![]() That said, Florida’s opinion states that a lawyer is expected to act prudently with respect to the trust account and consider the deposits’ size in relation to the size and reputation of the financial institutions concerned.ĥ. Lawyers Should Consider the Size of Deposits in Relation to Reputation of the Financial Instituteĭoes a lawyer need to divvy up trust funds between institutes to ensure adequate FDIC protection? No, according to Florida Bar Ethics Opinion 72-37 – a practice that some experts regard as infeasible and overly complicated if only a few accounts are impacted. See also 2008 ethics guidance by New Jersey, Virginia, and Florida.Ĥ. In general, if lawyers set up and operate their IOLTA accounts consistent with bar requirements, they’ll qualify for FDIC protection. In order to qualify for FDIC protection under the regulations, lawyers must properly disclose and identify the account as a trust account and maintain records of funds associated with each client. ![]() Trust accounts are considered fiduciary accounts under 12 C.F.R.§330.5. Lawyers Must Set Up Trust Accounts Properly to Qualify for Protection For that reason, when a trust deposit is substantial, a lawyer might need to inquire if the client uses the same bank and consider opening up the trust account at a different institution to maximize coverage.ģ. That means the total, fully insured amount in the IOLTA account can greatly exceed $250,000.īear in mind, however, that the $250,000 coverage may apply to all of the client’s accounts at the same bank – both personal accounts and the funds in trust. IOLTAs typically hold deposits for multiple clients, and under the rules the insurance coverage “passes through” to each individual client’s share of the account for up to $250,000. Trust accounts are covered, with coverage for each individual client deposit per this guidance:įunds in special trust accounts that lawyers establish for their clients - commonly known as “Interest on Lawyer Trust Accounts” or “IOLTAs” - also will be protected for at least $250,000. The Federal Deposit Insurance Corporation (FDIC) insures these types of deposit accounts for up to $250,000. Many state bars require lawyers to use certain designated banks to hold trust funds choosing a bar-endorsed bank, if possible, is the safest bet.Ģ. If a bank isn’t eligible for FDIC protection, using it for client trust accounts is a non-starter. Lawyers should choose a stable financial institution for trust accounts.įoremost, lawyers should choose a stable institution for deposits that are eligible for FDIC protection. But going forward, here’s what lawyers need to know:ġ. Notably, Signature Bank also served a significant number of law firms – which raises the question: what are lawyers’ obligations to protect client trust funds when a bank collapses? Fortunately, lawyers may not have to worry this time around in light of President Biden’s announcement that the FDIC will protect all deposits, even those in excess of the $250,000 insurance cap. What Are Lawyers Obligations to Protect Trust Accounts? ![]() The SVP collapse spooked customers at Signature Bank – predominantly crypto-currency companies who similarly feared that their uninsured deposits were at risk and moved them to larger and more stable institutions. Fearing insolvency, customers panicked and withdrew their money in large numbers – particularly the many larger depositors with accounts well in excess of the $250,000 FDIC-insured limit. But the actual tipping point came when the bank announced that it had sold a bunch of securities at a loss and needed to sell more shares to make up the gap. As a result, for the past few months, many of these customers began drawing down on their deposits to keep their companies afloat. ![]() Lawyers Should Understand the Reason for 2023 Bank Collapsesįor those unfamiliar, the Silicon Valley Bank (SVB) focused on serving tech startups and their VC backers, who have been struggling in the wake of rising interest rates. As the recent meltdowns of the Silicon Valley Bank and Signature Bank remind lawyers, even a bank may not always be a secure repository for client funds. As if lawyers didn’t already have enough to worry about when it comes to protecting client trust accounts, add bank solvency to the list. ![]()
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