How can a lawyer close an old escrow account that still holds funds for stale, uncashed checks to clients who can't be located?

Plain-English summary

A lawyer who had kept the same escrow account for eleven years changed banks and opened a new escrow account. He had written checks to disburse all funds in the old account, but some checks (one to three years old) had not cleared, the clients who failed to cash them could not be located, and funds to cover the uncashed checks remained in the old account. He asked whether he could close the old account and, if so, what to do with the remaining balance.

The committee concluded the lawyer could close the account under certain conditions but could never keep any client or third-party funds as his own; the funds must go to a court of proper jurisdiction or to the State. It grounded the analysis in Rule 1.15, which requires keeping client and third-party property separate, keeping complete records (preserved at least six years), and promptly notifying and delivering property to those entitled to it. Drawing on and restating its earlier Opinion 83-18, the committee set out steps to take before closing: confirm Rule 1.15's requirements (notice and recordkeeping) have been met; exhaust all reasonable means of notifying the client or third party that the funds are held and available, including notice by publication; and confirm enough time has passed that any uncashed check is "stale" (noting a bank need not pay a check more than six months old, but recommending the lawyer wait at least one full year before removing funds).

The committee then set graduated procedures. If more than one year but less than five years has passed since a check was issued (and a reasonable time has passed since publication notice), the lawyer should petition a court of proper jurisdiction for an order to pay the money to the Clerk of Court, to be held until claimed or escheated. If more than five years has passed, the lawyer should follow the Uniform Unclaimed Property Act (Chapter 18 of Title 27 of the South Carolina Code). The committee added that once five years pass and the escheat statutes apply, the lawyer should ordinarily go directly to those statutes rather than unnecessarily burden the courts.

In practice

The opinion holds that, under the South Carolina rules as they stood at the time, a lawyer may close an old escrow account holding stale uncashed checks but may never keep the funds. Before closing, the lawyer should satisfy Rule 1.15's notice and recordkeeping requirements, exhaust reasonable notice efforts (including publication), and wait at least a year for checks to go stale. The committee's graduated procedure routes funds one-to-five years old to the Clerk of Court by petition, and funds more than five years old through the Uniform Unclaimed Property Act escheat process. South Carolina revised its Rules of Professional Conduct effective 2005, and the cited statutes may have been renumbered or amended; verify the current text of Rule 1.15 and the unclaimed-property statutes before relying on the specific citations or time periods here.

Common questions

Q: Can the lawyer just keep the money from checks that were never cashed?

A: The committee concluded no: under no circumstance is the lawyer entitled to keep client or third-party funds as his own; the funds must go to a court of proper jurisdiction or to the State.

Q: What must the lawyer do before closing the old escrow account?

A: The committee concluded the lawyer should confirm Rule 1.15's notice and recordkeeping are met, exhaust reasonable notice efforts including notice by publication, and wait at least one full year so any uncashed check is stale.

Q: Where do the leftover funds go?

A: The committee concluded that for funds one to five years old the lawyer should petition a court to pay them to the Clerk of Court, and for funds more than five years old should follow the Uniform Unclaimed Property Act, ordinarily going directly to the escheat statutes.

Background and rules framework

The opinion interpreted South Carolina RPC 1.15(a)-(b) (safekeeping property; separation, recordkeeping, notice, and prompt delivery), corresponding to Model Rule 1.15, alongside South Carolina's stale-check statute and the Uniform Unclaimed Property Act (Chapter 18 of Title 27, S.C. Code). The committee revised and restated the procedure from its Opinion 83-18 and referenced Opinions 93-11 and 95-03.

Citations and references

Rules of Professional Conduct:

• South Carolina RPC 1.15(a)-(b) / Model Rule 1.15: safekeeping property; separation, records, notice, and delivery.

Statutes:

• S.C. Code § 36-6-404 (bank not obligated to pay a check more than six months old).
• Uniform Unclaimed Property Act, Chapter 18 of Title 27, S.C. Code.

Other opinions cited:

• S.C. Bar Ethics Advisory Ops. 83-18 (procedure restated), 93-11, 95-03.

See also

• SC Bar Ethics Op. 05-15: Stale Uncashed Trust Check
• SC Bar Ethics Op. 22-04: Charging for Stale Checks
• SC Bar Ethics Op. 12-01: Trust Surplus on Another Matter

Source

• Landing page: https://www.scbar.org/for-lawyers/quicklinks/legal-resources/ethics-advisory-opinions/ethics-advisory-opinion-02-05/

Original opinion text

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

UPON THE REQUEST OF A MEMBER OF THE SOUTH CAROLINA BAR, THE ETHICS ADVISORY COMMITTEE HAS RENDERED THIS OPINION ON THE ETHICAL PROPRIETY OF THE INQUIRER’S CONTEMPLATED CONDUCT. THIS COMMITTEE HAS NO DISCIPLINARY AUTHORITY. LAWYER DISCIPLINE IS ADMINISTERED SOLELY BY THE SOUTH CAROLINA SUPREME COURT THROUGH ITS COMMISSION ON LAWYER CONDUCT.

Ethics Advisory Opinion 02-05

The Lawyer is a practicing attorney who has maintained the same escrow account for 11 years. He has now changed banks and has opened a new escrow account. Checks to disburse all funds in the old escrow account have been written, but not all checks have cleared the old escrow account. All checks that have not cleared are one to three years old. The clients who have failed to cash their checks cannot be located and none of them have attempted to contact the Lawyer. Funds to cover the uncashed checks remain in the old escrow account.

Question:
May Lawyer close the old escrow account? If he may, what should Lawyer do with the balance of the funds in the old escrow account?

Summary:
Provided that the requirements of Rule 1.15., Safekeeping Property, have been met, the Lawyer may close the old escrow account under certain conditions. Under no circumstance would the Lawyer be entitled to keep any client or third party funds as his own. The Lawyer must turn such funds over to a court of proper jurisdiction or to the State of South Carolina.

Opinion:
Rule 1.15(a) requires that a Lawyer keep a client or third-party's property, including funds, separate from the Lawyers own property. The rule also requires that the Lawyer keep complete records of such property and that those records be preserved for at least six years. Rule 1.15(b) requires the Lawyer to promptly notify a client or third party of the existence of any property being held by the Lawyer and promptly deliver to such client or third party any property the client or third party is entitled to receive.

Though the current rule was not adopted and made effective until September 1, 1990, this Committee's opinion in Ethics Advisory Opinion 83-18 is still relevant. In that opinion, we suggested that in order for a Lawyer to be relieved of the responsibility for accounting for unclaimed escrow funds indefinitely, certain steps could be taken. For the benefit of the members of the Bar, we now revise and restate those steps.

Before closing an existing trust or escrow account, the Lawyer should do the following:

1. Confirm that the requirements of Rule 1.15., including notice to clients and third parties and the record-keeping, have been met.
2. Exhaust all reasonable means of notifying the client or third party that the funds are being held in escrow and are immediately available to the client or third party. Such efforts should include notice by publication.
3. Confirm that a sufficient amount of time has passed such that any check not yet cashed is "stale." §36-6-404 of the Code of Laws of South Carolina 1976 states that a bank is not obligated to pay a check more than six months old. However, the bank has the option to pay after six months if it does so in good faith. We recommend that the Lawyer wait at least one full year before taking any action to remove funds from his escrow account.

Once these above steps have been taken, the Lawyer may:

If more than one year, but less than five years, has passed since the client or third-party has been issued a check AND a reasonable amount of time has passed since the notice by publication, petition a court of proper jurisdiction for an order permitting the Lawyer to pay the money to the Clerk of Court to be held by the Clerk until the money is claimed by the client or third party or escheats to the State.

If more than five years has passed since the client or third-party has been issued a check AND a reasonable amount of time has passed since the notice by publication, follow the procedure outlined in the Uniform Unclaimed Property Act, Chapter 18 of Title 27 of the Code of Laws of South Carolina 1976.

The Committee feels that once five years has passed and the State's escheat statutes come into play, unless the Lawyer has a compelling reason to turn the funds over to the Clerk of Court, Lawyer should go directly to the provisions of the escheat statutes and should not unnecessarily burden the courts.

See also Ethics Advisory Opinions 83-18, 93-11, and 95-03.