 1971.
Disciplinary Rule 9-102 stated:
DR 9-102 Preserving Identity of Funds and Property of a Client.
- All funds of clients paid to a lawyer or law firm, other
than advances for costs and expenses, shall be deposited in
one or more identifiable bank accounts maintained in the state
in which the law office is situated and no funds belonging to
the lawyer or law firm shall be deposited therein except as
- Funds reasonably sufficient to pay bank charges may be
- Funds belonging in part to a client and in part presently
or potentially to the lawyer or law firm must be deposited
therein, but the portion belonging to the lawyer or law firm
may be withdrawn when due unless the right of the lawyer or
law firm to receive it is disputed by the client, in which
event the disputed portion shall not be withdrawn until the
dispute is finally resolved.
- A lawyer shall:
- Promptly notify a client of the receipt of his funds,
securities, or other properties.
- Identify and label securities and properties of a client
promptly upon receipt and place them in a safe deposit box
or other place of safekeeping as soon as practicable.
- Maintain complete records of all funds, securities and
other properties of a client coming into the possession of a
lawyer and render appropriate accounts to his client
(4) Promptly pay or deliver to the client as requested by a
client the funds
securities, or other properties in the possession of the lawyer
which the client is entitled to receive.
The ABA included some commentary ("notes") following
the Disciplinary Rules; only one dealt with the question we are
considering. This note added nothing relevant to this issue, other
than to explain that the purpose of the rule was to prevent
commingling, and cited a case defining commingling as follows:
[C]ommingling is committed when a client's money is
intermingled with that of his attorney and its separate identity
lost so that it may be used for the attorney's personal expenses
or subjected to the claims of his creditors. . . . The rule
against commingling was adopted to provide against the probability
in some cases, the possibility in many cases, and the danger in
all cases that such commingling will result in the loss of the
Thus, there was nothing in Disciplinary Rule 9-101 which stated
- or even indicated with any degree of clarity - that it was
improper to deposit a client's personal check in a trust account,
and then immediately disburse checks based upon the deposited
funds. Of course, if a check was dishonored, it was relatively
clear from the rest of the Code that it was the lawyer's duty to
immediately deposit funds to cover the dishonored check. There may
or may not have been opinions stating that this was not proper
practice; the point being made is simply that from reading the
Code of Professional Responsibility, it would be difficult to
conclude that this practice was prohibited. In fact, the author
believes that this was the practice of most Vermont attorneys for
In 1999, the Vermont Supreme Court adopted Rules of
Professional Conduct, which were based upon the American Bar
Association's Model Rules of Professional Conduct(3).
Rule 1.15 discusses safekeeping of clients' property, and requires
that property of clients or "third persons" in a
lawyer's possession in connection with representation be kept
separate from the lawyer's own property. Rule 1.15A requires every
law firm or attorney in private practice (or attorneys not in
private practice who receive client funds) to maintain one or more
trust accounts, and specifies how records are to be maintained.
Rule 1.15B deals with interest earned on trust account funds, and
provides for the IOLTA system. Rule 1.15C provides for overdraft
notification to the Professional Conduct Board.
A comment to Rule 1.15 states that "[a] lawyer should hold
property of others with the care required of a professional
fiduciary," and provides that if the property is money it
should be kept "in one or more trust accounts". Except
for this comment, there is nothingin Rule 1.15, 1.15A, 1.15B, or
1.15C which directly states when funds may be disbursed, based
upon the type of check deposited in a trust account, or which even
appears to bear on this issue. The sole exception is the comment
to Rule 1.15 which requires that funds be held "with the care
required of a professional fiduciary". The author knows of no
principal of general fiduciary law that makes it improper to
disburse funds against clients' or commercial checks which are
believed to represent good funds (if the fiduciary is willing to
make good any check which is dishonored)(4)
- although various bar association ethics committees disagree with
this conclusion, as will be discussed below.
V.R.P.C. 1.15(b) states that a lawyer shall deliver to the
client or third person funds that this person "is entitled to
receive". From this language, VBA Ethics Opinion 2002-4
infers that accepting checks which have not "cleared" is
not permitted. But the applicability of this language to the issue
being discussed is hardly clear.
It is of interest that the half-dozen treatises reviewed by the
author make no reference whatsoever to the issue of when
disbursements may be made from trust accounts based upon the type
of instruments deposited. The ABA/BNA Lawyers' Manual on
Professional Conduct, published in 2003, which is probably the
most authoritative and comprehensive resource, has an extensive,
detailed discussion of the ethics of trust accounts, yet makes no
reference whatsoever to this issue. Moreover, the author has found
no court decisions specifically dealing with this issue.
Various ethics committees around the country have dealt with
this issue. Most have concluded that a lawyer may not make
disbursements from a trust account based upon a check received
until that check has been deposited and "cleared" in
some manner, although a number of committees have found exceptions
to this rule. A number of states have adopted statutes and court
rules which provide exceptions. The rationale of the ethics
committee opinions is the same as presented in VBA Ethics Opinion
2003-4. If a check has not "cleared", funds of other
clients held in the trust account could be considered to be
covering the disbursements that have been written; if a check were
to be dishonored, the funds of other clients would be at risk.
It is fair to ask how these committees reached this conclusion.
The rules themselves do not, by their language, dictate this
result. Waiting for checks to "clear" was not the common
practice of most attorneys in Vermont, and it is doubtful that
this was common practice in other states. It seems exceedingly
strange to conclude, in the absence of clear language in the
applicable ethics rules, that a course of conduct practiced by
most attorneys is unethical. There seems to have been an
assumption by these ethics committees that
reasonable fiduciary responsibility required disbursing funds
only against checks that have "cleared," but the
opinions cite no authority, and the author knows of no court
decisions holding that fiduciaries must act in this manner. It
could just as easily been concluded that an attorney does not act
unethically if he or she uses reasonable care, and promptly makes
good any check that is dishonored.
In Vermont, aside from some discussions at miscellaneous ethics
seminars, the issue has not been dealt with until recently. In
January of 2004, the Professional Responsibility Board held that
an attorney should receive a private admonition for disbursing
funds at a real estate closing on the understanding that funds had
been wired to his account. The funds had been intercepted by the
federal Office of Foreign Asset and were thus not deposited in his
account, and the attorney did not check to see that the funds had
actually been received. The Vermont Professional Responsibility
Generally lawyers are prohibited from drawing against funds
that have been deposited to their trust accounts but have not had
time to clear. We are, however, aware that it is common practice
in Vermont real estate closings for attorneys to write checks
against instruments that have been deposited to their trust
accounts but have yet to clear. Our ruling does not cover that
. . . .
We do, however, wish the bar to understand that this practice
[the decision does not make it clear whether "this
practice" is not confirming that wired funds have been
received, or if "this practice" is drawing funds against
checks that have not cleared] violates the Vermont Rules of
Professional Conduct and that in the future should an attorney
write checks on unverified funds, a more severe sanction may be
The decision of the Professional Responsibility Board cites no
authority for the assumption that lawyers are generally prohibited
from drawing against funds in their trust accounts that have not
had time to clear.
In April 2004, the VBA Ethics Opinion 2002-4 was published. As
to the issue in question, this opinion holds that trust account
checks can only be drawn on client funds "after the deposit
on which the check is drawn clears". The opinion specifically
states that this includes checks drawn on another attorney's IOLTA
account or a real estate broker's trust account. The opinion also
provides that settlement funds paid by insurance companies may not
be disbursed from a trust account "until the check from the
insurance carrier clears and the funds covered by the check are
III. Practical Problems
If the VBA Advisory Ethics Opinion is correct, a number of
practical problems are
A number of attorneys deposit insurance settlements of tort
cases in their trust accounts, and simultaneously provide clients
with checks for their share. Other attorneys disburse insurance
settlements when their bank informs them that the funds are
available for withdrawal - but this may be an earlier date than
the date the check is irrevocably credited to the trust account.
If VBA Ethics Opinion 2002-4 is correct, and particularly if it is
interpreted as requiring that funds not be disbursed until a check
is honored by the bank it is drawn on, clients will be delayed in
receiving their checks.
The most difficult issues are presented in real estate
transactions. Attorneys and real estate agents typically bring
trust account checks to closings, and it is common to accept
personal checks for the small amount of additional funds needed to
fund the settlement.
Moreover, VBA Ethics Opinion 2002-4 would make it very
difficult to deal with the common practice of "back to
back" closings, being a closing in which the funds received
by a buyer are used by that buyer to purchase another home the
In addition, as discussed below, what is meant by a check
"clearing" or funds "being available" is not
as clear as it might seem at first glance; if strictly construed,
there might be a very substantial delay before a disbursement
could be made against a check which has been received.
Finally, it is important to remember that trust accounts are
used for purposes other than settlements of tort cases and closing
of real estate transactions. VBA Ethics Opinion 2002-4 is likely
to create difficulties in these other contexts as well. For
example, how should a lawyer handle the situation if all or a
portion of a fee retainer check deposited in a trust account is to
be refunded to the client within several days because the matter
becomes moot or the attorney's work is quickly completed?
Attorneys often hold deposits for the sale of real estate, the
purchase and sale of a business, or pursuant to other types of
contracts - what if these need to be unexpectedly returned or
disbursed shortly after receipt?
IV. Policy Questions
It is appropriate to ask what ethics rule would best serve the
The problem is that there are conflicting interests. On one
hand, it is clear that it is of primary importance to protect the
safety of client funds. On the other hand, if safety can be
reasonably assured, roadblocks should not be created that make it
difficult for clients to carry out transactions with the
assistance of their attorneys. There is an important public value
in permitting commercial transactions to proceed in a reasonable
manner, without undue difficulty and expense (and without creating
additional legal work, for which the client must pay the
When a thorough analysis is undertaken, it becomes obvious that
there is no way to have an absolute guarantee of safety, other
than by accepting cash (which creates a number of other problems,
including reporting requirements), a cashier's check or similar
instrument (which can be dishonored, but only in unusual
circumstances),(6) or wired funds.
With regular checks, funds may be "available," in that a
bank will disburse funds based upon that deposit, but the check
can still be dishonored by the payor bank (the bank on which the
check is drawn).
With the exception of very large checks, checks drawn on
foreign banks, or checks that are otherwise unusual, banks will
generally make funds available for withdrawal on the next business
day after deposit. "Local" checks, being checks drawn on
banks within the same Federal Reserve Board Region, are usually
honored by the banks on which they are drawn within two or three
business days. Checks from banks in other regions are usually
honored within five business days, although this can occasionally
take seven business days. In extremely unusual circumstances this
can take 11 days. Banks are not notified that checks have been
honored by the payor bank, but only are notified if they have been
What is needed is to strike a proper balance between safety and
practicality, with the understanding that safety is paramount. And
it must be remembered that if there are some circumstances in
which the funds might not be honored in a trust account, it is
quite clear ethically that the lawyer must pay those funds,
subject to whatever rights the lawyer has against the defaulting
party. The question is when is it unethical for the attorney to be
willing to take that risk.
A further consideration is that the ethical rule was designed
to prevent commingling of funds - because that could lead to the
embezzlement by the attorney of the clients' funds. Very little,
if any, consideration appears to have been given by the drafters
of the rule to the question raised here - as evidenced by the fact
that the Code of Professional Responsibility does not
unambiguously deal with this issue. And it is particularly
important to note that the problem has historically been
embezzlement by attorneys, not the failure of attorneys to make
good on checks which have been dishonored. There are numerous
cases of attorneys being disbarred for embezzling client funds.
The author is not aware of any case in which a client has lost
money because a check, innocently deposited in a trust account,
dishonored and the lawyer has not subsequently made up the
funds.(8) It does not make sense to
create substantial practical problems in order to solve a
theoretical problem which has not historically created
Where then to strike the balance? It seems particularly clear
that cashier's checks should be considered funds that are
immediately available - any risk of dishonor is extremely small.
Similarly, the extensive regulation of attorney's trust accounts
and realtor's trust accounts would make it appropriate to accept
checks drawn on those accounts as immediately available. It would
also seem that checks from insurance carriers licensed in Vermont(9)
and from governmental agencies should be considered to be
immediately available. Finally, the author would argue (although
this proposal may require a rule change) that the Florida Supreme
Court rule discussed infra - that no ethical violation
occurs if a dishonored check is promptly paid by the attorney - is
the best policy. Alternatively, relatively small checks of
clients, such as those needed to make up relatively small amounts
of money needed at real estate closings, should be accepted if the
attorney is willing and able to immediately cover any dishonored
The author believes that the best policy would be to leave to
the professional judgement of the attorney the decision of when
trust account checks can be disbursed, with appropriate education
of attorneys as to the risks involved. Different transactions and
different payors may dictate different practices. Nevertheless, if
attorneys are not going to be permitted to disburse funds until
certain types of checks have "cleared," it is crucial to
develop a workable standard as to when this occurs.(10)
It is simply not practical, and may not even be possible, for an
attorney to determine with certainty whether a check has been
honored by the bank on which it is drawn and irrevocably credited
to a trust account. It would certainly not be feasible for a law
firm to make this determination for a substantial number of checks
on a regular basis. The sensible policy would be to allow lawyers
to assume, in the absence of bank notice to the contrary, that
checks that have been deposited for a certain period of time have
"cleared". Three business days for local checks, seven
business days for checks drawn on banks from a different Federal
Reserve Board region, and a longer period for foreign banks might
be the appropriate period of time.
V. What is the Law?
Despite VBA Ethics Opinion 2002-4, the law remains unsettled.
To understand this, it is important to understand the difference
between a VBA Ethics Opinion, a Professional Responsibility Board
decision, and a Supreme Court decision.
The Rules of Professional Conduct are "the law". Once
interpreted by the Vermont Supreme Court, the Court opinion
becomes part of "the law". Since the Rules of
Professional Conduct are ambiguous, and there is no Vermont
Supreme Court decision interpreting them, it seems fair to say
that the law is unsettled.
The Professional Responsibility Board is an official body which
disciplines attorneys, subject to an appeal to the Supreme Court.
Accordingly, its decisions are analogous to a lower court's
decision on a point of law - precedent, but not dispositive
precedent. To date, there is only a decision from the Professional
Conduct Board, which, in dictum - states: "Generally
lawyers are prohibited from drawing against funds that have been
deposited to their trust accounts but have not had time to
Decisions of the VBA Professional Responsibility Committee are
not "the law". The Vermont Bar Association is a private
trade organization, and the Professional Responsibility Committee
is simply one of its appointed committees. Its decisions have no
binding legal effect. That said, it must be recognized that the
Committee is composed of private practitioners who are extremely
well respected, and have spent substantial time in the thankless
and difficult task of interpreting the Code of Professional
Responsibility. The opinions of the VBA Professional
Responsibility Committee accordingly carry substantial weight.
These are analogous to the decisions of commentators or authors of
treatises (e.g., C.J.S.; Corbin on Contracts).
Thus, a decision of the Committee is important and deserves
VI. What Do Other States Do?
One possible way to clarify the situation would be for the
Vermont Supreme Court to adopt a clarifying rule on trust
accounts, or for the legislature to adopt a statute. For example,
a Georgia statute(11) permits
funds to be written against a certified check, cashier's check,
treasurer's check, or similar primary obligation of a federally
insured banking institution, a check issued by a lender approved
by HUD, a check issued by a lender qualified to do business in
Georgia, a trust account check of a Georgia attorney, a check
drawn on the escrow account of a real estate broker licensed in
Georgia, a check issued by the federal government, a check issued
by the State of Georgia, a check issued by any political
subdivision in the State of Georgia, or personal checks not
exceeding $5,000 per loan closing.
The Delaware Supreme Court adopted a rule similar to the
Georgia statute, providing that disbursements could be made
against uncollected funds when the deposit is made by a certified,
treasurer's or cashier's check, a check from any federally or
state chartered banking institution, a check of the State of
Delaware or the U.S. Treasury, a check drawn on the trust account
of a licensed Delaware lawyer or (up to a statutory limit) a
Delaware real estate broker, or a check issued by an insurance
company licensed to transact business in Delaware. A check for
less than $10,000 can also be drawn against even if uncollected.(12)
The Florida Supreme Court also adopted a similar rule,
providing that disbursements could be made against uncollected
funds when the deposit is made by a certified check or cashier's
check, a check from any federally or state chartered banking
institution, a check of the State of Florida or any agency or
political subdivision of the State of Florida, a check drawn on
the escrow or trust account of a licensed Florida lawyer or real
estate broker, or a check issued by an insurance company, title
insurance company, or a licensed title insurance agency authorized
to do business in the State of Florida(13).
The Florida Supreme Court rule has an additional provision,
which brings Florida practice in line with former Vermont
practice. If a lawyer accepts a check other than the specified
instruments and "personally pays the amount of any failed
deposit or secures or arranges payment from sources available to
the lawyer other than trust account funds of other clients, the
lawyer shall not be guilty of professional misconduct."(14)
Although an exhaustive review of court rules around the country
has not been undertaken, it is likely that a number of other
courts have adopted similar rules.
Some states, without detailed rules on the issue, have
incorporated the provisions of statutes regulating real estate
settlements. A Virginia ethics opinion(15)
has interpreted Virginia's rules as permitting disbursements on
funds that have not yet cleared in accordance with Virginia's
"Wet Settlement Act" (VA. Code § 6.1-2.10, et seq.,
which applies only to transactions involving not more than four
residential dwelling units).
North Carolina also allows such disbursements in connection
with its Good Funds Settlement Act, N.C. Gen. Stat. Ch. 45A. A
North Carolina ethics opinion held that a lawyer may issue trust
account checks drawn against funds which have not been collected,
if they are the types of instruments referred to in the Georgia
statute and Florida and Delaware rules (North Carolina allows any
check drawn on the trust account of a North Carolina lawyer, and
checks totaling $10,000 or less per closing drawn on the trust
account or escrow account of a licensed real estate broker, and
personal or commercial checks totaling $5,000 or less per
Vermont has a similar statute, the Funded Settlement Act, 9
V.S.A. §201 et seq. This statute, which applies to loans
secured by first mortgages on owner-occupied one-to-four-unit
residential real estate, requires the delivery of loan funds at or
before the closing in cash, wired funds, certified, cashier's or
teller's checks, checks from state or federally chartered
financial institutions, or checks from insurance companies
licensed in Vermont. The settlement agent must disburse funds at
the closing or on the first business day after a right of
Accordingly, if guidance is taken from other states ethics
opinions, it appears that Vermont attorneys complying with the
Funded Settlement Act would not be in violation of the ethics
There remains the question of when funds are considered
"collected" if collected funds are required. The author
knows of no court decisions specifically deciding this issue in
the context of the ethics rules.
In summary, a number of states have, by rule or statute,
specified the types of funds against which trust account checks
can be immediately disbursed. These include cashier's checks, and
lawyers and real estate brokers trust account checks. And it is
not uncommon to permit personal checks to be used up to a
specified amount per real estate closing, if the attorney
immediately covers any check that does not clear.
VII. How Can The Issue Be Clarified in
Our options in Vermont, if we disagree with VBA Ethics Opinion
2002-4, or if we want further clarification, are as follows:
- An individual lawyer can, if he or she is willing to take
the risk that his or her action will be considered
unethical, conclude that the VBA Ethics Opinion is wrong,
and continue to accept attorneys' trust account checks and
real estate brokers' trust account checks, unless and until
the Supreme Court rules otherwise. If the attorney is
willing to take an even greater (probably much greater)
risk, the attorney could take the position that small
personal checks could also be collected at closings.
- The Vermont Supreme Court could be asked to pass a rule
incorporating the provisions set forth by the rules of other
state courts which have specifically dealt with the
- The legislature could be asked to pass a statute.
Attorneys will have to make up their own minds as to when funds
should be considered "collected" under the present
ethics rule, or the VBA Committee can be asked to clarify this
VIII. How Do We Live With The Ethics
Opinion If It Is Correct?
If the VBA Ethics Opinion is correct, and the rules are not
changed, how can
lawyers conduct their practices?
For insurance settlements in tort matters:
- Attorneys may have to simply wait until the insurance
company check has "cleared", whenever they conclude
that has occurred.
- Attorneys can ask insurance companies to provide cashier's
checks or wire settlement funds to their trust accounts.
- It is possible that, if the attorney trusts the client a
great deal, the full check can be given to the client, and the
client requested to write a check (or obtain a cashier's
check) for the legal fee. Although it is clear that the check
cannot be deposited in a lawyer's business account, it may be
possible to give the check to the client in these
circumstances. There seems to be no reason why this would
violate the rule, and an ethics opinion from North Carolina
has specifically approved this procedure.(16)
With regard to real estate transactions, there are two
- Attorneys can insist on wired funds or cashier's checks.
- Attorneys can have the buyer accept funds directly from
the seller, if the buyer is willing to do so. In other
words, the buyer could pay all or a portion of the
disbursements that are normally paid from the attorney's
trust account directly from the buyer's own checkbook.
As to both tort and real estate matters (and any other types of
matters), there are two other possible creative approaches:
- If the attorney is willing to go through the difficulty and
expense of setting up a separate trust account or trust
accounts, which have no other client's funds in them (this
would usually be a newly opened account, although it is
possible this could be an account in which the attorney is
certain that all previous checks that were written have
actually been cashed by the recipients), that account could
presumably be used to disburse funds for a specific tort
settlement or closing. Using such an account would not put any
of the attorney's other clients' funds at risk, because there
are no other clients' funds in the account. This procedure was
approved by a Kansas ethics opinion.(17)
- It is possible that, with a client's approval, funds could
be paid to an independent third party escrow agent who would
hold and disburse the funds under an agreement with the
client. Nassau County Bar Association Opinion 91-30 provides
that this may be done for real estate transactions if the
lawyer determines that the "escrow agent is fiscally
responsible and that the terms of the escrow are consistent
with his client's needs".
- Perhaps the most intriguing solution, which if approved
could solve all of the problems set forth in this article, is
an approach which was approved by an ethics opinion of the
Washington State Bar Association in 1984. That opinion held:
"An attorney may enter into an arrangement with a
financial institution whereby the attorney's credit is used to
permit immediate payment of trust obligations, providing there is
a written agreement with the financial institution guaranteeing
that the trust deposits of any other clients are never
Accordingly, if Vermont lawyers are able to reach an
arrangement with banks whereby the banks agree that they will
never allow a "bounced" trust account check to affect
their payment of other trust account checks, all the problems
discussed in this article might be solved. Whether such an
agreement can be reached with a bank is unknown, but is certainly
worth exploration by the Bar. Whether the Vermont Supreme Court,
the Professional Responsibility Board, or the VBA Ethics Committee
will agree with the analysis of the Washington State Bar
Association that this is ethical is also unknown. It would seem
that this would resolve the issue of guaranteeing that clients
funds will not be adversely affected by trust account practices.
The written ethics rules were written to prevent commingling of
clients' and attorneys' funds, and to prevent embezzlement by
attorneys. It is difficult to determine from a reading of the
rules that they provide other restrictions on the disbursement of
funds, beyond requiring an attorney to act reasonably to protect
the other funds in a trust account. However, a gloss has been
placed on these rules by ethics committees in a number of states,
and such a gloss has now been placed on them by the VBA
Professional Responsibility Committee.
It is suggested that a debate should ensue as to what policy is
in the best interests of the public, and what interpretation or
revision of the ethics rules is appropriate to protect these
interests. Further clarification from the VBA Professional
Responsibility Committee, a new rule from the Vermont Supreme
Court, or legislation from the state legislature would certainly
be helpful, and may be necessary to formulate the policy which
best strikes the balance between the competing concerns of safety
of client funds and the ability of clients to transact business
without unnecessary delay and difficulty.
NOTE: This article was published, with minor revisions, in the June 2004 issue of the Vermont
Bar Association Journal.
Revised May 7, 2004
Copyright (c) 2004 Kohn Rath Danon & Appel, LLP
Permission for non-commercial copy is granted - all other
1. This issue is not completely clear.
Disciplinary Rule 9-102 (A)(1), discussed infra,
specifically allowed funds to be deposited "reasonably
sufficient to pay bank charges." Accordingly, in 1995, the
Los Angeles County Bar Association Professional Responsibility and
Ethics Committee, in Formal Opinion 485, held that a lawyer may
keep a small amount of personal funds in a client trust account to
cover bank service charges such as check printing. It is not clear
that the Rules of Professional Conduct, which replaced the
Disciplinary Rules, intended to change this provision.
It should be noted that this same Los Angeles County Bar
Association opinion held that a lawyer may not maintain a
"buffer" against overdrafts and bank errors. The
rationale for not permitting a "buffer" against
overdrafts and bank errors is commonly stated as an intention to
make certain that any overdrafts and bank errors are reported to
the Professional Responsibility Board, and investigated for
possible attorney fraud.
2. Note 10, citing Black v. State Bar,
57 Cal.2d 219, 225-26, 368 P.2d 118, 122, 18 Cal.Rptr. 518, 522
3. The Rules are published in the volume of
Vermont statutes which includes the rules of probate procedure,
under "Administrative Rules".
4. The author has found no Vermont case or
statute prohibiting fiduciaries from so acting. The Uniform
Fiduciaries Act adopted by the National Conference of
Commissioners on Uniform State Laws and adopted by the ABA in 1922
does not deal with this issue.
5. Professional Responsibility Board
Decision No. 62 (Jan. 28, 2004).
6. This article uses the term
"cashier's checks" to include cashier's checks,
certified checks, treasurer's checks, and similar instruments.
Payment cannot be "stopped" on a cashier's check, in
that a bank cannot be ordered to refuse to pay such a check.
Nevertheless, some banks will refuse payment as an accommodation
to a customer, although the Uniform Commercial Code discourages
this by imposing penalties for wrongful dishonor. See 9A V.S.A. §3-411,
7. This information has been provided by a
local bank branch manager. See also Federal Reserve Board
8. It is also relevant that there is a
client's security fund, managed by the Vermont Bar Association,
which provides an additional layer of protection for clients.
9. There is little risk of dishonor of
checks issued by national insurance carriers (assuming care is
taken to be certain the endorsement is correct).
10. If a check must "clear", does
this mean that the funds are available for withdrawal pursuant to
Federal Reserve Board Regulation CC, or when final settlement is
made by the payor bank in accordance with the Uniform Commercial
11. Georgia Code § 44-14-13.
12. Delaware Lawyers' Rules of Professional
Conduct, Rule 1.15(n).
13. Rules Regulating the Florida Bar, Rule
5-1.1(i). All the rules and statutes cited in this article require
that the lawyer have a reasonable and prudent belief that the
instrument will clear and constitute collected funds within a
reasonable period of time.
15. Legal Ethics Opinion No. 183 (October
16. North Carolina State Bar, 2001 Formal
Ethics Opinion 3.
17. Kansas Bar Association, Ethics Advisory
Committee, Opinion 99-04, issues July 14, 1999.
18. Washington State Bar Association,
Formal Opinion 177 (1984).