NOTE: Various provisions of this ethics opinion have been superseded by amendments to Michigan Rule of Professional Conduct 1.15 dated October 25, 2005. For more detailed information visit the Michigan State Bar Foundation website at www.msbf.org.

R-7

April 27, 1990

SYLLABUS

Unless they establish a separate interest-bearing account for a particular client, all lawyers who receive funds belonging to clients or third parties in the course of their practice must establish and maintain an interest-bearing pooled client trust account separate from the lawyers' business and personal accounts.

Funds belonging to clients or third parties coming into the possession of a lawyer must be held separate from the lawyer's or law firm's own property and, other than advances for costs and expenses, must be deposited into an interest-bearing client trust account. Advances of attorney fees must be deposited into the trust account and may not be withdrawn until the fee is earned and the client is provided an accounting.

Upon receipt of funds belonging to a client or third party, a lawyer shall promptly notify the party that the funds are in the lawyer's possession, promptly disburse funds which are not in dispute to the proper party, and upon request render an accounting of the funds. Funds to which the ownership is disputed shall be held by the lawyer until the dispute is resolved.

A lawyer shall keep accurate, complete and timely records of trust account deposits and withdrawals, detailing the deposits and withdrawals client by client. In addition to trust account records from the depository institution, a lawyer or law firm should (1) keep separate daily ledgers showing all client funds received, deposited, and disbursed, and (2) maintain separate records for each client.

References: MRPC 1.3, 1.4, 1.5(b), 1.15, 5.1, 5.3; RI-10; CI-463, CI-477, CI-527, CI-579, CI-590, CI-636, CI-884; In the Matter of Barbara, ADB #DP 195/80, 1/8/81; In re Benschoten, Mich Grievance Com. #34274-A, 9/22/77; Schwartz v. Cummins, ADB 159-88, 12/5/88; Schwartz v. Davey, ADB 27-88, 44-88, 12/6/88; Schwartz v. Edwards, ADB 31-88, 47-888, 12/6/88; Schwartz v. Fischer, ADB #DP 73/86, DP 100/86, 1/30/87; Grievance Administrator v. Furcron, ADB 90-88, 1/17/89; Schwartz v. Goldberg, ADB #DP 2/80, 3/10/81; Schwartz v. Hasty, ADB 1-87, 2/8/88; Grievance Administrator v. House, ADB 219-87, 247-87, 6/28/89; Schwartz v. Hunter, ADB #DP 197/84, 176/85, 1/30/87; Schwartz v. Kavanaugh, ADB #DP 71/84, 9/30/85; In the Matter of Luoma, ADB #DP 171/82, 252/82, 9/30/83; Schwartz v. Lupiloff, ADB #DP 34/85, 3/24/88; Schwartz v. Molette, ADB #DP 20/85, 3/4/87; Schwartz v. Nelson, ADB #DP 127/86, 165/86, 3/27/87; In the Matter of Oeming, ADB #DP 106/83, 3/13/84; In the Matter of Reibel, ADB #DP 141/80, 7/29/81; Grievance Administrator v. Richards, ADB #DP 120/83, 7/18/83; Grievance Administrator v. Sauer, ADB 9-89, 12/8/89; Schwartz v. Scott, ADB #DP 178/85, 2/8/88; Grievance Administrator v. Shek, ADB 222-87, 3/13/89; Grievance Administrator v. Swor, ADB 118-87, 3/16/89; Grievance Administrator v. Williams, ADB 130-87, 12/29/88; Grievance Administrator v. Wright, ADB 126-37, 12/8/88; Archer v. State, 548 SW2d 71 (Tex Civ App 1977); Attorney Grievance Comm'n of Maryland v. Morris, 469 A2d 853 (1984), cert den 466 US 974; In re Baldwin, 271 SE2d 626 (Ga 1980); Baranowski v. State Bar, 24 Cal3d 153, 593 P2d 613 (1979); Black v. State Bar of California, 7 Cal3d 676, 499 P2d 968 (1972); Committee on Professional Ethics v. White, 209 NW2d 11 (Iowa 1973); The Florida Bar v. Baker, 419 So 2d 1054 (1982); The Florida Bar v. Carter, 502 So 2d 904 (1987); In re Heffernan, 351 NW2d 13 (Minn 1984); Husted v. Gwin, 446 NE2d 1361 (Ind App 1983); In re Disciplinary Proceedings Against Hetzel, 346 NW2d 782 (Wis 1984), later proceeding, 369 NW2d 394 (1985); In re Lavine, 436 A2d 1347 (NJ 1981); Louisiana State Bar Ass'n v. Hopkins, 447 So 2d 464 (La 1984); In re Morton, 504 NE2d 279 (Ind 1987); North Carolina State Bar v. Sheffield, 326 SE2d 320 (1985), cert den 332 SE2d 482; Office of Disciplinary Counsel v. Kick, 502 NE2d 640 (Ohio 1986); Ohio State Bar Ass'n v. Jewett, 462 NE2d 1221 (Ohio 1984); In re Okerman, 310 NW2d 568 (Minn 1981); In re Scanlon, 697 P2d 1084 (Ariz 1985); Re Sekerez, 458 NE2d 229 (Ind 1984), cert den 105 S Ct 182; In the Matter of Silberzweig and Sznitken, 548 NYS2d 587, 153 AD2d 1 (1989); In re Teichner, 470 NE2d 972 (Ill 1984).

TEXT

The Committee has received a number of inquiries from lawyers regarding the establishment and use of client trust accounts. Some of the inquiries reflect a lack of information or understanding of the underlying philosophy, case law, and ethics decisions regarding funds and property of clients and third persons. Other inquiries result from confusion regarding the Interest On Lawyer Trust Accounts [hereinafter "IOLTA"] proposal, and could not be finally resolved until the Supreme Court made a final decision regarding IOLTA, which becomes effective October 1, 1990.

The Attorney Discipline Board opinions show there is an increase in the number, frequency, and dollar amount of trust account violations, and claims to the State Bar Client Security Fund underscore the damages clients have suffered in this area. Although several states have record keeping rules, mandatory trust account rules, "spot-audits," or trust account overdraft notification rules, the Michigan Supreme Court has not promulgated similar rules.

The lack of guidance for Michigan lawyers in this area is one factor contributing to this type of professional misconduct. Therefore, the Committee provides the following guidance concerning ethical requirements applicable to the establishment and maintenance of lawyer trust accounts for the deposit of funds belonging to clients and other persons.

I. SCOPE OF REQUIREMENT

MRPC 1.15(a) as amended by the Supreme Court on February 22, 1990, and effective on October 1, 1990, states:

"A lawyer shall hold property of clients or third persons that is in a 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, and no funds belonging to the lawyer or the law firm shall be deposited therein except as provided in this rule. Other property shall be identified as such and appropriately safeguarded. Complete records of such account funds and other property shall be kept by the lawyer and shall be preserved for a period of five years after termination of the representation." Emphasis showing amendment effective 10/1/90.

This rule is the foundation for what is commonly known as "trust account requirements."

Requirement for Interest-bearing Account. New provision MRPC 1.15(d) establishes requirements for lawyer participation in the "Interest on Lawyer Trust Accounts" program. All funds belonging to a client or third party received by a lawyer, except advances for costs and expenses, must be placed in an interest-bearing trust account pursuant to MRPC 1.15(a), and pursuant to MRPC 1.15(d)(1) every lawyer or law firm receiving client funds must have an interest-bearing pooled trust account separate and distinct from the lawyer's or firm's business operating account, unless pursuant to MRPC 1.15(d)(2) there is a separate interest-bearing trust account established for the individual client. The interest earned on the pooled account must be remitted to the Michigan State Bar Foundation unless the depository institution or the lawyer computes interest for each pooled client enabling the payment of the interest to the client. The interest on the separate MRPC 1.15(d)(2) trust accounts must be remitted to the client. MRPC 1.15(d) states:

"(1) Except as set forth in paragraph (d)(2), a lawyer who or a law firm which receives client funds shall maintain a pooled interest-bearing trust account for deposit of client funds, other than advances for costs and expenses, which at the time of receipt and deposit the lawyer or law firm reasonably anticipates will generate $50 or less in interest during the period for which it is anticipated such funds are to be held. Such an account shall comply with the following:

"(A) No interest from the account shall be made available to the lawyer or law firm.

"(B) The account shall include all client funds which are not expected to earn more than $50 in interest during the period it is anticipated such funds are to be held unless such funds are deposited in an interest-bearing account specified in paragraph (d)(2). The good faith decision by the lawyer as to whether funds are expected to earn this amount is not reviewable by a disciplinary body.

"(C) Funds deposited with a bank, savings and loan association or credit union shall be subject to withdrawal upon request and without delay, and shall be insured by an agency of the federal government.

"(D) The interest paid on the account shall not be less than the rate paid by the bank, savings and loan association or credit union to any other nonlawyer customers on accounts of the same class within the institution.

"(E) The lawyer or law firm shall direct the bank, savings and loan association, or credit union to:

"(i) remit the interest, less reasonable service charges, at least quarterly to the Michigan State Bar Foundation;

"(ii) transmit, with each remittance to the Michigan State Bar Foundation, a report which shall identify each lawyer or law firm and the amount of the remittance attributable to each account maintained by each lawyer or law firm; and

"(iii) transmit to the depositing lawyer or law firm in accordance with normal procedures for reporting to depositors, a report which shall indicate account balances, the rate of interest applied, interest earned, service charges, and the amount remitted to the Michigan State Bar Foundation.

"(2) All client funds shall be deposited in the account specified in paragraph (d)(1) unless they are deposited in:

"(A) a separate interest-bearing trust account for the particular client or client's matter on which the interest will be paid to the client; or

"(B) a pooled interest-bearing trust account with subaccounting by the financial institution or by the lawyer or law firm that will provide for computation of interest earned by each client's funds and the payment thereof to the client."

Client and Third Party Property Protected. MRPC 1.15 is intended to protect client funds as well as nonclient property in the possession of the lawyer, Schwartz v. Cummins, ADB 159-88, 12/5/88, settlement check must be placed in trust account; Schwartz v. Davey, ADB 27-88, 44-88, 12/6/88, funds held as fiduciary must be placed in trust account; Grievance Administrator v. House, ADB 219-87, 247-87, 6/28/89, lawyers serving as trustees or other fiduciaries must abide by trust account prescriptions. Only client funds or monies belonging to third parties may be placed in the lawyer trust account.

No Personal Use of Trust Account. The lawyer trust account may not be used as a depository for the lawyer's business or personal property, CI-477; Schwartz v. Scott, ADB #DP 178/85, 2/8/88, (using trust account as business account to avoid IRS attachment of firm assets for back taxes results in three-year suspension), or as a substitute for an operating account. Funds of the lawyer or law firm must be segregated from client funds. A lawyer may not deposit personal funds into the lawyer trust account for any reason.

II. DISCIPLINARY IMPACT

Commingling. Failure to keep client funds and third party funds separate from the funds of the lawyer and the law firm is commingling and misconduct in violation of MRPC 1.15(a). In the Matter of Reibel, ADB #DP 141/80, 7/29/81, 90-day suspension for failing to segregate funds of the client; Schwartz v. Hunter, ADB #DP 197/84, 176/85, 1/30/87, two-year suspension for failing to segregate and for converting third party funds. See also, 94 ALR3d 846 (1979). Even without injury to the client and in the absence of conversion, failing to deposit client property or third party property in the trust account is unethical. Archer v. State, 548 SW2d 71 (Tex Civ App 1977); Committee on Professional Ethics v. White, 209 NW2d 11 (Iowa 1973).

Misappropriation. Few acts of professional misconduct are more egregious than the misappropriation of client funds, In the Matter of Fischer, ADB 73/86, ADB 100/86, 1/30/87, citing In re Wilson, 81 NJ 451; 409 A2d 1153 (1979). Failing to deposit funds in the trust account, Schwartz v. Molette, ADB #DP 20/85, 3/4/87; or misappropriating trust account funds to the lawyer's own use, Schwartz v. Fischer, ADB #DP 73/86, DP 100/86, 1/30/87, is grounds for discipline.

Lawyer Fully Responsible for Account Handling. Lawyers have been disciplined when the lawyer's employee deposits the client's money in the firm's business account by mistake, the Attorney Discipline Board stating:

"Attorneys are responsible for the acts and omissions of their employees who must be properly trained and supervised, especially with regard to client property . . . . It is an untenable conclusion that an attorney may commingle, convert, or apply to his own use a client's funds so long as he later performs sufficient legal work to earn the commingled or converted sum." Schwartz v. Kavanaugh, ADB #DP 71/84, 9/30/85, 60-day suspension. See also, MRPC 5.3.

Nor is inexperience an excuse for trust account violations, Grievance Administrator v. Richards, ADB #DP 120/83, 7/18/83, three-year suspension for lawyer who paid personal debt from the firm trust account and subsequently reimbursed the account:

"Under certain circumstances Respondent's inexperience might be considered a mitigating factor [citation]. However, we do not believe there is a logical nexus between time in legal practice and basic character and judgment preventing a lawyer from abusing his or her position of trust by embezzlement."

See also, Louisiana State Bar Ass'n v. Hopkins, 447 So2d 464 (La 1984); Attorney Grievance Comm'n of Maryland v. Morris, 469 A2d 853 (1984), cert den 466 US 974.

All of the partners of a law firm may be held liable for commingling, conversion, or other mishandling of client funds by one of the firm's members, or for failure to properly supervise nonlawyer members, regardless of lack of actual knowledge. See MRPC 5.1 and 5.3; In re Benschoten, Mich Grievance Com. #34274-A, 9/22/77; Schwartz v. Scott, ADB #DP 178/85, 2/8/88; Husted v. Gwin, 446 NE2d 1361 (Ind App 1983); Black v. State Bar of California, 7 Cal3d 676, 499 P2d 968 (1972); Re Sekerez, 458 NE2d 229 (Ind 1984), cert den 105 S Ct 182.

Lawyer's Personal Use of Funds. Funds from the trust account may not be used to directly pay a personal creditor of a lawyer, even if the lawyer has earned the fee. Writing personal checks on the trust account is conversion, i.e., "misappropriation of client property to the lawyer's use." In the Matter of Oeming, ADB #DP 106/83, 3/13/84, 121-day suspension; Grievance Administrator v. Williams, ADB 130-87, 12/29/88, disbarment; Grievance Administrator v. Furcron, ADB 90-88, 1/17/89, disbarment; Grievance Administrator v. Richards, ADB #DP 120/83, 7/18/83, three-year suspension; Schwartz v. Nelson, ADB #DP 127/86, 165/86, 3/27/87, six-month suspension for depositing, then immediately withdrawing and converting funds; In re Okerman, 310 NW2d 568 (Minn 1981); In re Lavine, 436 A2d 1347 (NJ 1981); The Florida Bar v. Baker, 419 So 2d 1054 (1982).

III. ESTABLISHING AN ACCOUNT

In-state Pooled Account. A lawyer may select an in-state savings and loan, bank or credit union for the establishment of the lawyer's or law firm's pooled trust account, if the financial institution's deposits are insured by an agency of the federal government, MRPC 1.15(d)(1)(C); Schwartz v. Davey, ADB 27-88, 44-88, 12/6/88, depository institution must be in-state. The pooled account must accommodate withdrawal of sums from the account without delay, for convenience of the client and the lawyer. The financial institution must agree to remit the interest earned on an IOLTA account at least quarterly to the Michigan State Bar Foundation, with reports to the Foundation and the depository lawyer or law firm as required by MRPC 1.15(d)(1)(5).

Client funds not expected to earn more than $50.00 in interest during the duration of deposit are required to be placed in an IOLTA account from which the interest is forwarded to the Michigan State Bar Foundation, MRPC 1.15(d)(1). Client funds expected to earn more than $50.00 interest during deposit must be placed either (a) in a separate interest-bearing trust account for the particular client or client's matter, or (b) in a pooled interest-bearing trust account with subaccounting in which the law firm or the depository institution calculates the interest for each client, thus enabling the return of the interest to the client. See, CI-590, CI-579.

Separate, Non-pooled Accounts. Funds expected to earn more than $50.00 interest during the period which the funds are anticipated to be held must be deposited in a separate interest-bearing account for the particular client or client's matter on which the interest will be paid to the client, or in a pooled interest-bearing trust account from which the interest accrued to each client may be computed by the financial institution or by the lawyer or law firm, and paid to the appropriate client. MRPC 1.15(d)(2).

Signatories. The account should be established in the name of the lawyer or law firm. In a solo practice, the lawyer may be the only account signatory. In a firm with more than one principal, accounting controls should be in place to handle trust account deposits and withdrawals in keeping with the lawyers' fiduciary, ethical and supervisory duties. See, MRPC 5.1 and 5.3. Lawyers are not absolved of liability for trust account misconduct by delegating accounting and record keeping responsibilities to an employee or agent.

Contents of Trust Account. All clients' funds except advances for costs and expenses must be deposited in the trust account. MRPC 1.15(a) specifically exempts advances of costs and expenses from trust account deposit, but does not exempt the deposit of unearned attorney fees.

IV. HANDLING INTEREST

Because a lawyer has a fiduciary duty to preserve and increase assets held in trust, the lawyer should patronize depository institutions which provide needed services at rates most advantageous to the client. Where interest checking or Negotiated Order of Withdrawal accounts are not available for trust deposits for a particular client, the lawyer will be required to open an interest savings account.

There is no practicable way to allocate interest generated on funds in a pooled account to individual clients. IOLTA allows the pooled interest, which can be easily calculated, to be allocated to qualified purposes designated by the Supreme Court. Although the interest generated on the IOLTA account may be used to offset reasonable depository service charges, MRPC 1.15(d)(1)(E)(i), interest generated on an MRPC 1.15(d)(2) account may be used to offset institutional service charges or to pay attorney fees only if the client consents after full disclosure, CI-527, CI-579, CI-590; In the Matter of Silberzweig and Sznitken, 548 NYS2d 587; 153 AD2d 1 (1989), even where the client consents that interest is part of the legal fee, "escrow funds and any interest earned thereon are the exclusive property of the client." If the client does not consent to the offset, the lawyer may include the expense of the depository service charges in the client's bill.

Interest earned on case proceeds deposited in the account belong to the client, even if a portion of the proceeds are due to the lawyer as a contingent fee. See CI-463.

V. DISBURSEMENTS FROM THE TRUST ACCOUNT

MRPC 1.15(b) states:

"Upon receiving funds or other property in which a client or third person has an interest, a lawyer shall promptly notify the client or third person. Except as stated in this rule or otherwise permitted by law or by agreement with the client, a lawyer shall promptly deliver to the client or third person any funds or other property that the client or third person is entitled to receive and, upon request by the client or third person, shall promptly render a full accounting regarding such property." Emphasis added.

Lawyers thus have a duty to:

(a) notify parties of funds received, Schwartz v. Edwards, ADB 31-88, 47-888, 12/6/88; Grievance Administrator v. Wright, ADB 126-37, 12/8/88; In re Baldwin, 271 SE2d 626 (Ga 1980); Ohio State Bar Ass'n v. Jewett, 462 NE2d 1221 (Ohio 1984); 91 ALR3d 975 (1979);

(b) promptly deliver the property to the proper party, In the Matter of Barbara, ADB #DP 195/80, 1/8/81, three-year suspension; Schwartz v. Lupiloff, ADB #DP 34/85, 3/24/88, failure to promptly disburse; Grievance Administrator v. Swor, ADB 118-87, 3/16/89; and

(c) render an accounting upon request, In the Matter of Luoma, ADB #DP 171/82, 252/82, 9/30/83, three-year suspension for failing to account when requested; Schwartz v. Goldberg, ADB #DP 2/80, 3/10/81, three-year suspension; Schwartz v. Hasty, ADB 1-87, 2/8/88, three-year suspension for inaccurate accounting as fiduciary to cover personal use of funds; North Carolina State Bar v. Sheffield, 326 SE2d 320 (1985), cert den 332 SE2d 482; In re Disciplinary Proceedings Against Hetzel, 346 NW2d 782 (Wis 1984), later proceeding, 369 NW2d 394 (1985).

Disputes Concerning Disbursement. What if the client disputes the bill? The lawyer must promptly disburse amounts not in dispute, but pursuant to MRPC 1.15(c) must leave the disputed portion in the trust account and seek a quick resolution of the dispute through fee arbitration or other legal means, CI-884. "A generalized third party interest in disputed funds without more does not justify a lawyer's refusal to obey client instructions as to the fund disposition. The Comment to MRPC 1.15 suggests that the third party claim must have already been reduced to judgment or legal or equitable lien to qualify for special protection. In such cases failure to recognize a third party interest is a species of fraud upon creditors or fraud upon the rendering court. A lawyer may not sua sponte refuse to disburse proceeds as the client directs, even when the lawyer knows a third party is 'entitled' to some property, in the absence of the third party taking appropriate legal steps to protect the claim," Hazard and Hodes, The Law of Lawyering, Prentice-Hall, 1989 Supplement, pp. 283-84.

VI. EXAMPLES

1. Retainers. A client consults with a lawyer about a matter. The lawyer agrees to accept the case and explains the costs and fees to the client, preferably in writing, MRPC 1.5(b). An agreement is reached and the client gives the lawyer a retainer to begin work.

Since the retainer is for work not yet performed, the retainer is unearned and must be deposited in the firm's client trust account. MRPC 1.15(a) specifically exempts advances of costs and expenses from deposit in the trust account, but does not exempt the deposit of unearned attorney fees. If the Supreme Court had intended fee advances to be exempt from deposit, the Court would have so specified. A lawyer may not withdraw "anticipated fees." The lawyer must explain to the client that the retainer is considered a deposit, inform the client that withdrawals will be made for fees, and may not withdraw more than has been billed, Grievance Administrator v. Sauer, ADB 9-89, 12/8/89.

If a retainer is nonrefundable, it may be deposited directly in the firm's operating account. In RI-10, the Committee addressed non-refundable retainers, concluding they were not unethical if:

"a) The complexity of the case and its likelihood of preempting the lawyer from other work is apparent to the client at the outset; and

"b) The retainer agreement is in writing, clearly identifies the client's expectations in hiring the lawyer, and unambiguously articulates that the lump sum purchases something in addition to a fixed amount of lawyer hours; and

"c) The client is of sufficient intelligence, maturity, and sophistication to understand the agreement and that the fee is non-refundable; and

"d) The lawyer in fact sets aside a block of time, turns down other cases, and marshals law firm resources in reliance on the fee agreement."

If any portion of the retainer is unearned because it is paid in advance for legal services to be performed in the future on an hourly, flat or percentage basis, the retainer has not been earned and is not a non-refundable retainer, RI-10. See also, Baranowski v. State Bar, 24 Cal3d 153, 593 P2d 613 (1979).

2. Withdrawals after Accounting. A lawyer works on a case and incurs fees. On a periodic basis, pursuant to MRPC 1.3 requiring diligence and promptness, and MRPC 1.4 on keeping the client reasonably informed on the status of the matter, the lawyer sends the client a billing statement accounting for services performed and fees earned.

If the fee agreement between the lawyer and client is clear and periodic statements to the client have been given to the client, the lawyer may withdraw the billed amount from the trust account. This is usually done by writing a check on the trust account for deposit in the lawyer's or law firm's business operating account.

3. Mixed Payments. What if the original retainer includes filing fees as well as attorney's fees?

Since a portion of the retainer is allocated to unearned fees, the entire retainer must first be deposited in the trust account. Since the filing fee expense was agreed upon, the lawyer may pay the filing fee directly from the trust account with a check made payable to a court or other party for purposes of the case, or may pay the filing fee out of the lawyer's pocket and a check for an identical amount may be written on the trust account for deposit in the firm operating account, reimbursing the firm for the expense. It is not improper to deposit mixed funds into the trust account when the portion due the lawyer has not yet been determined, or when the client fails to separately pay what the lawyer is due.

4. Safekeeping Property. What if the filing fee and the retainer are submitted separately?

The check for the retainer must go into the trust account. MRPC 1.15(a) does not require trust account deposit of advances for costs and expenses, but a lawyer owes a fiduciary duty to keep the property safeguarded until it is needed. If the case will not be filed promptly, the client's check may be placed in a noninterest-bearing account, in the lawyer trust account, or in a safety deposit receptacle. The lawyer remains obligated to account to the client for the costs and expenses even though they are not required to be placed in the interest-bearing trust account.

5. Payment After Performance. What if a lawyer and client agree that work will be performed and the fee paid as the work progresses?

Payment by cash or check after work is performed does not have to be deposited in the lawyer trust account.

6. Extracurricular Activities of Lawyer. What about funds held by the lawyer for outside business interests unrelated to the lawyer's law practice?

Lawyers engaged in other businesses distinct from the practice of law are not required by the Rules to maintain client trust accounts for the segregation of funds processed in connection with those other business pursuits. Other law or regulation, however, may so require. See, "Client and Third Party Property," infra.

VII. RECORD KEEPING

Retention/Duty to Review Statements. MRPC 1.15(a) requires that records of client property be maintained for five years. The type of record required is not specified. A lawyer also has a fiduciary duty to maintain complete and accurate records of funds and property entrusted to him or her, In re Heffernan, 351 NW2d 13 (Minn 1984); In re Teichner, 470 NE2d 972 (Ill 1984); In re Morton, 504 NE2d 279 (Ind 1987). It is unethical for a lawyer to allow the trust account balance to fall below the amount which the lawyer is required to maintain for the client's matter, Schwartz v. Davey, ADB 27-88, 44-88, 12/6/88; or for a lawyer to write or cause to be written any checks for which there are insufficient funds, Grievance Administrator v. Shek, ADB 222-87, 3/13/89, 90-day suspension.

Supervision. A lawyer must properly supervise employees who maintain the records, MRPC 5.3; In re Scanlon, 697 P2d 1084 (Ariz 1985); The Florida Bar v. Carter, 502 So 2d 904 (1987); Office of Disciplinary Counsel v. Kick, 502 NE2d 640 (Ohio 1986). A lawyer may not be excused from knowing what happened to client funds when the lawyer fails to read bank statements or supervise employees in handling the account, Schwartz v. Scott, ADB #DP 178/85, 2/8/88.

Interest Reports. Finally, the lawyer must direct the financial institution holding the MRPC 1.15(d)(1)(E) IOLTA trust account to make reports to the Michigan State Bar Foundation.

Guidelines. In the absence of any other controlling authority, the Committee recommends the following trust account books and records be kept by the lawyer or law firm:

1. Bank statements, cancelled checks, duplicate deposit slips, and bank reports pertaining to the account.
2. A record identifying all trust accounts maintained.
3. Records of all non-cash client property in the attorney's possession, including information on receipt and delivery.
4. Cash receipts journal chronologically documenting the date and source of all receipts.
5. Cash disbursements journal identifying chronologically the date, amount, purpose and recipient of all disbursements.
6. Client subsidiary ledger for each client showing the date, amount, purpose and recipient of all receipts and disbursements.
7. Trust account checkbook register listing deposits and disbursements in sequential order.