Rule 1.15(h)

SC Supreme Court rule change affects every lawyer with a trust account

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Make one simple change to stay in compliance

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On October 23, our Supreme Court implemented several changes to the South Carolina Appellate Court Rules dealing with lawyer and judicial disciplinary rules enforcement procedures. If things go well in our respective practices, most of us will never have to study the rule changes.

But one change affects every lawyer with a trust account.

Rule 1.15(h) of the Rules of Professional Conduct has been amended to state that every lawyer maintaining a trust account must file a written directive requiring his or her financial institution to report to the Office of Disciplinary Counsel, rather than to the Commission on Lawyer Conduct, when any properly payable instrument is presented for payment against insufficient funds.

In other words, NSF checks must now be reported by your bank to the ODC.

The Court recognized in a footnote that these written directives will take time to update and that lawyers whose written directives currently require reporting to the Commission on Lawyer Conduct are not in violation of the rule. The Court stated that lawyers should update these directives at their earliest convenience.

Most dirt lawyers pay close attention to detail, and I would recommend paying attention to this one sooner rather than later.

Buried in the Dirt

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Are you sure your IOLTA account was properly established?

A Charleston lawyer just shared a bit of an Interest on Lawyer Trust Accounts (IOLTA) horror story with us, and I’m passing it along for the benefit of all South Carolina practitioners to prevent at least one surprise in future certification attempts.

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This lawyer was being vetted by a third-party vendor for the purposes of staying on the good side of a lender. The vetting company advised that the lawyer’s IOLTA account had been set up incorrectly using his firm’s Taxpayer Identification Number (TIN).  The lawyer called The South Carolina Bar Foundation and learned that the account should have been set up using the Foundation’s TIN: 23-7181552. In order to make this change, the bank required the lawyer to open a new account…with all that entails.

As a review, here are some IOLTA facts.

  • These accounts must be used for client funds that are small in amount or expected to be held for a short time, so that the funds cannot practically be invested for the client because they won’t provide a positive net return.
  • Funds that do not meet the nominal or short-term fund requirements of an IOLTA account should be deposited in a separate demand account to earn interest for the benefit of the client, and the client’s TIN should be used.
  • Some financial institutions waive all fees for IOLTA accounts. If reasonable and customary fees are charged, those fees may be deducted from interest. Other fees and service charges are the responsibility of the attorney.
  • There should be no tax consequences for the attorney or client for IOLTA accounts.
  • The Bar Foundation maintains a list of eligible financial institutions on its website.
  • Rule 1.15(h) of the SC Rules of Professional Responsibility mandates that all lawyers with trust accounts must file a written directive with their bank requiring the bank to report any non-sufficient funds (NSF) transactions. This mandate applies to IOLTA accounts.

Check your IOLTA accounts and make sure you’re in compliance before the vetting companies arrive on the scene!