May a lawyer invest a client's funds held in trust or escrow in an interest-bearing account, and is the lawyer required to do so?

Plain-English summary

The Committee was asked whether a lawyer may ethically invest a client's funds held in trust or escrow, and whether the lawyer is required to do so. It found no statute, court rule, or disciplinary rule that requires investing trust funds, and it declined to impose any blanket requirement, reasoning that the facts of each case differ enough that a uniform rule would be unwise.

On the permissive side, the Committee found no legal or ethical impediment to placing trust funds in an interest-bearing account, so long as the requirements of DR 9-102 and R. 1:21-6 were satisfied. It noted the ABA Standing Committee on Ethics and Professional Responsibility had recognized the use of interest-bearing trust accounts in Informal Opinion 545 (1962) and Informal Opinion 991 (1967).

The Committee added that a lawyer would be well advised either to obtain the client's consent before investing or to notify the client when the investment is made, that any investment must be made with the greatest care and limited to the most secure vehicles such as governmentally-insured bank accounts, and that any interest or accretion is the property of the client.

Currency note

This opinion was issued in 1976, before New Jersey's adoption of the 2004 revisions to the Rules of Professional Conduct, and predates both the 1984 replacement of the Disciplinary Rules by the RPCs and the later creation of New Jersey's IOLTA program. The trust-accounting duties then in DR 9-102 and R. 1:21-6 are now treated under RPC 1.15 and the IOLTA rules. 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 Treat this page as historical context, not current guidance.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: Is a New Jersey lawyer required to invest a client's trust or escrow funds?

A: No. The opinion found no rule requiring investment and declined to impose a blanket requirement, because the facts of each case differ.

Q: May a lawyer place trust funds in an interest-bearing account?

A: Yes, the opinion concluded there was no impediment to doing so, provided DR 9-102 and R. 1:21-6 were satisfied.

Q: Who owns the interest earned on invested trust funds?

A: The client. The opinion stated that any interest or accretion is the property of the client.

Q: Did the opinion say anything about client consent?

A: Yes. It advised that the lawyer either obtain the client's consent before investing or notify the client at the time the investment is made, and that only the most secure investments, such as governmentally-insured bank accounts, should be used.

Background and rules framework

The opinion applied the trust-accounting rule then in DR 9-102 together with R. 1:21-6 (recordkeeping for attorney trust and business accounts). In current New Jersey terms, the safekeeping of client funds is governed by RPC 1.15 and the trust-account and IOLTA rules; the principle that interest belongs to the client carried into the later IOLTA framework, which directs interest on certain qualifying accounts to a statewide fund rather than to the lawyer.

Citations and references

Rules of Professional Conduct:

• DR 9-102 (preserving the identity of client funds and property), as in effect 1976; now MR 1.15 / NJ RPC 1.15
• R. 1:21-6 (attorney recordkeeping; trust and business accounts)

Other opinions cited:

• ABA Informal Opinion 545 (1962): interest-bearing trust accounts
• ABA Informal Opinion 991 (1967): interest-bearing trust accounts

See also

• NJ ACPE Op. 574: Investment of Trust Funds in New Jersey Financial Institutions
• NJ ACPE Op. 582: Attorney Trust Account, Payment of Interest to Clients and Firm
• NJ ACPE Op. 537: Attorney Trust Accounts, Use of Super-NOW Accounts
• NJ ACPE Op. 659: Collection Attorney, Client Waiver of Trust Account Interest

Source

• Full text (Justia mirror): https://law.justia.com/cases/new-jersey/advisory-committee-on-professional-ethics/2004/acp326-1.html
• Issuing authority: New Jersey Supreme Court Advisory Committee on Professional Ethics, via the NJ Courts Supreme Court Committees page

Original opinion text

Reproduced from a full-text mirror of the official opinion for research purposes. The linked official source controls.

99 N.J.L.J. 298, April 8, 1976

OPINION 326

Investing Trust Funds

The question has arisen whether an attorney may ethically invest funds of a client that he is holding in trust or escrow and, if so, whether he is required to do so.

There is no statute, court rule, or disciplinary rule which expressly or impliedly requires the investment of funds held in trust. Since the facts and circumstances of each individual case are different, any blanket requirement for such investment would, in our opinion, be unwise.

On the other hand, there is no legal or ethical impediment to the placing of trust funds in an interest-bearing account, as long as the requirements of DR 9-102 and R. 1:21-6 are satisfied. The American Bar Association's Standing Committee on Ethics and Professional Responsibility has recognized on at least two occasions, the use of interest-bearing trust accounts. See Informal Opinion 545 (1962) and Informal Opinion 991 (1967).

It would be advisable for an attorney either to obtain the consent of the client before investing the funds or to notify him of such investment at the time the action is taken. It goes without saying that any such investment must be undertaken with the greatest of care, and only the most secure investments, such as in governmentally-insured bank accounts, should be made. However, it must be clearly understood that any interest or accretion is the property of the client.