Does a lawyer have to split client trust deposits among several banks so that all the funds stay within FDIC insurance limits?

Plain-English summary

A lawyer's firm kept a general operating account at one bank and a separate trust account at another, in which client funds were deposited. The trust account balances varied and often exceeded several hundred thousand dollars. Because FDIC insurance then covered only the first $20,000, the lawyer asked about the firm's legal liability if the bank failed and about any ethical duty to keep client funds fully protected by FDIC insurance.

The committee declined to address legal liability, saying that was beyond its jurisdiction. On the ethical question, it found no fault with the firm's handling of client funds, which complied with DR 9-102's requirement that client funds be kept in one or more separate identifiable bank accounts in the state. A lawyer is not an insurer of client funds, and there is no ethical requirement to keep funds in numerous separate accounts to assure complete FDIC coverage. But in handling client funds the lawyer acts as a fiduciary or trustee and is expected to act as a prudent person: the size of a deposit should be prudent in relation to the size and reputation of the institution, and if the lawyer has any reasonable doubt about the security of the deposits it might become prudent to divide the trust funds to take advantage of FDIC insurance, consistent with DR 9-102.

Currency note

This opinion was issued in 1972, before The Florida Bar's adoption of the 2006 revisions to the Rules of Professional Conduct. It applied DR 9-102 of the former Code of Professional Responsibility, and it described FDIC coverage limits that have since changed. Treat this page as historical context, not current guidance. Verify against current Rules 4-1.15 and 5-1.1 and the current FDIC coverage limits before relying on any specific figure or requirement mentioned here.

Common questions

Q: Did the lawyer have to divide trust deposits to keep everything within FDIC limits?

A: Under this opinion, no. The committee held there is no ethical requirement to keep client funds in numerous separate accounts just to assure complete FDIC coverage.

Q: Was there any duty about where trust funds are deposited?

A: Yes. The committee said the lawyer acts as a fiduciary and must act prudently, weighing the size of a deposit against the size and reputation of the bank, and dividing funds if there is reasonable doubt about their security.

Background and rules framework

The opinion applied DR 9-102 of the former Code of Professional Responsibility, which required client funds to be kept in separate identifiable bank accounts in the state. In current Florida practice the safekeeping of client funds is governed by the trust-accounting rules in Rule 5-1.1 and the duty to safeguard property in Rule 4-1.15; the Model Rule analogue is Rule 1.15. The $20,000 FDIC figure the opinion mentions reflected coverage limits in force in 1972.

Citations and references

Rules of Professional Conduct:

• CPR DR 9-102 (preserving identity of funds and property of a client)

See also

• FL Bar Ethics Op. 82-2: Trust Funds Applied to a Fee Claim
• FL Bar Ethics Op. 12-4: Multiple Title-Insurer Trust Account Audits
• FL Bar Ethics Op. 21-2: Venmo and PayPal for Trust Funds

Source

• Landing page: https://www.floridabar.org/etopinions/etopinion-72-37/
• Original PDF: https://www-media.floridabar.org/uploads/2017/04/FL-Bar-Ethics-Op-72-37-1-1.pdf

Original opinion text

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

FLORIDA BAR ETHICS OPINION
OPINION 72-37
November 27, 1972
Advisory ethics opinions are not binding.
Although there is no ethical requirement that a lawyer divide trust funds in order to ensure complete FDIC coverage, he is nevertheless expected to act prudently and consider the deposits' size in relation to the size and reputation of the financial institutions concerned.
CPR: DR 9-102
Vice Chairman Zehmer stated the opinion of the committee:
A member of The Florida Bar states that his law firm maintains a general firm account in a local bank for routine operating purposes and also maintains a separate "trust account" in a different local bank in which funds belonging to clients are deposited. The amounts deposited in this trust account vary from time to time and often exceed several hundred thousand dollars. The inquiring lawyer seeks advice concerning his firm's legal liability in the event of a failure of the bank as the trust account is insured by the Federal Deposit Insurance Corporation only to the extent of the first $20,000. He also asks advice as to his ethical duty to see that such funds are fully protected by FDIC insurance.
It is beyond the Committee's jurisdiction to give advice on legal liability and we express no opinion on this question.
Concerning the ethical question, the Committee finds no fault in the method of the firm's handling of its clients' funds. It complies with DR 9-102 of the Code of Professional Responsibility, which requires that clients' funds be kept in one or more separate identifiable bank accounts maintained in this state. A lawyer is not an insurer of clients' funds in his possession, and there is no ethical requirement that he keep such funds in numerous separate accounts so as to assure complete FDIC insurance coverage of all funds. However, in handling clients' funds, the lawyer is acting as a fiduciary or trustee and is expected to act as a prudent man. Obviously the size of the deposit should be prudent in relation to the size and reputation of the financial institution where it is placed. If there is any reasonable doubt in the mind of the lawyer as to the security of the deposits, it might then become prudent to divide the trust funds and take advantage of FDIC insurance, having due regard to the requirements of DR 9-102.