Can a law firm put client trust funds into interest-bearing deposits and keep the interest to cover the cost of administering the trust account?

Plain-English summary

A professional association reported that its clients' trust account balance averaged about $300,000 a month and that administering the account cost roughly $8,000 a year. It asked whether it would be proper to place some of those trust funds in interest-bearing certificates or deposits to generate enough interest to reimburse the firm for that administrative expense.

A majority of the committee concluded the arrangement would be improper. It relied on DR 9-102(B)(4), which requires a lawyer to promptly pay to the client, on request, funds in the lawyer's possession that the client is entitled to receive. The committee reasoned that using time certificates or deposits would impede the duty of prompt payment, and that letting earned interest benefit the lawyer would create serious conflicts of interest, including situations where the lawyer might gain financially by delaying the closing of a client's matter and potential conflicts among clients, all overshadowed by the impact of federal income tax laws. A minority felt that, under limited circumstances and with the express consent of all clients involved, it could be proper to invest trust funds in time deposits and use the income to pay the lawyer's actual handling expenses. All members agreed that, on a client's direction, a lawyer may invest that client's trust funds in interest-bearing accounts and account to the client for the income.

Currency note

This opinion was issued in 1972, before The Florida Bar's adoption of the 2006 revisions to the Rules of Professional Conduct, and decades before Florida adopted its Interest on Trust Accounts (IOLTA) program. It applied the former Code of Professional Responsibility, which has since been replaced. Treat this page as historical context, not current guidance. The current treatment of interest on client trust funds is governed by the trust-accounting rules (including Rule 5-1.1 and the IOLTA framework); verify against the current rules before relying on any statement here.

Common questions

Q: Could a firm keep the interest earned on pooled client trust funds to offset the cost of running the trust account?

A: Under this opinion, no. The majority found that keeping earned interest to reimburse the firm's administrative expenses was improper because it impeded prompt payment and created conflicts of interest.

Q: Why did the committee see a conflict of interest?

A: The opinion reasoned that if earned interest benefited the lawyer, situations could arise where the lawyer might gain financially by delaying the closing of a client's matter, along with potential conflicts among clients, with the impact of federal income tax laws overshadowing all of them.

Q: Could a lawyer ever invest a client's trust funds at interest?

A: Yes. The committee unanimously agreed that, on a client's direction, a lawyer may invest that client's trust funds in interest-bearing accounts and account to the client for the income.

Background and rules framework

The opinion applied DR 9-102(B)(4) of the former Code of Professional Responsibility, which required prompt payment to the client of funds the client was entitled to receive. In current Florida practice the safekeeping of client funds and trust-account requirements are in Rule 5-1.1, with the lawyer's safekeeping duty also reflected in Rule 4-1.15; the Model Rule analogue is Rule 1.15.

Citations and references

Rules of Professional Conduct:

• CPR DR 9-102(B)(4) (prompt payment of client funds)

See also

• FL Bar Ethics Op. 72-37: Trust Funds and FDIC Coverage
• FL Bar Ethics Op. 21-2: Web Payment Services and Trust Funds
• FL Bar Ethics Op. 02-4: Third-Party Claims on Settlement Funds

Source

• Landing page: https://www.floridabar.org/etopinions/etopinion-72-13/
• Original PDF: https://www-media.floridabar.org/uploads/2017/04/FL-Bar-Ethics-Op-72-13-1-1.pdf

Original opinion text

Reproduced from the official source for research purposes. The linked source is authoritative.

FLORIDA BAR ETHICS OPINION
OPINION 72-13
May 9, 1972
Advisory ethics opinions are not binding.
It is improper for a law firm to place trust funds of clients in interest-bearing certificates or deposits so as to obtain sufficient interest to reimburse the law firm for actual expenses of administration of the funds.
CPR: DR 9-102(b)(4)
Committeeman Daniels stated the opinion of the committee:
A Professional Association states that its clients' trust account balance averages some $300,000 a month and estimates that its administrative expense in maintaining and handling such trust account is some $8,000 a year. Inquiry is made as to whether it would be proper to place some of the trust funds in interest bearing certificates or deposits so as to obtain sufficient interest to reimburse the Association for its actual expenses. The majority of the Committee concludes that the proposed arrangement would be improper. DR 9-102(B)(4) requires a lawyer to "Promptly pay . . . to the client as requested by a client the funds . . . in the possession of the lawyer which the client is entitled to receive."
The use of time certificates or deposits would impede the lawyer's duty of prompt payment. Likewise, if earned interest were to benefit the lawyer, such fact would create serious conflicts of interest between the lawyer and his client. Situations could arise where the lawyer might gain financially by delaying the closing of a client's matter. Other potential conflicts of interest could arise as between the lawyer and the various clients inter sese. All of these conflicts would be overshadowed by the impact of federal income tax laws.
A minority of the Committee feels that under limited circumstances and upon express consent of all the clients involved, it could be proper to invest their trust funds in time deposits or certificates and use the income to pay the lawyer's actual expenses in maintaining and handling such trust funds. All Committee members agree that upon direction of a client, a lawyer may invest the client's trust funds in interest bearing accounts and account to the client for the income.