Where do unclaimed funds in an Arkansas lawyer's trust account (IOLTA or non-IOLTA) go: to the State Auditor under the Unclaimed Property Act, or to the Arkansas Access to Justice Foundation under Rule 1.15?
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This page answers the general question as of 2016. Ezel answers yours: what it means for your facts, under current Arkansas law, with citations.
Plain-English summary
State Auditor Andrea Lea asked the AG to resolve a conflict between two parallel systems for handling unclaimed money. Lawyers regularly hold client funds in trust accounts. Sometimes the money sits there because the lawyer cannot find or identify the rightful owner. Two Arkansas legal regimes seem to claim that money:
- The Unclaimed Property Act, Ark. Code Ann. §§ 18-28-201 to -231 (Repl. 2015), required a holder of abandoned property to deliver it to the State Auditor, who would then hold it (custodially, not as owner) for the benefit of whoever turned out to be entitled.
- Rule of Professional Conduct 1.15(c), adopted by the Arkansas Supreme Court in November 2015 (In re Amendment of Arkansas Rule of Professional Conduct 1.15, 2015 Ark. 420), required a lawyer to pay funds to the Arkansas Access to Justice Foundation when the lawyer "cannot, using reasonable efforts, identify or locate the owner of funds in [a] trust account for a period of at least two (2) years."
The AG resolved the conflict in favor of Rule 1.15(c) on separation-of-powers grounds. Ark. Const. amend. 28 gives the Arkansas Supreme Court rule-making authority over the practice of law and lawyers' professional conduct. A rule governing what lawyers do with their trust accounts is squarely inside that grant. Under Ligon v. Davis, 2012 Ark. 440, 424 S.W.3d 863, a legislative enactment cannot be enforced to the extent it conflicts with or limits the Supreme Court's rule-making authority over lawyers. Doing so would breach separation of powers, citing Ark. Const. art. 4, §§ 1, 2, and Ball v. Roberts, 291 Ark. 84, 722 S.W.2d 829 (1987).
The AG also flagged a timing point in a footnote: the Act and the Rule were unlikely to apply to the same dollar at the same time. The Act's abandonment period is three years after the owner's right to demand the money arose, plus another four to sixteen months before payment to the Auditor (§§ 18-28-202(a)(14), -207(d), -208(a)). The Rule's two-year period runs from when the owner is entitled to receive payment. So a lawyer would typically be required under the Rule to pay the Foundation well over a year before the Act would require payment to the Auditor. The two periods overlap rarely. But even when they do overlap, the Rule controls.
Important nuance the opinion called out: funds paid to the Foundation under Rule 1.15(c) appear to become the Foundation's property, subject to an obligation to repay an owner identified and located within two years of payment (Rule 1.15(c)(2)). Under the Unclaimed Property Act, in contrast, the State Auditor holds the money custodially for the owner in perpetuity, citing the Uniform Unclaimed Property Act commentary that "the State does not take title to unclaimed property, but takes custody only, and holds the property in perpetuity for the owner."
Currency note
This opinion was issued in 2016. Subsequent statutory amendments, court decisions, or later AG opinions may have changed the analysis. Treat this page as historical context, not current legal advice. Verify current law before relying on any specific rule, deadline, or remedy mentioned here.
Both Rule 1.15 and the Unclaimed Property Act have been amended multiple times since 2016. Anyone handling unclaimed trust funds should check the current text of the rule, the current Code provisions, and any Office of Professional Conduct guidance before acting.
Background and statutory framework
The trust-account problem
A lawyer holding client money is bound by Rule 1.15(b) to keep that money in a trust account, separate and apart from the lawyer's own funds. When the time comes to disburse, sometimes the owner cannot be found. The lawyer may have moved; the client may have died with no probate opened; old retainer balances may sit untouched for years. Until 2015, lawyers facing that situation were caught between two systems: the Unclaimed Property Act treated abandoned funds as something to deliver to the State Auditor, and the Rules of Professional Conduct (in their pre-2015 form) did not yet have a dedicated mechanism for trust funds.
Rule 1.15(c)'s 2015 adoption
The Arkansas Supreme Court adopted Rule 1.15(c) in November 2015. The new subsection (c) created a clear lawyer-side rule: if reasonable efforts to find the owner over a two-year period failed, the lawyer paid the funds to the Arkansas Access to Justice Foundation, the nonprofit that channels IOLTA-derived funding into civil legal aid for low-income Arkansans. The Foundation is the same entity that already received the interest earned on IOLTA accounts. Rule 1.15(c)(2) preserved the owner's ability to claim repayment from the Foundation within two years of the payment.
The Unclaimed Property Act
The Unclaimed Property Act is the Arkansas adoption of the Uniform Unclaimed Property Act (1995). It applied generally to all kinds of unclaimed money held by third parties: utility deposits, payroll checks, dividends, life insurance proceeds, and many other categories. Section 18-28-202 deemed property "abandoned" if unclaimed for a specified period. Section 18-28-208(a) required the holder to deliver abandoned money to the State Auditor. Sections 18-28-210(b) and -215(c)(1) made the State a custodial holder, not the owner.
The Act was of general application; nothing in its text specifically carved out lawyer trust accounts.
The constitutional resolution
Ark. Const. amend. 28: "The Supreme Court shall make rules regulating the practice of law and the professional conduct of attorneys at law." The AG read this as a grant of authority that covered, by its own terms, how lawyers handle trust accounts. The handling of trust money is part of the practice of law and part of attorneys' professional conduct.
Ligon v. Davis, 2012 Ark. 440, 424 S.W.3d 863, was the AG's lead authority for the proposition that a statute is not given effect when it conflicts with the Supreme Court's authority to regulate lawyers. The reasoning was separation-of-powers: under Ark. Const. art. 4, §§ 1 and 2, the legislative and judicial branches operate in separate spheres, and the constitutional grant of rule-making authority to the Supreme Court keeps the legislature out of attorney regulation. Ball v. Roberts applied that doctrine to a different setting.
The AG framed the conclusion as a prediction: "the Arkansas Supreme Court would conclude that funds in a lawyer's trust account must be paid to the Arkansas Access to Justice Foundation in accordance with Rule 1.15(c)." That phrasing reflects that the AG opinion is not binding; only the Supreme Court itself can definitively resolve the question. But the analysis pointed clearly toward Rule 1.15(c).
The footnote about timing
The opinion's discussion of the two periods is important because it limits the practical reach of the conflict. Under the Act, abandonment for trust funds would begin three years after the owner's right to demand the money. Then another four to sixteen months would pass before the holder must pay the Auditor under §§ 18-28-207(d), -208(a). Under the Rule, the two-year period begins when the owner is entitled to receive payment. So in most fact patterns, the Rule's two-year clock would expire well before the Act's three-year-plus-payment-delay clock did. By the time the Act required delivery to the Auditor, the funds would already have been paid to the Foundation under the Rule. The conflict is more theoretical than operational. But the AG resolved it cleanly anyway.
Common questions
Q: I am an Arkansas lawyer with old client funds I cannot locate the owner of. Where do I send them?
A: To the Arkansas Access to Justice Foundation, under Rule of Professional Conduct 1.15(c), once the two-year unable-to-locate period has run and the lawyer has used reasonable efforts. Not to the State Auditor.
Q: What if I already sent the funds to the State Auditor?
A: The opinion does not directly address the cleanup pathway. The lawyer should consult with the Office of Professional Conduct and the Foundation about the right course. The opinion's conclusion is forward-looking: the Rule controls.
Q: Can the original client get their money back?
A: Under Rule 1.15(c)(2), an owner identified and located within two years of the payment to the Foundation is entitled to repayment from the Foundation. After that, the funds become the Foundation's property. Under the Act, in contrast, the State held funds custodially indefinitely.
Q: Does this apply only to IOLTA accounts or also to non-IOLTA trust accounts?
A: The AG's reasoning extended to all lawyer trust accounts (IOLTA or not). Rule 1.15(c) is the controlling source.
Q: What does this opinion mean for the State Auditor's office?
A: The State Auditor stopped expecting Arkansas lawyers to remit trust-account abandoned funds. The Auditor continued to receive other categories of abandoned property under the Act, just not lawyer trust funds.
Citations and references
Constitution:
- Ark. Const. amend. 28, Supreme Court rule-making authority over practice of law
- Ark. Const. art. 4, §§ 1, 2, separation of powers
Statutes:
- Ark. Code Ann. §§ 18-28-201 to -231 (Repl. 2015), Unclaimed Property Act
- Ark. Code Ann. § 18-28-202, abandonment definitions
- Ark. Code Ann. § 18-28-202(a)(14), three-year period for trust-account-like funds
- Ark. Code Ann. § 18-28-207(d), 18-28-208(a), payment-to-Auditor timing
- Ark. Code Ann. § 18-28-210(b), § 18-28-215(c)(1), custodial nature
Rules of professional conduct:
- Rule of Professional Conduct 1.15(a)(5), (b), (c), (c)(2) (Ark. Sup. Ct., adopted Nov. 2015)
- In re Amendment of Arkansas Rule of Professional Conduct 1.15 and Administrative Order No. 22 - IOLTA Program Relationship with Eligible and Member Institutions, 2015 Ark. 420
Cases:
- Ligon v. Davis, 2012 Ark. 440, 424 S.W.3d 863 (Ark. Sup. Ct.)
- Ball v. Roberts, 291 Ark. 84, 722 S.W.2d 829 (1987) (Ark. Sup. Ct.)
Secondary:
- National Conference of Commissioners on Uniform State Laws, Uniform Unclaimed Property Act (1995), Prefatory Note and Comments
Source
Original opinion text
Opinion No. 2016-019
July 25, 2016
The Honorable Andrea Lea
State Auditor
500 Woodlane Street, Suite 230
Little Rock, AR 72201
Dear Auditor Lea:
This is my opinion on your question about the relationship between Rule of Professional Conduct 1.15(c) and the Unclaimed Property Act:
[S]hould unclaimed funds in [a lawyer's trust] account be turned over to the Arkansas Access to Justice Foundation in accordance with Rule 1.15 or should [they] be escheated to the state in accordance with Arkansas's Unclaimed Property Act?
RESPONSE
In my opinion, funds in a lawyer's trust account are subject to Rule 1.15(c) and must be paid to the Arkansas Access to Justice Foundation when the conditions of the Rule have been met.
DISCUSSION
Lawyers commonly hold money that belongs to clients or prospective clients. Under Rule of Professional Conduct 1.15(b), a lawyer must hold such money in a trust account, separate and apart from the lawyer's own funds. On occasion, when time comes to pay the money, the lawyer is unable to locate or identify the owner.
Unclaimed Property Act
The Unclaimed Property Act (the "Act") governs property owned by one person and held by another. Property so held, and unclaimed by the owner for a specified time, is deemed to have been abandoned. A person holding abandoned money must deliver it to the Auditor of State. The Auditor, on behalf of the State, assumes custody and responsibility for the safekeeping of the property for the owner's benefit.
The Act is of general application; it is not specific to holders who are lawyers.
Rules of Professional Conduct
The Rules of Professional Conduct, adopted by the Arkansas Supreme Court, set forth lawyers' professional responsibilities and regulate their professional conduct. Rule 1.15(c) (the "Rule") governs certain money held in a lawyer's trust account. It provides that "[w]hen a lawyer . . . cannot, using reasonable efforts, identify or locate the owner of funds in [a] trust account for a period of at least two (2) years, [he] shall pay the funds to the Arkansas Access to Justice Foundation" (the "Foundation").
The Rule was adopted in November 2015. See In re Amendment of Arkansas Rule of Professional Conduct 1.15 and Administrative Order No. 22 - IOLTA Program Relationship with Eligible and Member Institutions, 2015 Ark. 420.
Unlike the Act, the Rule does not appear to contemplate a custodial, safekeeping arrangement; rather, funds paid to the Foundation apparently become the Foundation's own property, subject to an obligation to repay an owner identified and located within two years of payment. See Rule of Professional Conduct 1.15(c)(2).
Superficially at least, it may appear that the Act and the Rule require a lawyer to pay the same money both to the Auditor and the Foundation. To the extent they are so interpreted, it is my opinion that a lawyer must observe the Rule, to the exclusion of the Act.
On closer examination, it is not clear that any particular funds could actually become subject to payment under both the Act and the Rule. Under the Act, money held in a lawyer's trust account would, in most or all cases, be deemed abandoned if unclaimed by the owner for "three (3) years after the owner's right to demand the [money] or after the obligation to pay or distribute the [money] arises, whichever first occurs . . . ." Ark. Code Ann. § 18-28-202(a)(14). The Act does not require payment to the Auditor until another four to 16 months have passed. See Ark. Code Ann. §§ 18-28-207(d), -208(a). The Rule, in contrast, has a two-year period, which presumably begins when the owner "is entitled to receive" payment. See Rule of Professional Conduct 1.15(a)(5). And once the two years have passed, the lawyer is likely obligated to pay the money to the Foundation promptly. It seems likely that, absent extraordinary facts, the Act's three-year period (beginning when "the owner's right to demand the [money] or [when] the obligation to pay or distribute the [money] arises") and the Rule's two-year period (beginning when the owner "is entitled to receive" payment) will commence at substantially the same time. Thus a lawyer will normally be required under the Rule to pay the money to the Foundation well over a year before he would be required to pay the money to the Auditor under the Act.
The Arkansas Constitution provides that "[t]he Supreme Court shall make rules regulating the practice of law and the professional conduct of attorneys at law." In my view, a rule dictating disposition of money in lawyers' trust accounts clearly regulates both the practice of law and lawyers' professional conduct. Under Arkansas Supreme Court precedent, a legislative enactment is not given effect to the extent it conflicts with or limits the Supreme Court's authority to regulate lawyers. Giving it such effect would amount to a breach of the separation of powers doctrine as currently interpreted by the Arkansas Supreme Court.
It is therefore my opinion, in response to your particular questions, that the Arkansas Supreme Court would conclude that funds in a lawyer's trust account must be paid to the Arkansas Access to Justice Foundation in accordance with Rule 1.15(c), when the conditions of the Rule have been met.
Sincerely,
LESLIE RUTLEDGE
Attorney General
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