We have our second Ethics Advisory Opinion of 2021

Standard

It answers two specific trust account disbursement questions

Ethics Advisory Opinion 21-02 deals with two questions posed by a lawyer concerning a trust account disbursement issue.

The lawyer received settlement funds in a significant amount subject to a valid lien, but the exact amount of the lien has not yet been determined. The parties agreed that the funds will not be disbursed until the lien amount is determined. It is expected that the funds will be held for more than a year. The fee agreement provides that the attorney will receive a contingency fee of a specific percentage plus costs. The client wishes to earn interest of the funds.

The questions presented to the Ethics Advisory Opinion are: (1) Is the lawyer permitted to open a separate account for the funds; and (2) Should the entire amount be held in trust or the entire amount minus the attorney’s fees and costs?

The Committee begins with an examination of South Carolina Appellate Court Rule 412 (a)(3) which requires an IOLTA account for “pooled nominal or short-term funds of clients or third persons.” The opinion states that there is no requirement for a long-term trust account to be an IOLTA account.

Rule 412 (d)(1) says a lawyer must exercise good faith judgment in determining whether funds are nominal or short-term. The rule then states that client or third person funds shall be deposited into an IOLTA account unless funds can earn income for the client more than the costs incurred to secure such income. If the funds can be invested in an interest-bearing account for the benefit of the client at an expense less than the costs of securing that income, then a separate account is permitted.

The Committee opined that a separate account is permitted in this case because the funds in question are not nominal, and they are not short-term because they are expected to be tied up for more than a year. The Committee advised that since the attorney has the duty of keeping client funds secure, it would be the best practice to invest the funds in a government insured account. The Committee then reminded the attorney that all normal trust account recordkeeping rules will apply to the separate account.

Finally, the Committee opined that the attorney is free to disburse attorney’s fees and costs immediately. Since those amounts are not subject to the lien, leaving those funds in the account would amount to improper commingling in violation of Rule 1.15(a).