Most lawyers are keenly aware of the prohibition against commingling personal funds with IOLTA funds. However, this does not mean that a lawyer is never allowed to deposit the lawyer’s own funds into the IOLTA account. In fact, there are a number of occasions when a lawyer is allowed to do so:

Paying bank service charges (lawyer may deposit a nominal amount of lawyer’s own funds to offset reasonably anticipated bank charges) Oregon RPC 1.15-1(b); OSB Formal Opinion 2005-146.
Meeting minimum balance requirements (lawyer may deposit lawyer’s own funds in an amount necessary to meet that purpose) Oregon RPC 1.15(b).
To cover credit card merchant fees (in an amount necessary to meet that purpose) OSB Formal Opinion 2005-172.
To cover chargebacks when a bank/credit card company claws back disputed funds previously deposited in trust. If the lawyer has already removed the funds as earned when the dispute is submitted to the credit card company, other clients’ money will be taken from trust. The lawyer is obligated to replace that money with his/her own funds. OSB Formal Opinion 2005-172.
To process credit card proceeds. In cases where a lawyer’s bank insists upon a single merchant account for processing credit cards, “It is not a violation of Oregon RPC 1.15-1 to deposit all credit card transactions into a trust account, if the portion representing earned fees is promptly transferred to the lawyer’s business account.” OSB Formal Opinion No. 2005-172. In other words, if a lawyer is using a single merchant account, which must be a trust account under OSB Formal Opinion No. 2005-172, that merchant account will receive some deposits which are retainers or unearned fees and costs and some deposits that are earned fees (the lawyer’s own funds). The latter is not considered commingling provided the lawyer promptly transfers the earned fees from trust.
To return disputed fees. If a lawyer bills a client, takes the fees, and the client later disputes the lawyer’s bill, the lawyer is no longer required to replenish the trust account but the lawyer may if he/she wishes. OSB Formal Opinion 2005-149. (Replacing the funds will necessarily come from the lawyer’s own pocket since the lawyer previously removed the earned fees from the trust account.)
To rectify an error when the lawyer removed funds from the IOLTA account by mistake. For example, lawyer writes a check on the IOLTA account when the check should have been written on the business account. The lawyer is obliged to correct the error and replace the funds. [More on this below.]
To correct mathematical errors involving the IOLTA account. For example, lawyer discovers that deposits and disbursements were wrongly entered in the columns of a spreadsheet or accounting program. The lawyer is obligated to correct the errors, and if needed, replace any missing client funds. [More on this below.]
To make a client whole if client funds are removed as the result of cyber breach, scam, fraud, or embezzlement. The lawyer is obligated to make her clients whole. By necessity, the lawyer will be replacing client funds with funds that belong to the lawyer. [More on this below.]

What Happens When a Mistake or Loss Occurs?

Lawyers are obliged to correct mistakes or losses and make their clients whole (examples 7, 8, and 9 above). However, taking corrective action does not absolve the lawyer of possible discipline action. Lawyers are accountable for the underlying circumstances that resulted in the mistake or loss. If those circumstances constitute a violation of the ethics rules, the lawyer may be subject to discipline.

When Is a Lawyer Obliged to Report a Mistake or Overdraft to the Bar?

Oregon RPC 1.15-2(l) provides:

Every lawyer who receives notification from a financial institution that any instrument presented against his or her lawyer trust account was presented against insufficient funds, whether or not the instrument was honored, shall promptly notify Disciplinary Counsel in writing of the same information required by paragraph (i). The lawyer shall include a full explanation of the cause of the overdraft.

Thus, lawyers are only required to report errors that result in overdrafts of their IOLTA account.

Businesswomen Balancing Over Money Forming a partnership? Among the many issues partners must address is responsibility for the IOLTA account. Presumably, you and your partner or partners will use a common lawyer trust account – this would be the norm. If this is the case, follow these guidelines for proper management of your clients’ funds:

Dos for Partnership IOLTA Accounts

Each partner must individually complete the annual IOLTA certification.
The partnership should maintain one set of records for the joint IOLTA account.
Balance the joint IOLTA account every month when the bank statement arrives.
A designated partner can take responsibility as the primary record keeper, including assumption of responsibility for balancing the account. Remember, however, that all partners remain accountable for client funds and all partners should review the reconciliation and trust account activity.
If possible, arrange for overdraft or other bank notifications to be delivered to all partners in a small partnership or a partnership committee in a large partnership.
Forming a partnership may mean that one or more partners needs to close a previous IOLTA account. If this is the case, consult the checklist for Closing an IOLTA Account available on the PLF Website.
All partners should know the rules and ethics opinions affecting IOLTA accounts. A good place to start is the PLF book, A Guide to Setting Up and Using Your Lawyer Trust Account, available on the PLF Website.

Don’ts for Partnership IOLTA Accounts

A joint account requires coordination of all banking activity. You can agree to divide fees any way you like, but if the intention is to pool client funds in one bank account do not keep separate records for your individual clients. This “ostrich” approach to record keeping – where each partner keeps his or her own records in ignorance of the other – means that no one is truly responsible for the overall activity in the joint IOLTA account. Separate records make reconciliation difficult, if not impossible, and may allow concealment of theft, commingling, or other inappropriate activity.
Don’t delegate trust accounting to your partner without accountability. Every partner should be aware of the status of the joint IOLTA account, even if a particular partner is physically responsible for the record keeping.
Don’t allow one partner to monopolize receipt of overdraft or other bank notifications. This may be the only way to detect theft or mismanagement.
Don’t get lulled into believing that a positive balance online is the same as real verification of sufficient funds on deposit. Your online balance doesn’t include transactions that are “in transit,” such as uncashed checks, unposted debit charges from your eCourt account, or uncredited deposits from client credit card payments. And it tells you absolutely nothing about whose money is in your IOLTA account. The only way to assure yourself that your IOLTA account is in good order is to review your records and properly reconcile the trust account.

Oregon Law Practice Management

Practice Management Tips for Oregon Lawyers

Tag Archives: Reconciliation

Commingling and Lawyer Trust Accounts

What Happens When a Mistake or Loss Occurs?

When Is a Lawyer Obliged to Report a Mistake or Overdraft to the Bar?

IOLTA Accounts and Partnerships Dos and Don’ts

What Happens When a Mistake or Loss Occurs?

When Is a Lawyer Obliged to Report a Mistake or Overdraft to the Bar?

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