Can a New York lawyer put short-term or nominal client funds in a pooled interest-bearing account that funds legal services for the poor?

Plain-English summary

The committee was asked about the ethical obligations of an attorney who elects to participate in New York's then-new IOLA program, a non-mandatory statutory program providing financial support for civil legal services by pooling interest earned on client funds deposited in interest-bearing trust accounts. The funds at issue are those held for a short period or nominal in amount.

The committee started from DR 9-102, which requires that client funds be kept separate from the lawyer's funds and that any interest earned on a client's funds belongs to the client absent consent. Where a lawyer holds a sum large enough to earn interest, the lawyer has a fiduciary duty to invest it and ethical duties to notify the client, keep records, and pay over both principal and interest. The committee then addressed funds too nominal or too short-held to generate net interest in a separate account. It reasoned that because financial institutions cannot feasibly sub-allocate interest on such small or transient amounts, the client has no reasonable expectation of receiving interest sufficient to support a claim of entitlement, so the pooled income is not the client's property. It noted that the IRS had ruled such income not taxable to the client where the client has no right to determine placement of the funds, and that courts (citing Matter of Interest on Trust Accounts (Fla. 1981)), legislatures, and other ethics committees (ABA 348 (1982)) had concluded Canon 9 does not apply to interest so generated.

Under the New York statute, a participating lawyer keeps the same fiduciary and ethical responsibilities for funds likely to generate income for the client, and the decision which funds are appropriate for the IOLA program is left to the lawyer's discretion. The committee pointed to Judiciary Law section 497(5), which protects a lawyer from a misconduct charge for a good-faith deposit of qualified funds into an IOLA account, and concluded there can be no ethical impropriety in such a deposit. The question was answered in the affirmative.

Currency note

This opinion was issued in 1983, before New York replaced the Code of Professional Responsibility with the Rules of Professional Conduct in 2009 (the safekeeping and trust-account duties now appear at Rule 1.15). New York's IOLA program and the trust-account rules have evolved since this opinion. 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: Can a lawyer deposit client funds into a pooled IOLA account?

A: Yes, for funds nominal in amount or held for a short time. The committee held participation is proper because such funds would not earn net interest for the client if held separately.

Q: Who gets the interest on IOLA funds?

A: The committee held the pooled interest is not the client's property and goes to the statutory program; the client has no reasonable expectation of receiving it.

Q: Does the lawyer still owe trust duties for larger client funds?

A: Yes. The committee held the lawyer keeps the usual fiduciary and ethical duties for funds that could earn interest for the client, and decides which funds are appropriate for IOLA.

Background and rules framework

The opinion interpreted DR 9-102 (preserving the identity of client funds and property) in light of New York's IOLA statute (Judiciary Law section 497). The closest current Model Rule analogue is Rule 1.15 (safekeeping property; trust accounts).

Citations and references

Rules of Professional Conduct:

• MR 1.15 (safekeeping property)
• NY DR 9-102; DR 9-102(B)

Statutes:

• Judiciary Law section 497 (IOLA program; qualified funds; good-faith deposit protection)

Cases:

• Matter of Interest on Trust Accounts, 402 So. 2d 389 (Fla. 1981), interest on pooled trust accounts

Other opinions cited:

• ABA 348 (1982): Canon 9 not applicable to pooled trust-account interest
• N.Y. State 90 (1968): interest on client funds belongs to the client

See also

• NY State Bar Op. 582: Attorney retaining interest on the escrow float
• NY State Bar Op. 575: Escrow funds, interest-bearing accounts, and client instructions
• NY State Bar Op. 570: Advance-fee payments and trust-account treatment

Source

• Landing page: https://nysba.org/opinion-554/