Can a lawyer let the bank 'link' a trust account and a business account so that credits and service charges offset across both?

Plain-English summary

The inquiring lawyer's bank had "linked" her IOLTA trust account and her business account so that the per-check and per-deposit charges on both accounts were netted against the interest, or "credits," each account generated. Because the trust-account interest was remitted to IOLTA, the lawyer found she was effectively funding her own IOLTA contribution and absorbing the trust account's charges. The bank then converted both to non-interest commercial accounts whose balances produced "credits" to offset charges, with any negative balance on the trust account shifted to the business account. The lawyer asked whether that arrangement was ethically proper.

The opinion concluded that it was not. Under Rules 10.1 and 10.3, client funds in a trust account may not be used to pay the bank's service charges or fees, because those funds are the sole property of the client and cannot benefit the attorney. The rules permit bank charges to be paid only from interest earned on client funds in the trust account. The linked arrangement could create ethical problems because, with the two accounts joined for purposes of computing interest and charges, it would be impossible to separate the specific interest earned or charges assessed for either account.

The opinion identified the precise mechanism of the violation: if in a given statement period the trust account earned more "credits" than it was charged while the business account was charged more than it earned, the trust account's "credits" could offset the service charges on the business account. Rule 10.1 does not permit a lawyer to use client funds from the trust account, including "credits" attributable to the trust account, for the lawyer's personal benefit, which the opinion described as the offset of service charges assessed on the business account.

Currency note

This opinion was issued in 1993, before the North Carolina State Bar's adoption of the 2003 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 Treat this page as historical context, not current guidance.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: Can a lawyer pay trust-account bank charges out of the client funds in the account?

A: No. The opinion held that under Rules 10.1 and 10.3 client funds in trust are the client's sole property and cannot benefit the attorney; only interest earned on client funds may be used to pay the bank's charges and fees.

Q: What was wrong with the bank "linking" the trust and business accounts?

A: The opinion concluded that linking the accounts made it impossible to separate the interest earned or charges assessed for each, so trust-account credits could end up offsetting service charges on the business account, an impermissible personal benefit from client funds under Rule 10.1.

Q: Does it matter that the accounts were converted to non-interest commercial accounts with "credits"?

A: The opinion treated the "credits" the same as interest for this purpose: using a trust account's credits to offset charges on the business account is using client funds for the lawyer's benefit, which Rule 10.1 prohibits.

Background and rules framework

The opinion applied North Carolina Rules 10.1 and 10.3, the trust-account provisions then in force (corresponding to the safekeeping-of-property requirements of Model Rule 1.15). Those rules treat funds held in a lawyer's trust account as the client's sole property, allow bank service charges to be satisfied only out of interest earned on client funds, and prohibit the lawyer from deriving any personal benefit from client trust funds.

Citations and references

Rules of Professional Conduct:

• MR 1.15 (safekeeping property)
• North Carolina Rule 10.1 (trust account; client funds not to benefit the attorney)
• North Carolina Rule 10.3 (payment of bank charges from interest on client funds)

See also

• NC Ethics Op. RPC 158: advance payment of legal fees and trust handling
• NC Ethics Op. 2001-3: disbursing against provisional credit in the trust account

Source

• Landing page: https://www.ncbar.gov/for-lawyers/ethics-and-governing-rules/ethics-opinions/opinions/rpc-150/

Original opinion text

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

Inquiry:

Attorney A maintains a trust account and a business account with Sunshine Bank. Attorney A has been a participant in IOLTA. Over the last several months, however, Attorney A's account has been incurring substantial charges (over $400 in the last year).

After repeated inquiries, Attorney A discovered that her business account and trust account were "linked" for the purposes of determining interest earned or charges assessed. Both accounts are subject to a charge per deposit or check, and interest accrues on daily balances such that a substantial balance in the account should offset the check and deposit charges.

Since Attorney A had repeatedly instructed the bank not to debit the trust account for charges, intending to avoid charges for new checks, etc., the bank had linked the two accounts so that the charges from the trust account were assessed against the business account. Of course, being a member of IOLTA, the interest on the trust account balance, which would otherwise have offset the charges, was sent to IOLTA. In effect, Attorney A was paying for contributions to IOLTA. Being deprived of the offsetting interest on the trust account, the numerous checks she wrote for real estate conveyances created a considerable debit.

At this point, the bank has changed both accounts to commercial accounts which do not draw interest, but the balances in the accounts create "credits" which offset the charges per check or deposit. Any negative balance on the trust account is shifted over to the business account.

Does this situation create any ethical problems? Neither account will ever yield a credit in the form of interest income, and hopefully the ongoing balances will offset the debit charges such that they will usually be "free" accounts.

Opinion:

Yes. Under Rules 10.1 and 10.3, client funds in a trust account may not be used to pay bank service charges or fees of the bank because such funds are the sole property of the client and cannot benefit the attorney. Rules 10.1 and 10.3 do permit the payment of bank service charges and fees of the bank from interest earned on client funds deposited in the lawyer's trust account. The new arrangement established by Attorney A's bank could create ethical problems if the credits and service charges to the trust and business accounts were not accounted for independently. Since the trust and business accounts are "linked" for the purposes of determining interest earned or charges assessed, it would be impossible for one to separate out the specific amount of interest earned or charges assessed for either account. If for a particular statement period the trust account earned more "credits" than it was assessed charges, while the business account was assessed more service charges than it earned "credits", the trust account "credits" could offset the service charges assessed on the business account. Rule 10.1 does not permit the lawyer to use client funds from the trust account ("credits" from the trust account) for the lawyer's personal benefit (the offset of service charges assessed on the business account).