Can a Tennessee lawyer direct the interest earned on a client trust account to a charity of the lawyer's own choosing?

Plain-English summary

The opinion addressed whether a lawyer could give the interest earned on a trust account to a charity the lawyer selected. It built on Formal Ethics Opinion 84-F-68's discussion of the ethical duties attached to interest-bearing trust accounts, as modified by the Tennessee Supreme Court's October 20, 1984 amendments to Canon 9's Ethical Considerations and Disciplinary Rules, which created a voluntary statewide program (an Interest on Lawyer's Trust Accounts, or IOLTA, program) under amended Disciplinary Rule 9-102(C)(2).

Under that rule, a lawyer or firm holding client funds that are nominal in amount or expected to be held only briefly may maintain a pooled interest-bearing insured depository account for those funds. No interest from such an account may go to the lawyer or firm. The depository institution must instead remit the net interest at least quarterly to the Tennessee Bar Foundation, along with a statement of the lawyer's or firm's name and the interest rate applied, copied to the lawyer or firm. The determination of whether funds are nominal or short-term rests in the lawyer's sound discretion, exercised in good faith, and a lawyer may notify clients of participation in the program. The Bar Foundation must distribute the interest collected for legal assistance to the poor, student loans, grants, and scholarships for law students, improving the administration of justice, and other public-benefit programs the Tennessee Supreme Court specifically approves. Under unamended Disciplinary Rule 9-102(C)(1), interest earned on accounts holding client funds belongs to the clients whose funds are deposited, and the lawyer has no right or claim to it except as authorized under the new DR 9-102(C)(2) program. The opinion concluded that Tennessee lawyers may not give trust-account interest to a charity of the lawyer's own designation, but may voluntarily invest trust funds so that the interest is used for the legal-charitable purposes the amended rule prescribes.

Currency note

This opinion was issued in 1985, before Tennessee's adoption of the 2003 Rules of Professional Conduct, which replaced the former Code of Professional Responsibility. 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 Treat this page as historical context, not current guidance.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 Tennessee lawyer send the interest on a client trust account to a charity the lawyer picks?

A: No. The opinion held that lawyers may not give trust-account interest to a charity designated by the lawyer.

Q: How can trust-account interest legitimately be used for a charitable purpose?

A: Through the voluntary program in amended Disciplinary Rule 9-102(C)(2): the lawyer places nominal or short-term client funds in a pooled interest-bearing account, and the depository institution remits the net interest, at least quarterly, to the Tennessee Bar Foundation, which distributes it for legal aid to the poor, law-student loans and scholarships, improving the administration of justice, and other Supreme Court-approved public-benefit programs.

Q: Who decides whether client funds are "nominal" or "short-term" enough to go into the pooled interest-bearing account?

A: The lawyer, exercising sound discretion in good faith; the opinion notes that no charge of ethical impropriety attaches to a lawyer's good-faith judgment on that determination.

Background and rules framework

The opinion applied Disciplinary Rule 9-102(C)(1) and (C)(2) of the Code of Professional Responsibility, as amended by the Tennessee Supreme Court on October 20, 1984 to create the state's IOLTA program. The modern correlate is Model Rule 1.15 (safekeeping property), cited here as a navigational cross-reference rather than a rule the opinion itself applied.

Citations and references

Other opinions cited:

• Tennessee Formal Ethics Opinion 84-F-68 (May 29, 1984), ethical duties of interest-bearing trust accounts

See also

• Tennessee Op. 84-F-68: Interest-Bearing Client Trust Accounts
• AL Ethics Op. 2008-03: Lawyers' Trust Account Obligations With Regard to Retainers and Set Fees
• Tenn. Ethics Op. 85-F-90: Interest on Separate Client Trust Accounts (applies the interest-bearing-account standard when a client cannot be reached)

Source

• Landing page: https://www.tbpr.org/ethic_opinions/85-f-97

Original opinion text

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

85-F-97 - Giving Interest from Trust Account to Charity

BOARD OF PROFESSIONAL RESPONSIBILITY OF THE SUPREME COURT OF TENNESSEE

FORMAL ETHICS OPINION 85-F-97

Inquiry is made concerning the ethical propriety of giving the interest derived from a trust account to a charity designated by the lawyer.

The ethical duties imposed when an interest bearing trust account is utilized are discussed in Formal Ethics Opinion 84-F-68 issued by the Board on May 29, 1984 and adopted herein subject to the amendments to the Code of Professional Responsibility subsequently promulgated as described herein.

On October 20, 1984 the Supreme Court amended the Ethical Considerations and Disciplinary Rules of Canon 9 of the Code of Professional Responsibility so that the lawyers of Tennessee may, on a voluntary basis, cause their trust accounts to be invested so that the interest derived therefrom may be used for legal charitable purposes as prescribed in Disciplinary Rule 9-102(C)(2) as amended, to wit:

DR 9-102(C)(2). A lawyer or law firm with which he is associated who receives client funds may maintain a pooled interest bearing insured depository account for deposit of client funds that are nominal in amount or expected to be held for a short period. Such an account shall comply with the following provisions:

(a) The account shall only include clients' funds which are nominal in amount or are expected to be held for a short period of time.

(b) No interest from such an account shall be made available to a lawyer or law firm.

(c) Lawyers or law firms depositing client funds in an interest bearing insured depository account under this paragraph

(C)(2)shall direct the depository institution:

(i) to remit interest, net any service charges or fees, as computed in accordance with the institution's standard accounting practice, at least quarterly, to the Tennessee Bar Foundation; and

(ii) to transmit with each remittance to the Tennessee Bar Foundation a statement showing the name of the lawyer or law firm on whose account the remittance is sent and the rate of interest applied, with a copy of such statement to be transmitted to the lawyer or the law firm.

(d) The determination of whether funds are nominal in amount or are to be held for a short period of time rests in the sound discretion of the lawyer and no charge of ethical impropriety or other breach of professional conduct shall attend an attorney's exercise of good faith judgment in that regard. A lawyer may notify his clients of his participation in an Interest on Lawyer's Trust accounts program.

(e) All interest transmitted to the Tennessee Bar Foundation shall be distributed by that entity for the following purposes:

(i) to provide legal assistance to the poor;

(ii) to provide student loans, grants, and scholarships to deserving law students;

(iii) to improve the administration of justice; and

(iv) for such other programs for the benefit of the public as are specifically approved by the Supreme Court of the State of Tennessee from time to time.

Disciplinary Rule 9-102(C)(1) of the Code, as amended October 20, 1984, states that except as authorized by DR 9-102(C)(2) interest earned on accounts in which funds of clients are deposited shall belong to the clients whose funds are deposited and the lawyer shall have no right or claim to such interest.

Lawyers of Tennessee may not give the interest derived from a trust account to a charity designated by the lawyer but may, on a voluntary basis, cause their trust accounts to be invested so that the interest derived therefrom may be used for legal charitable purposes as prescribed by Disciplinary Rule 9-102(C)(2) as amended on October 20, 1984.

This 22nd day of August, 1985.

ETHICS COMMITTEE:

G. Wilson Horde

T. Maxfield Bahner

Charles T. Herndon, III

APPROVED AND ADOPTED BY THE BOARD