This opinion rescinds Informal Opinion CI-947.

RI-384

November 18, 2022

SYLLABUS

Lawyers and law firms must ensure that all funds maintained within an IOLTA are accounted for.

If unidentified funds are found within an IOLTA and diligent and reasonable inquiries and efforts have been made, the lawyer or law firm may donate the funds to the Michigan State Bar Foundation or the State Bar of Michigan Client Protection Fund.

References: MRPC 1.15, (a)(3), (d), (f), (i)(1); R-21, RI-222, RI-58, RI-38.

TEXT

In the process of reviewing a firm’s trust account, an attorney has discovered that there are extra funds within their IOLTA (Interest on Lawyers’ Trust Accounts). Following a brief review of their records, the attorney is unable to ascertain the client to whom the funds belong. Per MRPC 1.15(a)(3):

(3) “IOLTA account” refers to an interest- or dividend-bearing account, as defined by the Michigan State Bar Foundation, at an eligible institution from which funds may be withdrawn upon request as soon as permitted by law. An IOLTA shall include only client or third-person funds that cannot earn income for the client or third person in excess of the costs incurred to secure such income while the funds are held.

MRPC 1.15(d) states:

(d) A lawyer shall hold property of clients or third persons in connection with a representation separate from the lawyer’s own property. All client or third-person funds shall be deposited in an IOLTA or non-IOLTA account. Other property shall be identified as such and appropriately safeguarded.

As required by MRPC 1.15, only client funds must be held in an IOLTA, which requires meticulous recordkeeping by the lawyer. It is required that a lawyer maintain records of any client (or third party) funds that are deposited into a trust account. Therefore, attorneys should not have unidentified funds and use every precaution to ensure all funds are identified within their IOLTA(s). Recommended practices to ensure that all funds are identified within IOLTAs are:

• Regular periodic auditing of all accounts, i.e., trust accounts and operating accounts
• Routing billing to clients, i.e., monthly
• Review of office expenses periodically
• Forensic audits, if deemed necessary

In the absence of complete records, if an attorney determines that such trust accounts contain unidentifiable funds or funds whose ownership cannot be determined, the lawyer must make diligent and reasonable inquiries and efforts to determine ownership of the funds. Unidentified funds are those which are not attributable to a client or third party. Prior to determining that funds are unidentified, the lawyer or law firm in possession of the excess funds within the trust account must make efforts to determine the true owner of said funds and/or account for the origin of said funds.

Following reasonable efforts to identify the funds, the lawyer may follow one of the below options to remit said funds depending on the determination made as to said funds:

• If the funds are determined as excess interest that was not properly remitted to the Michigan State Bar Foundation, the lawyer or law firm must ensure that the funds are properly remitted to the Michigan State Bar Foundation as required by MRPC 1.15(i)(1).¹
• If the funds are determined to be funds that belong to the lawyer or law firm, those earned funds must be immediately removed from the trust account as holding earned funds with client funds in the IOLTA is considered comingling and a violation of MRPC 1.15(d).² “A lawyer is not permitted to comingle the lawyer’s funds with client or third person funds.” See R-21.
• If the funds are identified as a client’s funds but have been unclaimed, those funds must be treated as abandoned property if the statutory time frame to maintain the unclaimed funds has expired. Unclaimed funds are funds held for a missing client or third party who cannot be located by reasonable effort, and for which there is no conceivable third-party claim to the funds. Pursuant to statute, the lawyer must comply with the Michigan Uniform Unclaimed Property Act and the funds must be maintained within the lawyer’s or law firm’s IOLTA for the statutory time period before being escheated to the state. See RI-222, RI-58, and RI-38.
• If the funds are truly unidentified following the lawyer’s making diligent and reasonable efforts to identify said funds, the lawyer or law firm may donate the funds to the Access to Justice Campaign administered by the Michigan State Bar Foundation (MSBF) or to the State Bar of Michigan Client Protection Fund (CPF).³ This donation should be accompanied by a full explanation of the account’s origin.

CONCLUSION

In conclusion, it is improper for lawyers and law firms to have unidentified funds within their trust accounts. Lawyers and law firms have a responsibility under MRPC 1.15 to keep meticulous records to ensure that every penny within the IOLTA is accounted for. However, after diligent and reasonable inquiries and efforts, should the lawyer find unidentified funds within the trust account, the lawyer should donate the funds to either the Michigan State Bar Foundation or the State Bar of Michigan Client Protection Fund.

1. This may require the lawyer or law firm to contact the bank for which the IOLTA is maintained to inquire why the interest was not properly remitted.

2. MRPC 1.15(f) provides an exception for when a “lawyer may deposit the lawyer’s own funds in a client trust account only in an amount reasonably necessary to pay financial institution service charges or fees or to obtain a waiver of service charges or fees.”

3. If unidentified funds are not donated to MSBF or CPF, or the client returns requesting their funds following donation to MSBF or CPF, it is recommended that the attorney contact the State Bar of Michigan’s Ethics Helpline for non-binding and advisory guidance to avoid commingling issues.