Effective July 1, 2013, the Missouri Supreme Court is amending the Missouri Rules of Professional Conduct that regulate lawyers’ handling of client and third party property, including trust accounts. The regulations currently contained in Missouri Supreme Court Rule 4-1.15 will be separated into four new Missouri Rules (the “New Rules”), with certain regulations  amended and supplemented. They are: 

• New Rule 4-1.145 providing terminology for trust accounts 

• New Rule 4-1.15 dealing with safekeeping client property 

• New Rule 4-1.155 governing maintaining an IOLTA account  

• New Rule 1.22 addressing handling of client files 

This column attempts to provide notice of eight key regulatory provisions that govern Missouri lawyer trust accounts. Readers wanting a more comprehensive discussion should consult the New Rules or review “New Trust Account Rules Effective July 1, 2013: What You Need to Know,” authored by Missouri’s Ethics Counsel Melinda Bentley and available in the Spring 2013 Precedent magazine or at http://www.mobar.org/uploadedFiles/Home/Publications/Precedent/2013/Spring/trust-accountrules.pdf. 

1. Clarification of trust account types. For several years, lawyers have been permitted to use two types of trust accounts, Interest on Lawyer Trust Account or “IOLTA” accounts and nonIOLTA accounts. The new terminology rule, New Rule 4-1.145, defines these two types of accounts in subparts (a)(9) and (11). As defined, IOLTA accounts do not pay interest to clients or third parties for funds held in the IOLTA account. 

Rather, the interest is paid to Missouri Lawyer Trust Account Foundation. Non-IOLTA accounts, meanwhile, pay interest on funds held to the client or third party entitled to the funds.  

New Rule 4-1.155 directs when a lawyer should use an IOLTA account or a non-IOLTA account. In sum, non-IOLTA accounts should be used when the funds held are expected to generate more interests than the bank costs incurred generating that interest. IOLTA accounts should be when the lawyer anticipates net interest will not be generated.  

2. Signatory authority and supervision. New Rule 4-1.15(a)(3) states that only a lawyer admitted to practice in Missouri or a person acting under a Missouri-admitted lawyer’s direct supervision shall have authority to sign on a client trust account.  

Rule 4-1.15 comment [2] also warns lawyers they have a “non-delegable duty to protect and preserve the funds in a client trust account.” Failure to satisfy this duty may result in discipline under Missouri Rules 4-5.1 and 4-5.3. Id.

3. No “split deposits.” New Rule 4-1.15(a)(4) states that funds received should be “deposited intact.” Thus, if a lawyer receives a check for $10,000, and is entitled to keep $3,000 of that check as a contingency fee, the full $10,000 check should be deposited into the lawyer’s trust account. The lawyer should then issue a check for the lawyer’s share of $3,000 from the trust account.  

4. Withdrawals only by check or authorized electronic transfer. New Rule 4-1.15(a)(5) states that withdrawal “only by check payable to a named payee, and not to cash, or by authorized electronic transfer.” The rule specifically prohibits cash withdrawals from trust accounts. Id. Also, Comment [3] to New Rule 4-1.15 limits authorized electronic transfers (AETs), to:

1. money required for payment to a client or third person on behalf of a client;  

2. expenses properly incurred on behalf of a client, such as filing fees or payment to third persons for services rendered in connection with the representation; or  

3. money transferred to the lawyer for fees that are earned in connection with the representation and are not in dispute; or  

4. money transferred from one client  trust account to another client trust  account.  

5. Waiting for checks to clear. Lawyers  continue to fall prey to scams by “clients” seeking payments from trust accounts before forged checks clear. 

New Rule 4-1.15(a)(6) seeks to prevent such  problems and prevent com by requiring lawyers to delay disbursement “until a reasonable period of time has passed for the funds to be actually collected by the financial institution.” 

Comment [5] further indicates that the funds must be “good,” not merely “cleared.”  It may take several weeks for funds paid by check to be collected. Thus, most lawyers will want to warn clients about the expected delays, or demand payment by electronic transfer to speed the availability of funds. 

6. Reconciliations.  New Rule 4-1.15(a)(7) requires a lawyer to perform a reconciliation “promptly each time an official statement from the financial institution is provided or available.” Ms. Bentley’s article referenced above advises performing “a minimum four-way reconciliation among the following items”:  

Rule 4-1.15(f) and the examples  given in Comment [19]. Ms. Bentley’s article also warns that additional reconciliations may be appropriate. 

7. Record-Keeping. New Rule 4-1.15(f) directs that complete trust account records shall be kept for five years. It also contains eleven subsections that list minimum documents that should be retained. These records include detailed receipt and disbursement journals, ledger accounts for each separate client, fee agreements or engagement letters, accountings to clients and third parties, bills for legal services rendered, disbursement records, reconciliations, credit card and electronic transfer records, and other portions of client files that may be related to trust account transactions. 

Such records may be maintained by electronic, photographic, or other media. The Missouri Rules of Professional Conduct generally do not require a lawyer to enter a written engagement agreement with each client. 

The requirement in New Rule 4-1.15(f)(3) for  lawyers to keep fee agreements, engagement letters, and the like may undermine this general principle, and require engagement or fee agreements at least in representations that involve trust account transactions. 

8. Handling on Firm Dissolution. Finally, Rule 4-1.15(f) requires lawyers to make “reasonable arrangements for the maintenance of client trust account records” when a law firm dissolves.

Reprint from the June 2013 St. Louis Lawyer with correction.