Adopted | amendments to Rule 1.15, Safekeeping Property.
Effective March 15, 2020.
January 9, 2020
On January 9, 2020, the Supreme Court of Virginia approved the amendments to
Rule 1.15, effective March 15, 2020.
View the Court's order (PDF)
October 25, 2019
The proposed amendments were approved by Bar Council on October 25, 2019, and
are pending consideration by the Supreme Court of Virginia.
View the petition to the Court (PDF)
September 26, 2019
The Standing Committee on Legal Ethics unanimously approved submitting the
rule amendments to the Executive Committee and Bar Council for approval at
their upcoming September and October meetings, respectively.
July 2019
Pursuant to Part 6, § IV, ¶ 10-2(C) of the Rules of the Supreme
Court of Virginia, the Virginia State Bar’s Standing Committee on Legal
Ethics is seeking public comment on proposed amendments to Rule 1.15 of
the Rules of Professional Conduct.
The proposed amendments simplify and clarify the trust account recordkeeping
requirements, using terminology that is more easily understood and spelling
out in the body of the rule exactly what information must be included in the
required records. The proposed changes to paragraph (c) remove the term
“cash” and clarify that a check register can be used as the
required journal, as long as it includes the necessary information. The
proposal also removes the term “subsidiary ledger” to clarify that
the rule only requires a separate record or ledger page for each client.
The same terminology is carried over to paragraph (d)(3), on reconciliations,
and paragraphs (d)(3)(ii) and (d)(3)(iii) are revised to include an
explanation of exactly what steps must be taken to complete the required
reconciliations. The proposed amendments also require all reconciliations to
be completed monthly instead of quarterly under the current rule, since that
is consistent with the usual bank statement reporting period, and will allow
lawyers to identify and correct errors more quickly and easily. The proposed
amendments retain the requirement that a lawyer must approve all
reconciliations and add a requirement in proposed Comment [5] that any
discrepancies discovered in the reconciliation process must be explained, and
that explanation must also be approved by the lawyer.
Inspection and Comment
The proposed rule amendments may be inspected below, or at the office of the
Virginia State Bar, 1111 East Main Street, Suite 700, Richmond, Virginia
23219-0060, between the hours of 9:00 a.m. and 4:30 p.m., Monday through
Friday, or by contacting the Office of Ethics Counsel at 804-775-0557.
Any individual, business, or other entity may file or submit written comments
in support of or in opposition to the proposed opinion with Karen A. Gould,
executive director of the Virginia State Bar, not later than July 19, 2019. Comments may be submitted via email to [email protected].
RULE 1.15 Safekeeping Property
(a) Depositing Funds.
(1) All funds received or held by a lawyer or law firm on behalf of a client
or a third party, or held by a lawyer as a fiduciary, other than reimbursement
of advances for costs and expenses shall be deposited in one or more
identifiable trust accounts; all other property held on behalf of a client
should be placed in a safe deposit box or other place of safekeeping as soon
as practicable.
(2) For lawyers or law firms located in Virginia, a lawyer trust account shall
be maintained only at a financial institution approved by the Virginia State
Bar, unless otherwise expressly directed in writing by the client for whom the
funds are being held.
(3) No funds belonging to the lawyer or law firm shall be deposited or
maintained therein except as follows:
(i) funds reasonably sufficient to pay service or other charges or fees
imposed by the financial institution or to maintain a required minimum balance
to avoid the imposition of service fees, provided the funds deposited are no
more than necessary to do so; or
(ii) funds in which two or more persons (one of whom may be the lawyer) claim
an interest shall be held in the trust account until the dispute is resolved
and there is an accounting and severance of their interests. Any
portion finally determined to belong to the lawyer or law firm shall be
withdrawn promptly from the trust account.
(b) Specific Duties. A lawyer shall:
(1) promptly notify a client of the receipt of the client’s funds,
securities, or other properties;
(2) identify and label securities and properties of a client, or those held by
a lawyer as a fiduciary, promptly upon receipt;
(3) maintain complete records of all funds, securities, and other properties
of a client coming into the possession of the lawyer and render appropriate
accountings to the client regarding them;
(4) promptly pay or deliver to the client or another as requested by such
person the funds, securities, or other properties in the possession of the
lawyer that such person is entitled to receive; and
(5) not disburse funds or use property of a client or of a third party with a
valid lien or assignment without their consent or convert funds or property of
a client or third party, except as directed by a tribunal.
(c) Record-Keeping Requirements. A lawyer shall, at a
minimum, maintain the following books and records demonstrating compliance
with this Rule:
(1) CashrReceipts and disbursements
journals for each trust account, including entries for receipts, disbursements, and transfers, and also
including, at a minimum: an identification of the client matter; the date of
the transaction; the name of the payor or payee; and the manner in which
trust funds were received, disbursed, or transferred from an account. These journals shall include, at a minimum: identification of the client or
matter; date and amount of the transaction; name of the payor or payee;
manner in which the funds were received, disbursed, or transferred; and
current balance. A checkbook or transaction register may be used in lieu of
separate receipts and disbursements journals as long as the above
information is included.
(2) A subsidiaryclientledger containingwitha separate entryrecordfor each client, other
person, or entity from whom money has been received in trust. Each entry shall include, at a minimum: identification of the client or
matter; date and amount of the transaction; name of the payor or payee;
source of funds received or purpose of the disbursement; and current
balance.
The ledger should clearly identify:
(i) the client or matter, including the date of the transaction and the
payor or payee and the means or methods by which trust funds were received,
disbursed or transferred; and
(ii) any unexpended balance.
(3) In the case of funds or property held by a lawyer as a
fiduciary, the required books and records shall include an annual summary of
all receipts and disbursements and changes in assets comparable in detail to
an accounting that would be required of a court supervised fiduciary in the
same or similar capacity; including all source documents sufficient to
substantiate the annual summary.
(4) All records subject to this Rule shall be preserved for at
least five calendar years after termination of the representation or fiduciary
responsibility.
(d) Required Trust Accounting Procedures. In addition
to the requirements set forth in Rule 1.15 (a) through (c), the following
minimum trust accounting procedures are applicable to all trust accounts.
(1) Insufficient Fund Reporting. All accounts are subject to the
requirements governing insufficient fund check reporting as set forth in the
Virginia State Bar Approved Financial Institution Agreement.
(2) Deposits. All trust funds received shall be deposited
intact. Mixed trust and non-trust funds shall be deposited intact
into the trust fund and the non-trust portion shall be withdrawn upon the
clearing of the mixed fund deposit instrument. All such deposits
should include a detailed deposit slip or record that sufficiently identifies
each item.
(3)The followingRreconciliationsmust be made monthly and approved by a lawyer in the law firm:.
(i) At least quarterlyaA reconciliation shall be made that reflects the trust account of the client ledgerbalance for each client, otherperson,
or otherentity on whose behalf money is held in trust;.
(ii) A monthly reconciliationshall be madeof
the cashtrust accountbalance, adjusting the ending bank statement balance by adding any deposits not
shown on the statement and subtracting any checks or disbursements not shown
on the statement. This adjusted balance must equal the balance in the
checkbook or transaction register; andthat is derived from the cash receipts journal, cash disbursements journal,
the trust account checkbook balance and the trust account bank statement
balance.
(iii) At least quarterly, aAreconciliation of the trust account balance ((d)(3)(ii)) and the client ledger balance
((d)(3)(i)). The trust account balance must equal the client ledger
balance.shall be made that reconciles the cash balance from (d)(3)(ii) above and
the subsidiary ledger balance from (d)(3)(i).
(iv) Reconciliations must be approved by a lawyer in the law firm.
(4) The purpose of all receipts and disbursements of trust funds
reported in the trust journals and ledgers shall be fully explained and
supported by adequate records.
Comment
[1] A lawyer should hold property of others with the care required of a
professional fiduciary. Securities should be kept in a safe deposit
box, except when some other form of safekeeping is warranted by special
circumstances. For purposes of this Rule, the term
“fiduciary” includes personal representative, trustee, receiver,
guardian, committee, custodian, and attorney-in-fact. All property
that is the property of clients or third persons should be kept separate from
the lawyer's business and personal property and, if funds, in one or more
trust accounts. Separate trust accounts may be warranted when
administering estate funds or acting in similar fiduciary capacities.
[2] Separation of the funds of a client from those of the lawyer not only
serves to protect the client but also avoids even the appearance of
impropriety, and therefore commingling of such funds should be avoided.
[2a] In relation to (b)(5), consent can be inferred from the engagement
agreement or any consequential agreement between the lawyer and the client
regarding the disbursement of fees, i.e., when earned fees are routinely
withdrawn from the lawyer’s trust account upon an accounting to the
client, when costs and expenses of litigation are routinely withdrawn, or when
other fees/costs or expenses are agreed upon in advance.
[3] Lawyers often receive funds from third parties from which the lawyer's
fee will be paid. If there is risk that the client may divert the
funds without paying the fee, the lawyer is not required to remit the portion
from which the fee is to be paid. However, a lawyer may not hold
funds to coerce a client into accepting the lawyer's
contention. The disputed portion of the funds should be kept in
trust and the lawyer should suggest means for prompt resolution of the
dispute, such as arbitration or mediation. The undisputed portion of the
funds shall be promptly distributed.
[4] Paragraphs (b)(4) and (b)(5) do not impose an obligation upon the lawyer
to protect funds on behalf of the client’s general creditors who have no
valid claim to an interest in the specific funds or property in the
lawyer’s possession. However, a lawyer may be in possession
of property or funds claimed both by the lawyer’s client and a third
person; for example, a previous lawyer of the client claiming a lien on the
client’s recovery or a person claiming that the property deposited with
the lawyer was taken or withheld unlawfully from that
person. Additionally, a lawyer may have a duty under applicable law to
protect such third-party claims against wrongful interference by the client,
and accordingly may refuse to surrender the property to the
client. For example, if a lawyer has actual knowledge of a third
party’s lawful claim to an interest in the specific funds held on behalf
of a client, then by virtue of a statutory lien (e.g., medical, workers’
compensation, attorneys’ lien, a valid assignment executed by the
client, or a lien on the subject property created by a recorded deed of trust)
the lawyer has a duty to secure the funds claimed by the third party. Under
the above described circumstances, paragraphs (b)(4) and (b)(5) require the
lawyer either to deliver the funds or property to the third party or, if a
dispute to the third party’s claim exists, to safeguard the contested
property or funds until the dispute is resolved. If the client has
a non-frivolous dispute with the third party’s claim, then the lawyer
cannot release those funds without the agreement of all parties involved or a
court determination of who is entitled to receive them, such as an
interpleader action. A lawyer does not violate paragraphs
(b)(4) and (b)(5) if he has acted reasonably and in good faith to determine
the validity of a third-party’s claim or lien.
[5] The reconciliations required by paragraph (d)(3) must include an
explanation of any discrepancy discovered and how it was corrected. This
explanation must be approved by the lawyer who approves the
reconciliations.
[56] The obligations of a lawyer under this Rule are independent
of those arising from activity other than rendering legal
services. For example, a lawyer who serves as an escrow agent is
governed by the applicable law relating to fiduciaries even though the lawyer
does not render legal services in the transaction.
[67] Nothing in this Rule is intended to prohibit an attorney
from using electronic checking for his trust account so long as all
requirements in this Rule are fulfilled. It is the lawyer’s
responsibility to assure that complete and accurate records of the receipt and
disbursement of entrusted property are maintained in accordance with this
rule. Many businesses are now converting paper checks to automated
clearinghouse (ACH) debits. Authorized ACH debits that are electronic
transfers of funds (in which no checks are involved) are allowed provided the
lawyer maintains a record of the transaction as required by this
rule. The record, whether consisting of the instructions or authorization
to debit the account, a record or receipt from the financial institution, or
the lawyer’s independent record of the transaction, must show the
amount, date, recipient of the transfer or disbursement, and the name of the
client or other person to whom the funds belong.