Mass. R. Sup. Jud. Ct. 1.15
All trust accounts shall be established in compliance with the following provisions:
Inactivity shall be measured from the date of the last transaction or the date when the lawyer notifies the financial institution that the account shall remain open pursuant to subparagraph (h)(7) of this Rule, whichever is later. For purposes of this Rule, automatic interest accrual and disbursement of interest to the IOLTA Committee shall not constitute activity.
Mass. R. Sup. Jud. Ct. 1.15
Comments
[1] A lawyer should hold property of others with the care required of a professional fiduciary. Securities should be kept in a safe deposit box, except when some other form of safekeeping is warranted by special circumstances. Separate trust accounts are warranted when administering estate monies or acting in similar fiduciary capacities.
[2] In general, the phrase "in connection with a representation" includes all situations where a lawyer holds property as a fiduciary, including as an escrow agent. For example, an attorney serving as a trustee under a trust instrument or by court appointment holds property "in connection with a representation". Likewise, a lawyer serving as an escrow agent in connection with litigation or a transaction holds that property "in connection with a representation". However, a lawyer serving as a fiduciary who is not actively practicing law does not hold property "in connection with a representation."
[2A] Legal fees and expenses paid in advance that are to be applied as compensation for services subsequently rendered or for expenses subsequently incurred are trust property and are required by paragraphs (b)(1) and (b)(3) to be deposited to a trust account. These fees and expenses can be withdrawn by a lawyer only as fees are earned or expenses incurred. The Rule does not require flat fees to be deposited to a trust account, but a flat fee that is deposited to a trust account is subject to all the provisions of this Rule, including paragraphs (b)(2) and (d)(2). A flat fee is a fixed fee that an attorney charges for all legal services in a particular matter, or for a particular discrete component of legal services, whether relatively simple and of short duration, or complex and protracted. For the obligation to refund an unearned fee in the event of a discharge or withdrawal, see Rule 1.16(d).
[3] Lawyers often receive funds from third parties from which the lawyer's fee will be paid. If there is risk that the client may divert the funds without paying the fee, the lawyer is not required to remit the portion from which the fee is to be paid. However, a lawyer may not hold funds to coerce a client into accepting the lawyer's contention. The disputed portion of the funds must be kept in trust and the lawyer should suggest means for prompt resolution of the dispute, such as arbitration. The undisputed portion of the funds shall be promptly distributed.
[4] Third parties, such as a client's creditors, may have just claims against funds or other property in a lawyer's custody. A lawyer may have a duty under applicable law to protect such third party claims against wrongful interference by the client, and accordingly may refuse to surrender the property to the client. However, a lawyer should not unilaterally assume to arbitrate a dispute between the client and the third party.
[5] The obligations of a lawyer under this Rule are independent of those arising from activity other than rendering legal services. For example, a lawyer who serves as an escrow agent is governed by the applicable law relating to fiduciaries even though the lawyer does not render legal services in the transaction.
[6] How much time should elapse between the receipt of funds by the lawyer and notice to the client or third person for whom the funds are held pursuant to paragraph (c) depends on the circumstances. By example, notice must be furnished immediately upon receipt of funds in settlement of a disputed matter, but a lawyer acting as an escrow agent or trustee routinely collecting various items of income may give notice by furnishing a complete statement of receipts and expenses on a regular periodic basis satisfactory to the client or third person. Notice to a client or third person is not ordinarily required for payments of interest and dividends in the normal course, provided that the lawyer properly includes all such payments in regular periodic statements or accountings for the funds held by the lawyer. A lawyer's inability to identify or locate the owner of funds held in the lawyer's IOLTA account does not relieve the lawyer of the duties set forth in paragraph (c) of this Rule.
[6A] Paragraph (d)(2) provides that, on or before the date of any withdrawals from a trust account to pay fees due, the lawyers must provide the client in writing with, among other information, an itemized bill or other accounting showing the services rendered. Because the definition of "trust property" in paragraph (a)(1) includes funds held in a fiduciary capacity, lawyers who represent themselves as fiduciaries(such as personal representatives, executors, conservators, guardians or trustees) must comply with paragraph (d)(2) by creating, prior to or contemporaneous with any withdrawal of fees, the bills or accountings required by the rule to justify payment. Such accountings may consist of itemized written time records, formal written bills, or other contemporaneous written accountings that show the services rendered and the method for calculating the fees. The lawyer is also required to maintain all trust account records specified in paragraphs (e) and (f) of this rule.
[7] Paragraph (e)(3) requires attorneys to provide a written notice to the bank or other depository when opening any account that is a trust account within the meaning of this Rule, regardless of whether the account is an IOLTA account or an individual trust account. The notice must be acknowledged in writing by the bank and an executed copy retained for the lawyer's own records. Forms for opening an IOLTA account (called an Attorney's Notice of Enrollment) may be found on the IOLTA Committee website or obtained by contacting the IOLTA Committee directly. See the IOLTA Guidelines for additional procedures to be used when opening IOLTA accounts. Forms for notice to a bank when opening an individual (i.e., non-IOLTA) trust account may be obtained online from the website of the Board of Bar Overseers. The use of these forms shall not prevent the use of other forms consistent with this Rule.
[8] Paragraph (e)(4) states the general rule that all withdrawals and disbursements from trust account must be made in a manner that permits the recipient or payee of the withdrawal to be identified. It does not prohibit electronic transfers or foreclose means of withdrawal that may be developed in the future, provided that the recipient of the payment is identified as part of the transaction. When payment is made by check, the check must be payable to a specific person or entity. A prenumbered check must be used, except that starter checks may be used for a brief period between the opening of a new account and issuance of numbered checks by the bank or depository.
[9] Paragraph (f) lists records that a lawyer is obliged to keep in order to comply with the requirement that "complete records" be maintained. Additional records may be required to document financial transactions with clients or third persons. Depending on the circumstances, these records could include retainer, fee, and escrow agreements and accountings, including RESPA or other real estate closing statements, accountings in contingent fee matters, and any other statement furnished to a client or third person to document receipt and disbursement of funds.
[10] The "Check Register," "Individual Client Ledger" and "Ledger for Bank Fees and Charges" required by paragraph (f)(1) are all chronological records of transactions. Each entry made in the check register must have a corresponding entry in one of the ledgers. This requirement is consistent with manual record keeping and also comports with most software packages. In addition to the data required by paragraph (f)(1)(B), the source of the deposit and the purpose of the disbursement should be recorded in the check register and appropriate ledger. For non-IOLTA accounts, the dates and amounts of interest accrual and disbursement, including disbursements from accrued interest to defray the costs of maintaining the account, are among the transactions that must be recorded. Check register and ledger balances should be calculated and recorded after each transaction or series of related transactions.
[11] Periodic reconciliation of trust accounts is also required. Generally, trust accounts should be reconciled on a monthly basis so that any errors can be corrected promptly. Active, high-volume accounts may require more frequent reconciliations. A lawyer must reconcile all trust accounts at least every sixty days.
The three-way reconciliation described in paragraph (f)(1)(E) must be performed for any account in which funds related to more than one client matter are held. The reconciliation described in paragraph (f)(1)(E)(iii) need not be performed for accounts that only hold the funds of a single client or third person, but the lawyer must be sure that the balance in that account corresponds to the balance in the individual ledger maintained for that client or third person.
The method of preparation and form of the periodic reconciliation report will depend upon the volume of transactions in the accounts during the period covered by the report and whether the lawyer maintains records of the account manually or electronically. By example, for an inactive single-client account for which the lawyer keeps records manually, a written record that the lawyer has reconciled the account statement from the financial institution with the check register maintained by the lawyer may be sufficient.
[12] Lawyers who maintain records electronically should back up data on a regular basis. For moderate to high-volume trust accounts, weekly or even daily backups may be appropriate.
[13] Paragraph (f)(4), along with Rule 1.17(e), provides for the preservation of a lawyer's client trust account records in the event of dissolution or sale of a law practice. These provisions reflect the supervisory responsibilities of partners under Rule 5.1. Regardless of the arrangements the partners make among themselves for maintenance of the client trust records, each partner can be held responsible for ensuring the availability of these records. For the definition of "law firm," "partner," and "reasonable," see Rules 1.0(e), (i), and (l).
[14] The provisions of paragraphs (h)(1)(ii), (h)(5), (h)(6), (h)(7) and (i) were added to the Rule in response to the holding in Matter of Olchowski, 485 Mass. 807 (2020) ("Olchowski") that funds in an IOLTA account are not subject to the Massachusetts abandoned property law, G. L. c. 200A. The provisions of Rule 1.15(i) provide a means by which unidentified and unclaimed funds in lawyers' IOLTA accounts are to be transferred to the Massachusetts IOLTA Committee.
[15] Where a lawyer has failed to disburse funds from an IOLTA account because of uncertainty as to the ownership of such funds, or because the owner is known but cannot be located or has failed to negotiate the lawyer's IOLTA account check, the lawyer must make reasonable and diligent efforts to identify or locate the owners and remit the funds to the owner, as provided in subparagraph (i)(1) of this Rule. What constitutes reasonable and diligent efforts will depend on the circumstances, but may include, in the case of unidentified funds, a thorough review of bank records, accounting records, and client files; and, in the case of unclaimed funds, making inquiries of the client's family or acquaintances, examining public records, and conducting internet-based research. If such efforts are unsuccessful, paragraph (i)(3) requires the lawyer to transfer the unclaimed or unidentified funds to the IOLTA Committee after three years. Under paragraph (i)(2), a lawyer who has made a diligent but unsuccessful effort to identify the owner of unidentified funds or locate the owner of unclaimed funds may transfer the funds to the IOLTA Committee before the expiration of three years.
[16] Nothing in paragraphs (h) and (i) alters a lawyer's duties to maintain complete records of all funds in an IOLTA account, comply with all operational requirements for a trust account, and promptly disburse funds held in trust for clients or third parties when payment is due. Violations of Rule 1.15 or other rules that cause unidentified funds or unclaimed funds to accumulate in an IOLTA account may be grounds for discipline whether or not the lawyer transfers the funds to the IOLTA Committee in accordance with paragraph (i).
[17] The records associated with unclaimed and unidentified funds may be necessary to a later determination of ownership of those funds pursuant to Rule 1.15(i). Rule 1.15A prohibits a lawyer who has transferred such funds from destroying the related client file or files for up to 10 years.
[18] The Olchowski decision and Rule 1.15 do not address how funds that are held in trust accounts other than IOLTA accounts and whose owner can be identified but not located or contacted are to be handled. Funds held in trust accounts other than IOLTA accounts and for which the owner cannot be located or contacted are governed by the Massachusetts abandoned property law, G.L. c. 200A.