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ER 1.15 Safekeeping Property

The Standard

Lawyers hold property of clients and third parties as a fiduciary.  Property in connection with the representation must be held separate from the lawyer’s own property.  If funds are paid in advance, or funds belong to more than one person, they must be held in an IOLTA account maintained in the state where the lawyer’s office is situated or elsewhere with client or third-party consent.  Other property shall be identified and appropriately safeguarded.  Complete records of account funds or other property kept by the lawyer should be preserved for five years after termination of the representation.

Lawyers may deposit their own funds into a client trust account only to pay service fees or other bank charges; or to pay any merchant fees or credit card transaction fees.  The amount of lawyer funds deposited must reasonably approximate the purpose for which the funds are deposited.

Upon receiving funds belonging to a client or third party, the lawyer shall promptly notify them of receipt.  The lawyer shall promptly deliver to the client or third person any funds they are entitled to receive, and upon request by the client or third person, shall promptly render a full accounting regarding such property.

The Limitation

A lawyer must promptly distribute any undisputed portion of property the lawyer holds. If two or more persons claim interests in property the lawyer possesses, the lawyer must keep the disputed portion separate from the lawyer’s own property until the parties reach an agreement; a court resolves the dispute; or by using the Notice procedure allowed by ER 1.15(f).

FAQs

My client gave me her mother’s heirloom engagement ring as collateral for my fee. Can I put the ring in a labeled box in my desk and lock my office?

No, that is not an appropriately secure safekeeping method.  A floor safe or safety deposit box is more appropriate/secure.  Also remember that for any property without a readily identifiable value, you should first have it appraised before you agree to hold or accept it.  Here, because the property is being held as collateral for your fee, you should have the client sign an agreement that specifies what happens to the ring if she doesn’t pay your fee. Try to avoid holding property for clients and avoid accepting property to pay your fee See ER 1.8(a) for requirements if you do accept property for your fee).

I am holding funds in my trust account because the client and a third person have a dispute as to the division. Now what?

You don’t want to keep disputed funds in your trust account indefinitely.  Encourage a resolution of the dispute by suggesting fee arbitration, if appropriate, or use the ER 1.15(f) Notice procedure or an interpleader action.

I’ve read ER 1.15 and its Comments but can’t figure out what “matured legal or equitable claim” means.

A lawyer may have a legal duty to protect third-party claims “against wrongful interference by the client” and, if a third-party claim has become a “matured legal or equitable claim,” must hold the funds or property until the dispute is resolved. See Comment 4 to ER 1.15. State Bar of Arizona Ethics Op. 98-06 quotes a noted treatise describing matured legal or equitable claims as third-party interests for which failing to recognize the interest “is a species of fraud upon creditors or fraud upon the rendering court.” That Opinion concludes that an unsigned, unrecorded medical lien is not a matured legal or equitable claim but an assignment or letter of protection of which the lawyer has notice is.

Must I proactively search for liens before disbursing settlement funds to the client?

No, the ERs do not require a lawyer to search public records or other sources for medical liens or claims in order to acquire knowledge of an “interest.” See State Bar of Arizona Ariz. Ethics Op. 11-03.

Can I just email my ER 1.15(f) Notice to the third party who has made a claim to client funds being held in my trust account?

No. The Notice must be served on the third party in the manner provided under Rules 4.1 or 4.2, Ariz. R. Civ. P.  For more information about the ER 1.15(f) Notice, review Ethics Advisory Committee EO-19-0004/0005/0007.

If I must keep my own property separate from that of a client, what do I do with a check that’s made out to both of us?

ER 1.15 must be read in conjunction with Rule 43, Ariz. R. Sup. Ct., the rule on trust accounts. Rule 43(a)(4) directs that a joint check must be deposited into the trust account and the lawyer must withdraw the portion belonging to them within a reasonable time.

After notifying the client that the settlement check arrived, the client unreasonably disputes my fee and demands the full check. May I take my fee from the settlement funds deposited in my IOLTA?

You are not required to remit to the client funds that you reasonably believe represent fees owed. However, you may not hold the entire amount as leverage in the fee dispute. You must first disburse the undisputed amount to the client, and then resolve the fee dispute before you take your fee. The State Bar’s Fee Arbitration program can be helpful in this unpleasant situation, as it is free and generally faster than formal litigation. Pro tip: Provide for Fee Arbitration in your engagement agreement.

I have money in my trust account that might belong to a former client who never negotiated – despite my prodding – a small PI-settlement check issued to him. I can’t locate the client. What do I do with this money? Send it to the State Bar?

Why do you say it “might” belong to the former client? If you don’t know to whom the money belongs, that’s a problem. Regardless, if you have money in your trust account that has been abandoned, or whose ownership you can’t determine, don’t send it to the State Bar. If you cannot find the client after reasonable efforts, you must comply with the Revised Arizona Uniform Unclaimed Property Act, A.R.S. §§ 44-301-340. See State Bar of Arizona Ariz. Ethics Op. 97-01 for a fuller discussion.

I am licensed in Arizona and another state. I work for a firm in the other state. May I keep an Arizona client’s funds in my firm’s trust account or do I need to open an IOLTA in Arizona?

If an Arizona lawyer has funds relating to the representation of an Arizona client in a matter that requires the practice of law in Arizona, regardless of where the lawyer is physically located, the client or third-party funds should be maintained in an Arizona IOLTA. While the rules do not specifically address this issue, the rationale behind ER 1.15 and the trust accounting rules indicate that the funds should be kept where the legal matter and client are located. However, with client consent you may keep their funds in your “other state” IOLTA. If you do, you will be responsible for ensuring that any interest on those funds is remitted to the Arizona Foundation for Legal Services and Education unless the trust account is maintained only for the benefit of that client or is a pooled trust account with “sub accounting provided by the lawyer or law firm, which will provide for computation of interest or dividends earned by each client’s funds and the payment thereof” pursuant to Rule 43(f)(1)(C), Ariz. R. Sup. Ct. In that case, you must remit any interest on those funds to the client.

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