Can a lawyer disburse settlement proceeds from the trust account before the settlement check clears, if the lawyer is willing to cover a bounced check?
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This page answers the general question as of 2011. Ezel answers yours: whether it's allowed on your facts, under the current rules of professional conduct in your state, with citations.
Plain-English summary
A Nevada personal-injury attorney asked for guidance on the proper procedure for disbursing settlement funds from a trust account. The Committee answered three questions, limiting itself to the issues rather than the specific facts. First, it is not ethical to make an immediate disbursal of settlement proceeds even if the attorney has funds and is willing and able to cover the check should the settlement check bounce. Second, the same answer applies to disbursing immediately to the client (but not other creditors) on the strength of the lawyer's willingness to cover. Third, a client is entitled to the funds only once they have been physically deposited into the trust account, after which the lawyer must act diligently to disburse promptly.
The opinion grounds these answers in NRPC 1.15. Attorneys are fiduciaries who hold client and third-party funds; they must maintain accurate trust-account records for at least seven years and must keep each client's funds separate, never using one client's funds to pay another's obligations. NRPC 1.15(b) bars depositing the lawyer's own funds into a client trust account except to pay bank service charges and only in the amount necessary. Earned fees must be promptly transferred out, and depositing the lawyer's own money to cover a settlement check that has not cleared violates NRPC 1.15.
On the timing question, the opinion explains that on receipt of a settlement check the lawyer must promptly notify the client (NRPC 1.15(d)) and promptly deliver funds the client is entitled to receive, but the client's entitlement does not begin until the check has cleared and the funds have actually been deposited. Disbursing before then means the lawyer is paying out other clients' or third parties' money without their consent, which is conversion, even if the lawyer has no dishonest motive and no client is ultimately harmed. The lawyer likewise has no entitlement to a fee until the funds are deposited. The Committee declined to set a fixed waiting period (calling that the banking industry's expertise) but noted that if the settlement is in cash or a cashier's check deposited before the bank's cutoff, trust-account checks may be issued the same day.
In practice
The opinion holds that, under the Nevada rules, no disbursement may be made from a trust account until the deposited item has cleared and been credited, and a lawyer who disburses earlier (or who deposits personal funds to backstop a check that does not clear) violates NRPC 1.15 and risks conversion. Once funds have cleared and are present, the lawyer must act diligently (NRPC 1.3) and keep the client informed (NRPC 1.4) in disbursing promptly. The opinion does not fix a number of days to wait, leaving that to banking practice.
Common questions
Q: Can a lawyer pay out settlement money right away if willing to cover a bounced check?
A: No. The opinion concluded a lawyer may not disburse settlement proceeds until the check clears and is deposited, and may not use the lawyer's own funds to cover a bounced trust-account check.
Q: Can the lawyer at least pay the client immediately, even if not other creditors?
A: No. The opinion gave the same answer for the client as for other payees: the client's entitlement does not begin until the settlement check has cleared and the funds are actually in the trust account.
Q: Why is early disbursement a problem if no one is harmed?
A: The opinion explains that paying out before the check clears uses other clients' or third parties' funds without consent, which is conversion, even absent a dishonest motive and even if no client is ultimately harmed.
Q: How long must the lawyer wait?
A: The opinion declined to set a fixed period, calling that the banking industry's expertise, but noted that cash or a cashier's check deposited before the bank's cutoff may allow same-day disbursement.
Background and rules framework
The opinion interprets NRPC 1.15 (safekeeping property; trust accounts; the bar on commingling and on depositing the lawyer's own funds except for bank charges), read with NRPC 1.3 (diligence) and NRPC 1.4 (communication), and draws on the comments to ABA Model Rule 1.15 and on trust-account authorities including In re Reeves (Ill.).
Citations and references
Rules of Professional Conduct:
- Model Rule 1.15 / Nev. RPC 1.15 (safekeeping property; trust accounts; commingling)
- Model Rule 1.3 / Nev. RPC 1.3 (diligence)
- Model Rule 1.4 / Nev. RPC 1.4 (communication)
Cases:
- In re Reeves, 93 SH 599 (Ill. 1995), conversion from issuing trust checks before settlement checks cleared
See also
- NV Ethics Op. 42: holding a client's med-pay coverage in trust and negotiating the provider's fee
- NY State Bar Op. 1127: settlement funds in the attorney trust account
Source
- Landing page: https://nvbar.org/for-lawyers/ethics-discipline/ethics-opinions/
- Original PDF: https://nvbar.org/wp-content/uploads/Ethics_Op_44.pdf
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