Can a Virginia lawyer disburse funds from a client trust account before the deposited items have irrevocably cleared, even when the account holds funds for only one client?

Plain-English summary

A collection law firm held funds collected from many debtors in a separate trust account for each major creditor-client, so each account held money for only one client. The firm asked whether it could remit to the client before the deposited items irrevocably cleared, and whether the answer changed if the underlying retail accounts had been "securitized."

The opinion concludes that the lawyer must wait. Funds must be deposited into the trust account, credited, and be "cleared" funds available for withdrawal with no chance of revocation or recall by the financial institution before they may be disbursed. The committee anchors this to Rule 1.15(c)(4)'s duty to promptly deliver funds the client is entitled to receive, reasoning that the duty implicitly prohibits paying out funds before the lawyer actually holds collected funds. It relies on its prior opinions (LEOs 183, 1021, 1255, 1256, 1797) and on Pickus v. Virginia State Bar.

The committee adds that the answer is the same whether the trust account holds funds for one client or is commingled. It declines to reach the second (securitization) question, since the first answer made the proposed disbursements improper and the securitization issue raised legal concepts outside its purview.

In practice

The opinion holds that, under Virginia Rule 1.15 as it stood at the time, a lawyer may not disburse against deposited trust items until they are irrevocably credited and cleared, and that holding funds for a single client rather than commingled funds does not change that conclusion. Per the opinion, exactly when funds become "irrevocably credited" is governed by federal banking law (the Expedited Funds Availability Act, 12 U.S.C. § 4001 et seq.) and is a legal question outside the committee's purview.

Common questions

Q: Can a Virginia lawyer pay a client from a trust deposit before the check clears?

A: No. Under LEO 1835, funds must be deposited, credited, and cleared with no chance of revocation or recall by the bank before they may be disbursed.

Q: Does it matter that the trust account holds money for only one client?

A: No. The opinion states the answer remains the same for a single-client account as for a commingled account.

Q: Who decides when funds are "irrevocably credited"?

A: The opinion says that timing is determined by federal banking regulations, specifically the Expedited Funds Availability Act, and is a legal issue outside the committee's purview.

Background and rules framework

The opinion interprets Rule 1.15 (the analog of Model Rule 1.15), which governs a lawyer's duty to safeguard the property of clients and third parties. Rule 1.15(c) requires a lawyer to "promptly pay or deliver to the client" the funds the client is entitled to receive. The committee reads that affirmative duty to carry an implicit prohibition: a lawyer may not pay out from a trust account to a party not yet entitled to the funds, which means not disbursing on deposited items until the bank has irrevocably credited them. The committee notes that the lawyer assumes a strict fiduciary responsibility when holding client money.

Citations and references

Rules of Professional Conduct:

• Model Rule 1.15 / Virginia Rule 1.15 (safekeeping property; prompt delivery of funds)

Statutes:

• Expedited Funds Availability Act, 12 U.S.C. § 4001 et seq. (limits on bank holds, cited as the source of when funds become available)

Cases:

• Pickus v. Virginia State Bar, 232 Va. 5 (1986), strict fiduciary duty of a lawyer holding client money

Other opinions cited:

• Virginia LEOs 183, 753, 813, 1021, 1255, 1256, 1797: prior treatment of "irrevocably credited" funds and disbursement timing

See also

• VA LEO 1848: Credit Card Fees and Trust Accounts
• VA LEO 1858: Indemnifying an Insurer to Settle
• ABA Formal Op. 505: Fees Paid in Advance
• ABA Formal Op. 475: Safeguarding Divided Fees

Source

• Landing page: https://vsb.org/Site/about/rules-regulations/leo-opinions.aspx
• Original PDF: https://www.vsb.org/common/Uploaded%20files/LEOs/1835.pdf

Original opinion text

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

Committee Opinion
September 7, 2006
LEGAL ETHICS OPINION 1835

TRUST ACCOUNT – CAN A LAWYER
REMIT IRREVOCABLY CREDITED
FUNDS WHEN ACCOUNT HOLDS
FUNDS FOR ONLY ONE CLIENT?

You have presented a hypothetical situation in which a law firm represents a number of
creditors in the collection of delinquent consumer/retail accounts. The firm maintains a
separate trust account for each major client, into which they deposit only those funds
collected on behalf of that client from account debtors. All of these funds held in each
individual account belong only to one client, but are collected from a multitude of
different debtors.
Under the facts you have presented you have asked the following questions:
1.
When an attorney trust account holds funds for only one client, is it necessary to
remit only on irrevocably credited funds in a trust account, or may remittances be made
on a more prompt basis without violating the Rules of Professional Conduct?
2.
If the answer to the first question is that disbursements on uncollected funds are
permissible under those circumstances, is the same conclusion reached if the retail
accounts that are being collected by the client have been “securitized”, leaving the client
with only servicing and perhaps some residual rights under the securitization process?
Rule 1.15 governs the lawyer’s duty to safeguard other’s property and 1.15 (c) states
that “ [A] lawyer shall: … (4) promptly pay or deliver to the client ….the funds,
securities, or other properties in the possession of the lawyer which such person is
entitled to receive.”
This committee has previously made reference in various LEOs to the term
“irrevocably credited” when referring to the appropriate designation of funds available to
be ethically disbursed to clients. 1 LEO 1255 clearly states this committee’s continuing
opinion on the correct timing of disbursement of funds. 2 As the requester correctly
states, the term “irrevocably credited” has no legal definition, however, the committee
continues to opine that, in spite of past terminology, the funds must be deposited into the
lawyer’s trust account, credited to the account, and be “cleared” funds that are available
for withdrawal and disbursement with no chance of revocation or recall by the financial
institution. As the requester has advised, the determination of when funds actually meet
1

LEOs 183, 1021, 1255, 1256, 1797.
While the disciplinary rule establishes an affirmative duty to pass funds to a party or the parties
entitled to the funds, it implicitly prohibits payment of funds from an escrow account to the party
who is not or not yet entitled to the funds. (emphasis added) Thus, a strict interpretation would
require an attorney not to disburse upon items deposited in his trust account until the depository
bank had irrevocably credited them to that account. (See LE Op. 183, LE Op. 753 and LE Op.
813) It is well established that an attorney assumes a strict fiduciary responsibility when he holds
money belonging to the client. (See Pickus v. Virginia State Bar, 232 Va. 5 (1986)). LEO 1255

2

Committee Opinion
September 7, 2006
that standard is determined by federal banking regulations and is a legal issue outside the
purview of this committee. 3
Additionally, the question distinguishes those funds held in a commingled trust account
from those funds held in a trust account exclusively for one client. The answer remains
the same.
The answer to the second question is not required since the answer to the first question
deemed such disbursements to be improper and the second question seems to involve
legal concepts outside the purview of this committee.
This opinion is advisory only, based on the facts presented and not binding on any court
or tribunal.

3

The requester accurately states that the amount of time a bank is permitted to hold funds before
making the funds available for withdrawal is governed by a federal statute called the Expedited
Funds Availability Act, 12 U.S.C. § 4001, et seq. (the “EFA”). The EFA places “upper limits” on
the amount of time banks are permitted to hold different categories of payment instruments before
making the funds available for withdrawal.