If a lawyer holds real estate closing funds, must the lawyer account to the client for any interest earned, and when may the funds go into an IOLTA account?
Apply this to your situation
This page answers the general question as of 1987. Ezel answers yours: whether it's allowed on your facts, under the current Massachusetts Rules of Professional Conduct, with citations.
Plain-English summary
A lawyer who handled many real estate transactions received funds that would or might be paid to clients at closing. Knowing many early closings slip, he deposited all such funds in one interest-bearing N.O.W. account holding only commingled client funds; he paid interest to clients whose money was held for more than a short time and none to those held briefly, and tried to give the excess interest to the IOLTA program. The IOLTA Implementation Committee declined, saying a lawyer may not keep a commingled account in which interest is paid to some clients but not others at the lawyer's discretion, and suggested he convert to an IOLTA account. He asked the committee whether his method complied with the rules.
The controlling rule was DR 9-102 (preserving the identity of client funds), which lets a lawyer keep an interest-bearing trust account for client funds the lawyer judges nominal in amount or to be held for a short time, with interest remitted to a court-designated charitable entity. Following its Opinion 74-6, the committee said that once client funds are placed in an interest-bearing account, the lawyer must account for the interest earned, even if allocating a small amount is an annoyance. A client may waive the interest, but only afterward, once the amount is known, and with a clear understanding that the client is making a gift of a stated sum. So the discretionary commingled-N.O.W.-account method did not comply.
On using an IOLTA account, the committee identified two questions. First, are the funds "client funds" at all? Deposits held before closing, whether for a contingency or as part of the purchase price, give the client a contingent or actual interest sufficient to fall within DR 9-102. Second, do they qualify for IOLTA, that is, are they nominal or to be held only briefly? The Supreme Judicial Court left that determination to the sound judgment of each attorney, partly so clients exercise no control over the earnings (avoiding assignment-of-income tax problems). The lawyer must make that substantive judgment in advance. If he deposits funds in an interest-bearing client account and the period turns out short, the interest must still be allocated to the client or other party; there is no way to redirect it to IOLTA. If he uses IOLTA and the closing is then substantially delayed, he should withdraw the funds and place them in an interest-bearing client account. Where the parties' agreement addresses interest, IOLTA deposit will usually be precluded.
Currency note
This opinion was issued in 1987, before Massachusetts's adoption of the 2015 revisions to the Rules of Professional Conduct. Subsequent rule amendments or later opinions may have changed the analysis. Treat this page as historical context, not current guidance. Verify against current rules before relying on any specific rule, deadline, or requirement mentioned here.
Common questions
Q: If interest on client funds is tiny, can the lawyer just keep or ignore it?
A: Per the opinion, no. Once client funds sit in an interest-bearing account, DR 9-102 (and Opinion 74-6) require the lawyer to account for the interest, however small. The client may waive it only afterward, knowing the amount, as a gift.
Q: When may closing funds go into an IOLTA account instead?
A: When the lawyer judges in advance that the funds are nominal in amount or will be held only for a short period. That judgment rests with the lawyer; the SJC deliberately left it to each attorney.
Q: What should the lawyer do if a closing he expected to be quick is substantially delayed?
A: The committee said the lawyer should withdraw the funds from the IOLTA account and place them in an interest-bearing client funds account, since they no longer meet the short-period condition.
Background and rules framework
The opinion applied DR 9-102 (preserving the identity of funds and property of a client, including the IOLTA trust-account provisions of DR 9-102(C)), which corresponds today to Model Rule 1.15 (safekeeping property, trust accounts, and IOLTA). The committee built on its earlier Opinion 74-6 (duty to account for interest on client funds) and the SJC's IOLTA-adoption decision.
Citations and references
Rules of Professional Conduct:
- DR 9-102, including DR 9-102(C) / Model Rule 1.15 (client funds; trust and IOLTA accounts)
Cases:
- In the Matter of a Petition by the Massachusetts Bar Association and the Boston Bar Association, 395 Mass. 1 (1985) (SJC adoption of IOLTA; attorney judgment on nominal/short-term funds)
Other opinions cited:
- MBA Opinion 74-6: lawyer must account to the client for interest earned on client funds
See also
Source
Get today's answer for your situation
You just read a 1987 opinion on this question. Ezel checks the current Massachusetts Rules of Professional Conduct and answers your specific situation, with citations.
Opens in Ezel Pro. Every answer cites the rules it relies on.