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Lawyer's Trust Account Handbook

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  • Lawyers Trust Account Handbook

    The North Carolina State Bar

    A publication designed to aid lawyers in understanding the procedures and guidelinesfor trust accounts.

    Revised 11/2017

  • DISCLAIMERThishandbookcontainslegalinformation,notlegaladvice.WhiletheStateBarwillmakeeveryefforttoupdatethemanualasnecessary,itistheresponsibilityofthemembertomakesurethattheyarefollowingthemostcurrentversionoftheRulesofProfessionalConduct.Nothingcontainedinthishandbookisintendedtoaddressanyspecificinquiry,norisitasubstituteforindependentlegalresearchtooriginalsourcesorforobtainingtheadviceoflegalcounselwithrespecttolegalproblems.

    ACKNOWLEDGEMENTSSelectedportionsofthishandbookwereadopted,adapted,and/orreprintedfromthematerialsoriginallyauthoredbythefollowingjurisdictionswiththeirpermission:

    TheStateBarofArizona,ClientTrustAccountingforArizonaAttorneys,2010(ForthecurrentonlineversionoftheArizonaHandbook,pleasegoto:myazbar.org/Members/Archives/Trust_Account_Manual.pdfatNCStateBarTrustAccountHandbookSectionVI,Pages2832,SectionVII,Pages3342,AppendixB,Pages90107.

    TheStateBarofCalifornia,HandbookonClientTrustAccountingforCaliforniaAttorneys2009Allrightsreserved.Nopartofthisworkmaybereproduced,storedinaretrievalsystem,ortransmittedinanymediumwithoutpriorwrittenpermissionofTheStateBarofCalifornia.(ForthecurrentonlineversionoftheCaliforniaHandbook,pleasegoto:ethics.calbar.ca.gov)atNCStateBarTrustAccountHandbookSectionII,Pages1114.

  • Table of Contents Introduction 1

    SectionI:TrustAccountingRules 2Rule1.151,Definitions 2Rule1.152,GeneralRules 3 Rule1.153,RecordsandAccountings 5Rule1.154,AlternativeTrustAccountManagementProcedureforMultiMemberFirm 7Rule.1316,IOLTAAccounts 14Rule.1317,ComparabilityRequirementsforIOLTAAccounts 15

    SectionII:KeyConceptsinClientTrustAccounting 16KeyConcept1:SeparateClientsareSeparateAccounts 16KeyConcept2:YouCantSpendWhatYouDontHave 17KeyConcept3:TheresNoSuchThingasaNegativeBalance 17KeyConcept4:TimingisEverything 17KeyConcept5:YouCantPlaytheGameUnlessYouKnowtheScore 18KeyConcept6:TheFinalScoreisAlwaysZero 18KeyConcept7:AlwaysMaintainanAuditTrail 19

    SectionIII:TrustAccountBasics 19A.TrustAccounts:WhatAreTheyandHowManyDoYouNeed? 19B.OpeningaTrustAccount 20C.TrustAccountManagement 22D.AbandonedorUnclaimedFunds/Property 23E.ClosingaTrustAccount 24

    SectionIV:FundsGoIn 24A.WhatGoesIntoaTrustAccount? 24B.WhatDoesNotGointheTrustAccount 25C.DepositingFundsintoaTrustAccount 26

    SectionV:FundsGoOut 27A.WhatDisbursementsareInappropriate? 27B.OverdraftsandChecksPresentedAgainstInsufficientFunds 29C.ACHTransactions 30

    SectionVI:Recordkeeping 30A.WhatRecordsareRequired? 30 B.AccountingSystemsandResources:ElectronicversusManual 31

    Manual 31Software 32

    SectionVII:ReconciliationsandReviews 32 A.MonthlyReconciliation 33 B.QuarterlyReconciliation 33

  • C.ExampleofThreeWayReconciliation 34 D.QuarterlyReview 41

    SectionVIII:Trustees,PersonalRepresentatives,andOtherFiduciaryRoles 42

    A.FiduciaryAccounts 42 B.SegregationofFiduciaryFunds 42 C.LocationofFiduciaryAccount 43 D.WhenAreFundsHeldbyaLawyerinaFiduciaryCapacitySubjecttotheRequirementsoftheRulesofProfessionalConduct? 43 E.RecordKeepingRequirementsforFiduciaryAccounts 44

    SectionIX:SafeguardingFundsfromEmbezzlement 45

    SectionX:Scams 46

    SectionXI:InterestonLawyersTrustAccountIOLTA 47A.WhatisIOLTA? 47 B.HowitWorks 47C.HowareIOLTAFundsUsed? 47 D.QuestionsandAnswersabouttheManagementofIOLTAAccounts 48

    SectionXII:FDICInsurance 50

    SectionXIII:TheRandomAuditProgram 51A.Introduction 51 B.AuthorityforRandomAudits 51 C.SelectionProcess 51 D.ScopeofAudit 52 E.TrustAccountComplianceProgram(TAC) 52 F.ExemptionfromAudit 53 G.Confidentiality 53 H.Discipline 53 I.Workshops 53 J.AuditChecklist 53

    Appendices AppendixA:EthicsOpinions 57

    1.RPC47 592.RPC51 59 3.RPC66 60 4.RPC75 60 5.RPC78 61 6.RPC125 62 7.RPC127 628.RPC150 649.RPC191 6510.1997FEO9 67

  • 11.2001FEO3 6912.2005FEO13 7013.2006FEO8 7114.2006FEO15 7215.2006FEO16 7316.2008FEO10 7417.2009FEO4 7818.2011FEO7 7919.2013FEO13 8120.2015FEO6 8221.EA2217 8522.EA2295 85

    AppendixB:ExampleForms 871.KeyConceptsInfographic 882.SampleClientLedger 893.BankDirectiveonNSFTrustChecks 904.OpeninganAccountChecklist 915.TrustAccountCheck 926.TrustAccountCheckDetail 937.DepositSlipforOneClient 948.DepositSlipforMultipleClients 959.GeneralLedger 9610.AdministrativeFundsLedger 9711.ZeroBalanceWrittenAccounting 9812.AnnualWrittenAccounting(NoActivity) 9913.ReconciliationReport 10014.QuarterlyReviewReport 10115.IOLTAStatusUpdateForm 10216.RandomAuditExemptionDocuments 103

    AppendixC:JournalArticles 1101.EscheatHappens 1102.TopTipsonTrustAccounting:GetActivewithYour InactiveBalances! 1113.BrunosTopTipsforTipTopTrustAccounting 1134.TopTipsonTrustAccounting:SafeguardingFundsFromEmbezzlement 1155.TopTipsOnTrustAccounting:DosandDontsofAcceptingCreditCards 1176.TrustAccountPlanningfortheSolePractitionersWithdrawalFromPractice 118ProposedRuleAmendmentstoPreventandDetectInternalTheft 119

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    INTRODUCTION

    Onadailybasis,alawyerinprivatepracticewillreceive,hold,anddisbursemoneythatbelongstothelawyersclientsandtothirdpartiesinconjunctionwiththerepresentationofclients.Millionsofdollarsflowthroughthehandsoflawyerswhileservingclientsmakingthehandlingofclientfundsoneofthemostsignificantfiduciaryobligationsoflawyerstotheirclients.Toreducethepossibilityoftheft,misappropriation,ormishandlingofclientfunds,theNorthCarolinaStateBarestablishedtrustaccountingstandardsinRule1.15oftheRulesofProfessionalConduct,andimplementedaprogramofrandomauditsoflawyerstrustaccounts.Thishandbookexplainstherequirementsforsegregating,safekeeping,andrecordkeepingforclientfunds,andhowtherandomauditprogramworks.Thepurposeofthehandbookistoanswerquestionsaboutestablishingatrustaccount,depositsanddisbursementsfromatrustaccount,recordkeepingforatrustaccount,andwhattoexpectwhenyouareselectedforauditbytheStateBarauditor.Ifthehandbookfailstoansweryourspecificquestion,pleasecontacttheStateBarforfurtherassistance.

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    SECTION I: TRUST ACCOUNTING RULES NCRuleofProfessionalConduct1.15,SafekeepingPropertyThisrulehasfoursubparts:Rule1.151,Definitions;Rule1.152,GeneralRules;Rule1.153,RecordsandAccountings;andRule1.154Alternative TrustAccountManagementProcedureforMultiMemberFirm.ThecommenttotherulesappearsafterthetextforRule1.154.Rules.1316and.1317ofSubchapter1DofChapter27oftheNCAdministrativeCodealsoappearinthissection.These rules require a lawyer's trust accounts to be established as IOLTA accounts and explain comparabilityrequirementsforIOLTAaccounts.Rule1.151Definitions

    ForpurposesofthisRule1.15,thefollowingdefinitionsapply:

    (a) Bank denotes a bank savings and loan association, or credit unionchartered underNorth Carolina orfederallaw.

    (b)"Client"denotesaperson,firm,orotherentityforwhomalawyerperforms,orisengagedtoperform,anylegalservices.

    (c)"Dedicatedtrustaccount"denotesatrustaccountthatismaintainedforthesolebenefitofasingleclientorwithrespecttoasingletransactionorseriesofintegratedtransactions.

    (d)Demanddepositdenotesanyaccountfromwhichdepositedfundscanbewithdrawnatanytimewithoutnoticetothedepositoryinstitution.

    (e)"Entrustedproperty"denotestrustfunds,fiduciaryfundsandotherpropertybelongingtosomeoneotherthan the lawyerwhich is in the lawyer'spossessionor control in connectionwith theperformanceof legalservicesorprofessionalfiduciaryservices.

    (f)"Fiduciaryaccount"denotesanaccount,designatedassuch,maintainedbyalawyersolelyforthedepositoffiduciaryfundsorotherentrustedpropertyofaparticularpersonorentity.

    (g)"Fiduciaryfunds"denotesfundsbelongingtosomeoneotherthanthelawyerthatarereceivedbyorplacedunderthecontrolofthelawyerinconnectionwiththeperformanceofprofessionalfiduciaryservices.

    (h)"Funds"denotesanyformofmoney,includingcash,paymentinstrumentssuchaschecks,moneyorders,orsalesdrafts,andreceiptsfromelectronicfundtransfers.

    (i)"Generaltrustaccount"denotesanytrustaccountotherthanadedicatedtrustaccount.

    (j) "Item" denotes anymeans ormethod bywhich funds are credited to or debited from an account; forexample:acheck,substitutecheck,remotelycreatedcheck,draft,withdrawalorder,automatedclearinghouse(ACH)orelectronictransfer,electronicorwirefundstransfer,electronicimageofanitemand/orinformationinelectronicformdescribinganitem,orinstructionsgiveninpersonorbytelephone,mail,orcomputer.

    (k)Legalservicesdenotesservices(otherthanprofessionalfiduciaryservices)renderedbyalawyerinaclientlawyerrelationship.

    (l) "Professional fiduciary services" denotes compensated services (other than legal services) rendered by alawyerasatrustee,guardian,personalrepresentativeofanestate,attorneyinfact,orescrowagent,orinanyotherfiduciaryrolecustomarytothepracticeoflaw.

    (m)"Trustaccount"denotesanaccount,designatedassuch,maintainedbya lawyer for thedepositof trustfunds.

    (n) "Trust funds"denotes fundsbelonging to someoneother than the lawyer thatare receivedbyorplacedunderthecontrolofthelawyerinconnectionwiththeperformanceoflegalservices.

    HistoryNote:StatutoryAuthorityG.S.8423

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    AdoptedJuly24,1997

    AmendedMay4,2000;March1,2003;March6,2008,October8,2009;August23,2012;June9,2016

    Rule1.152GeneralRules

    (a) Entrusted Property. All entrusted property shall be identified, held, andmaintained separate from thepropertyof the lawyer,and shallbedeposited,disbursed,anddistributedonly inaccordancewith thisRule1.15.

    (b)DepositofTrustFunds.Alltrustfundsreceivedbyorplacedunderthecontrolofalawyershallbepromptlydeposited ineitherageneraltrustaccountoradedicatedtrustaccountofthe lawyer.Trustfundsplaced inageneralaccountarethosewhich,inthelawyer'sgoodfaithjudgment,arenominalorshortterm.GeneraltrustaccountsaretobeadministeredinaccordancewiththeRulesofProfessionalConductandtheprovisionsof27NCACChapter1,SubchapterD,Sections.1300.

    (c)DepositofFiduciaryFunds.Allfiduciaryfundsreceivedbyorplacedunderthecontrolofa lawyershallbepromptlydepositedinafiduciaryaccountorageneraltrustaccountofthelawyer.

    (d)SafekeepingofOtherEntrustedProperty.A lawyermayalsoholdentrustedpropertyotherthan fiduciaryfunds (such as securities) in a fiduciary account. All entrusted property received by a lawyer that is notdeposited in a trust account or fiduciary account (such as a stock certificate) shall be promptly identified,labeledaspropertyofthepersonorentityforwhomitistobeheld,andplacedinasafedepositboxorothersuitableplaceofsafekeeping.Thelawyershalldisclosethelocationofthepropertytotheclientorotherpersonforwhomitisheld.Anysafedepositboxorotherplaceofsafekeepingshallbelocatedinthisstate,unlessthelawyerhasbeenotherwiseauthorizedinwritingbytheclientorotherpersonforwhomitisheld.

    (e) LocationofAccounts.All trust accounts shallbemaintained at abank inNorthCarolinaor abankwithbranchoffices inNorthCarolinaexceptthat,withthewrittenconsentoftheclient,adedicatedtrustaccountmaybemaintainedatabankthatdoesnothaveofficesinNorthCarolinaoratafinancialinstitutionotherthanabankinoroutsideofNorthCarolina.Alawyermaymaintainafiduciaryaccountatanybankorotherfinancialinstitution in or outside ofNorth Carolina selected by the lawyer in the exercise of the lawyer's fiduciaryresponsibility.

    (f)FundsinAccounts.Atrustorfiduciaryaccountmayonlyholdentrustedproperty.Thirdpartyfundsthatarenotreceivedbyorplacedunderthecontrolofthelawyerinconnectionwiththeperformanceoflegalservicesor professional fiduciary services may not be deposited or maintained in a trust or fiduciary account.Additionally,nofundsbelonging to a lawyer shallbedepositedormaintained in a trust accountor fiduciaryaccountofthelawyerexcept:

    (1)fundssufficienttoopenormaintainanaccount,payanybankservicecharges,orpayanytaxleviedontheaccount;or

    (2)fundsbelonginginparttoaclientorotherthirdpartyandinpartcurrentlyorconditionallytothelawyer.

    (g)MixedFundsDepositedIntact.Whenfundsbelongingtothelawyerarereceivedincombinationwithfundsbelonging to theclientorotherpersons,allof the fundsshallbedeposited intact.Theamountscurrentlyorconditionallybelongingtothe lawyershallbe identifiedonthedepositsliporotherrecord.Afterthedeposithas been finally credited to the account, the lawyer shallwithdraw the amounts towhich the lawyer is orbecomes entitled. If the lawyers entitlement is disputed, the disputed amounts shall remain in the trustaccountorfiduciaryaccountuntilthedisputeisresolved.

    (h) ItemsPayable toLawyer.Any itemdrawnona trustaccountor fiduciaryaccount forthepaymentofthelawyersfeesorexpensesshallbemadepayabletothelawyerandshallindicateontheitembyclientname,filenumber,orotheridentifyinginformationtheclientfromwhosebalancetheitemisdrawn.Anyitemthatdoesnotincludethisinformationmaynotbeusedtowithdrawfundsfromatrustaccountorafiduciaryaccountforpaymentofthelawyersfeesorexpenses.

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    (i)NoBearer Items.No itemshallbedrawnonatrustaccountorfiduciaryaccountmadepayabletocashorbearerandnocashshallbewithdrawnfromatrustaccountorfiduciaryaccountbyanymeans.

    (j)DebitCardsProhibited.Useofadebitcardtowithdrawfundsfromageneralordedicatedtrustaccountorafiduciaryaccountisprohibited.

    (k)NoBenefittoLawyerorThirdParty.Alawyershallnotuseorpledgeanyentrustedpropertytoobtaincreditorotherpersonalbenefitforthelawyeroranypersonotherthanthelegalorbeneficialownerofthatproperty.

    (l)BankDirective.Everylawyermaintainingatrustaccountorfiduciaryaccountwithdemanddepositatabankorotherfinancial institutionshall filewiththebankorotherfinancial institutionawrittendirectiverequiringthe bank or other institution to report to the executive director of theNorth Carolina State Barwhen aninstrument drawn on the account is presented for payment against insufficient funds.No trust account orfiduciaryaccountshallbemaintainedinabankorotherfinancialinstitutionthatdoesnotagreetomakesuchreports.

    (m)Notification ofReceipt.A lawyer shall promptly notify his or her clientof the receiptof any entrustedpropertybelonginginwholeorinparttotheclient.

    (n)Delivery of Client Property. A lawyer shall promptly pay or deliver to the client, or to third persons asdirected by the client, any entrusted property belonging to the client and towhich the client is currentlyentitled.

    (o)PropertyReceivedasSecurity.AnyentrustedpropertyordocumentoftitledeliveredtoalawyerassecurityforthepaymentofafeeorotherobligationtothelawyershallbeheldintrustinaccordancewiththisRule1.15and shall be clearly identified as property held as security and not as a completed transfer of beneficialownershiptothelawyer.Thisprovisiondoesnotapplytopropertyreceivedbyalawyeronaccountoffeesorother amountsowed to the lawyer at the timeof receipt;however, such transfers are subject to the rulesgoverninglegalfeesorbusinesstransactionsbetweenalawyerandclient.

    (p)DutytoReportMisappropriation.Alawyerwhodiscoversorreasonablybelievesthatentrustedpropertyhasbeenmisappropriatedormisapplied shall promptly inform theTrustAccountComplianceCounsel (TACC) intheNorthCarolinaStateBarOfficeofCounsel.DiscoveryofintentionaltheftorfraudmustbereportedtotheTACC immediately.Whenanaccountingorbankerrorresults inanunintentionaland inadvertentuseofoneclients trust funds to pay the obligations of another client, the event must be reported unless themisapplicationisdiscoveredandrectifiedonorbeforethenextquarterlyreconciliationrequiredbyRule1.153(d)(1).Thisrulerequiresdisclosureof informationotherwiseprotectedbyRule1.6 ifnecessarytoreportthemisappropriationormisapplication.

    (q)InterestonDepositedFunds.Undernocircumstancesshallthelawyerbeentitledtoanyinterestearnedonfundsdepositedinatrustaccountorfiduciaryaccount.ExceptasauthorizedbyRule.1316ofsubchapter1DoftheRulesandRegulationsoftheNorthCarolinaStateBar,any interestearnedonatrustaccountorfiduciaryaccount, less any amountsdeducted forbank service charges and taxes, shallbelong to the clientorotherpersonorentityentitledtothecorrespondingprincipalamount.

    (r)AbandonedProperty. Ifentrustedproperty isunclaimed, the lawyer shallmakedue inquiryofhisorherpersonnel,recordsandothersourcesofinformationinanefforttodeterminetheidentityandlocationoftheowneroftheproperty.Ifthateffort issuccessful,theentrustedpropertyshallbepromptlytransferredtothepersonorentitytowhomitbelongs.IftheeffortisunsuccessfulandtheprovisionsofG.S.116B53aresatisfied,thepropertyshallbedeemedabandoned,andthelawyershallcomplywiththerequirementsofChapter116BoftheGeneralStatutesconcerningtheescheatofabandonedproperty.

    (s)SignatureonTrustChecks.

    (1)Checksdrawnonatrustaccountmustbesignedbyalawyer,orbyanemployeewhoisnotresponsibleforperformingmonthly or quarterly reconciliations and who is supervised by a lawyer. Prior to exercisingsignature authority, a lawyer or supervised employee shall take a onehour trust accountmanagementcontinuinglegaleducation(CLE)courseapprovedbytheStateBarforthispurpose.TheCLEcoursemustbe

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    takenat leastonce forevery law firmatwhich the lawyeror the supervisedemployee isgiven signatureauthority.

    (2)Trustaccountchecksmaynotbesignedusingsignaturestamps,preprintedsignaturelinesonchecks,orelectronicsignatures.

    HistoryNote:StatutoryAuthorityG.S.8423

    AdoptedJuly24,1997

    AmendedMarch1,2003;March6,2008;February5,2009;August23,2012;June9,2016

    Rule1.153RecordsandAccountings

    (a) Check Format. All general trust accounts, dedicated trust accounts, and fiduciary accounts must usebusinesssizechecksthatcontainanAuxiliaryOnUsfieldintheMICRlineofthecheck.

    (b) Minimum Records for Accounts at Banks. The minimum records required for general trust accounts,dedicatedtrustaccounts,andfiduciaryaccountsmaintainedatabankshallconsistofthefollowing:

    (1)allrecordslistingthesourceanddateofreceiptofanyfundsdepositedintheaccountincluding,butnotlimitedto,bankreceipts,depositslipsandwireandelectronictransferconfirmations,and, inthecaseofageneral trust account, all records also listing the name of the client or other person towhom the fundsbelong;

    (2)allcanceledchecksorotheritemsdrawnontheaccount,ordigitalimagesthereoffurnishedbythebank,showing theamount,date,and recipientof thedisbursement,and, in thecaseofageneral trustaccount,theclientname,filenumber,orotheridentifyinginformationoftheclientfromwhosebalanceeachitemisdrawn,provided,that:

    (A)digital imagesmustbe legiblereproductionsofthefrontandbackoftheoriginal itemswithnomorethansiximagesperpageandnoimagessmallerthan13/16x3inches;and

    (B)thebankmustmaintain,foratleastsixyears,thecapacitytoreproduceelectronicallyadditionalorenlargedimagesoftheoriginalitemsorrecordsrelatedtheretouponrequestwithinareasonabletime.

    (3)allinstructionsorauthorizationstotransfer,disburse,orwithdrawfundsfromthetrustaccount(includingelectronic transfers or debits), or a written or electronic record of any such transfer, disbursement, orwithdrawalshowingtheamount,date,andrecipientofthetransferordisbursement,and, in thecaseofageneraltrustaccount,alsoshowingthenameoftheclientorotherpersontowhomthefundsbelong;

    (4) all bank statements and other documents received from the bankwith respect to the trust account,including, but not limited to notices of return or dishonor of any item drawn on the account againstinsufficientfunds;

    (5)inthecaseofageneraltrustaccount,aledgercontainingarecordofreceiptsanddisbursementsforeachpersonorentityfromwhomandforwhomfundsarereceivedandshowingthecurrentbalanceoffundsheldinthetrustaccountforeachsuchpersonorentity;and

    (6)anyotherrecordsrequiredbylawtobemaintainedforthetrustaccount.

    (c)MinimumRecordsforAccountsatOtherFinancialInstitutions.Theminimumrecordsrequiredfordedicatedtrustaccountsandfiduciaryaccountsatfinancialinstitutionsotherthanabankshallconsistofthefollowing:

    (1)allrecords listingthesourceanddateofreceiptofallfundsdeposited intheaccount including,butnotlimitedto,depositoryreceipts,depositslips,andwireandelectronictransferconfirmations;

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    (2) a copyof all checksorother items drawn on the account,or digital images thereof furnished by thedepository,showingtheamount,date,andrecipientofthedisbursement,provided,thatthe imagessatisfytherequirementssetforthinRule1.153(b)(2);

    (3) all instructions or authorizations to transfer, disburse, orwithdraw funds from the account (includingelectronic transfers or debits) or a written or electronic record of any such transfer, disbursement, orwithdrawalshowingtheamount,date,andrecipientofthetransferordisbursement;

    (4)allstatementsandotherdocumentsreceivedfromthedepositorywithrespecttotheaccount,including,butnotlimitedtonoticesofreturnordishonorofanyitemdrawnontheaccountforinsufficientfunds;and

    (5)anyotherrecordsrequiredbylawtobemaintainedfortheaccount.

    (d)ReconciliationsofGeneralTrustAccounts.

    (1)QuarterlyReconciliations.Foreachgeneraltrustaccount,areconciliationreportshallbepreparedatleastquarterly.Eachreconciliationreportshallshowallofthefollowingbalancesandverifythattheyareidentical:

    (A)Thebalancethatappearsinthegeneralledgerasofthereportingdate;

    (B)Thetotalofallsubsidiaryledgerbalancesinthegeneraltrustaccount,determinedbylistingandtotaling the positive balances in the individual client ledgers and the administrative ledgermaintainedforservicingtheaccount,asofthereportingdate;and

    (C)Theadjustedbankbalance,determinedbyaddingoutstandingdepositsandothercreditstotheending balance in the monthly bank statement and subtracting outstanding checks and otherdeductionsfromthebalanceinthemonthlystatement.

    (2)MonthlyReconciliations.Eachmonth,thebalanceofthetrustaccountasshownonthelawyer'srecordsshallbereconciledwiththecurrentbankstatementbalanceforthetrustaccount.

    (3)Thelawyershallreview,sign,date,andretainacopyofthereconciliationsofthegeneraltrustaccountforaperiodofsixyearsinaccordancewithRule1.153(g).

    (e)AccountingsforTrustFunds.The lawyershallrendertotheclientawrittenaccountingofthereceiptsanddisbursementsofalltrustfunds(i)uponthecompletedisbursementofthetrustfunds,(ii)atsuchothertimesasmaybereasonablyrequestedbytheclient,and(iii)atleastannuallyifthefundsareretainedforaperiodofmorethanoneyear.

    (f) Accountings for Fiduciary Property. Inventories and accountings of fiduciary funds and other entrustedproperty received in connectionwithprofessional fiduciary services shallbe rendered to judicialofficialsorotherpersonsasrequiredby law. Ifanannualormorefrequentaccounting isnotrequiredby law,awrittenaccountingofalltransactionsconcerningthefiduciaryfundsandotherentrustedpropertyshallberenderedtothe beneficial owners, or their representatives, at least annually and upon the termination of the lawyer'sprofessionalfiduciaryservices.

    (g)MinimumRecordKeepingPeriod.Alawyershallmaintain,inaccordancewiththisRule1.15,completeandaccuraterecordsofallentrustedpropertyreceivedbythelawyer,whichrecordsshallbemaintainedforatleastthesix(6)yearperiodimmediatelyprecedingthelawyer'smostrecentfiscalyearend.

    (h)AuditbyStateBar.ThefinancialrecordsrequiredbythisRule1.15shallbesubjecttoauditforcauseandtorandomauditbytheNorthCarolinaStateBar;andsuchrecordsshallbeproducedforinspectionandcopyinginNorthCarolinauponrequestbytheStateBar.

    (i)Reviews.

    (1)Eachmonth, foreachgeneral trustaccount,dedicated trustaccount,and fiduciaryaccount, the lawyershallreviewthebankstatementandcancelledchecksforthemonthcoveredbythebankstatement.

    (2)Eachquarter,foreachgeneraltrustaccount,dedicatedtrustaccount,andfiduciaryaccount,the lawyershallreviewthestatementofcostsandreceipts,client ledger,andcancelledchecksofarandomsampleof

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    representative transactions completed during the quarter to verify that the disbursementswereproperlymade. The transactions reviewed must involve multiple disbursements unless no such transactions areprocessed through the account, inwhich case a single disbursement is considered a transaction for thepurposeofthisparagraph.Asampleofthreerepresentativetransactionsshallsatisfythisrequirement,butalargersamplemaybeadvisable.

    (3) The lawyer shall take the necessary steps to investigate, identify, and resolve within ten days anydiscrepanciesdiscoveredduringthemonthlyandquarterlyreviews.

    (4)A reportofeachmonthlyandquarterly review, includingadescriptionof the review, the transactionssampled,andanyremedialactiontaken,shallbeprepared.Thelawyershallsign,date,andretainacopyofthereportandassociateddocumentationforaperiodofsixyearsinaccordancewithRule1.153(g).

    (j)RetentionofRecords inElectronicFormat.Records requiredbyRule1.153maybecreated,updated,andmaintainedelectronically,provided:

    (1)therecordsotherwisecomplywithRule1.153,towit:electronicallycreatedreconciliationsandreviewsthatarenotprintedmustbereviewedbythe lawyerandelectronicallysignedusingadigitalsignatureasdefinedin21CFR11.3(b)(5);

    (2)printedandelectroniccopiesoftherecordsinindustrystandardformatscanbemadeondemand;and

    (3)therecordsareregularlybackedupbyanappropriatestoragedevice.

    HistoryNote:StatutoryAuthorityG.S.8423

    AdoptedJuly24,1997;AmendedMarch1,2003,October6,2004;March6,2008;June9,2016

    Rule1.154AlternativeTrustAccountManagementProcedureforMultiMemberFirm(a)TrustAccountOversightOfficer(TAOO).

    Lawyersinalawfirmoftwoormorelawyersmaydesignateapartnerinthefirmtoserveasthetrustaccountoversightofficer (TAOO) forany general trust account intowhichmore thanone firm lawyerdeposits trustfunds. The TAOO and the partners of the firm, or thosewith comparablemanagerial authority (managinglawyers), shall agree inwriting that the TAOOwill oversee the administration of any such trust account inconformitywith the requirementsofRule 1.15, including, specifically, the requirementsof thisRule 1.154.MorethanonepartnermaybedesignatedasaTAOOforalawfirm.

    (b)LimitationsonDelegation.

    DesignationofaTAOOdoesnotrelieveanylawyerinthelawfirmofresponsibilityforthefollowing:

    (1)oversightoftheadministrationofanydedicatedtrustaccountorfiduciaryaccountthatisassociatedwithalegalmatterforwhichthelawyerisprimarylegalcounselorwiththelawyersperformanceofprofessionalfiduciaryservices;and

    (2)reviewofthedisbursementsheetsorstatementsofcostsandreceipts,client ledgers,andtrustaccountbalancesforthoselegalmattersforwhichthelawyerisprimarylegalcounsel.

    (c)TrainingoftheTAOO.

    (1)WithinthesixmonthspriortobeginningserviceasaTAOO,alawyershall,

    (A) readall subpartsand comments toRule1.15,all formalethicsopinionsof theNorthCarolinaStateBarinterpretingRule1.15,andtheNorthCarolinaStateBarTrustAccountHandbook;

    (B)completeonehourofaccreditedcontinuinglegaleducation(CLE)ontrustaccountmanagementapprovedbytheStateBarforthepurposeoftrainingalawyertoserveasaTAOO;

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    (C)completetwohoursoftraining(live,online,orselfguided)presentedbyaqualifiededucationalprovider on one ormore of the following topics: (i) financial fraud, (ii) safeguarding funds fromembezzlement, (iii) risk assessment andmanagement forbank accounts, (iv) information securityandonlinebanking,or(v)accountingbasics;and

    (D)becomefamiliarwiththelawfirmsaccountingsystemfortrustaccounts.

    (2) During each year of service as a TAOO, the designated lawyer shall attend one hour of accreditedcontinuinglegaleducation(CLE)ontrustaccountmanagementapprovedbytheStateBarforthepurposeoftrainingaTAOOoronehouroftraining,presentedbyaqualifiededucationalprovider,ononeormoreofthesubjectslistedinparagraph(c)(1)(C).

    (d)DesignationandAnnualCertification.

    ThewrittenagreementdesignatingalawyerastheTAOOdescribedinparagraph(a)shallcontainthefollowing:

    (1)A statement by the TAOO that the TAOO agrees tooversee theoperation of the firms general trustaccounts in compliance with the requirements of all subparts of Rule 1.15, specifically including themandatoryoversightmeasuresinparagraph(e)ofthisrule;

    (2)IdentificationofthetrustaccountsthattheTAOOwilloversee;

    (3) An acknowledgement that the TAOO has completed the training described in paragraph (c)(1) and adescriptionofthattraining;

    (4)Astatementcertifying that theTAOOunderstands the law firmsaccountingsystem for trustaccounts;and

    (5)AnacknowledgementthatthelawyersinthefirmremainprofessionallyresponsiblefortheoperationofthefirmstrustaccountsincompliancewithRule1.15.

    Eachyearontheanniversaryoftheexecutionoftheagreement,theTAOOandthemanaging lawyersshallexecuteastatementconfirmingthecontinuingdesignationofthelawyerastheTAOO,certifyingcompliancewiththerequirementsofthisrule,describingthetrainingundertakenbytheTAOOasrequiredbyparagraph(c)(2), and reciting the statements requiredby subparagraphs (d)(1), (2), (4), and (5).During the lawyerstenureasTAOOandforsixyearsthereafter,theagreementandallsubsequentannualstatementsshallbemaintainedwiththetrustaccountrecords(seeRule1.153(g)).

    (e)MandatoryOversightMeasures.

    InadditiontoanyotherrecordkeepingoraccountingrequirementsetforthinRule1.152andRule1.153,thefirmshalladoptawrittenpolicydetailingthefirmstrustaccountmanagementprocedureswhichshallannuallybereviewed,updated,andsignedbytheTAOOandthemanaging lawyers.EachversionofthepolicyshallberetainedfortheminimumrecordkeepingperiodsetforthinRule1.153(g).

    HistoryNote:StatutoryAuthorityG.S.8423

    AdoptedJune9,2016

    CommentstoRule1.15andAllSubparts[1]Thepurposeofa lawyerstrustaccountor fiduciaryaccount istosegregatethefundsbelongingtoothersfrom thosebelonging to the lawyer.Money receivedbya lawyerwhileproviding legal servicesorotherwiseservingasafiduciaryshouldneverbeusedforpersonalpurposes.Failuretoplacethefundsofothersinatrustorfiduciaryaccountcansubjectthefundstoclaimsofthe lawyerscreditorsorplacethefunds inthe lawyersestateintheeventofthelawyersdeathordisability.

  • 9

    PropertySubjecttotheseRules[2]Anypropertybelongingtoaclientorotherpersonorentitythatisreceivedbyorplacedunderthecontrolofa lawyer inconnectionwith the lawyersfurnishingof legalservicesorprofessionalfiduciaryservicesmustbehandledandmaintainedinaccordancewiththisRule1.15.Theminimumrecordstobemaintainedforaccountsinbanksdiffer fromtheminimumrecordstobemaintainedforaccounts inother financial institutions (wherepermitted),toaccommodatebrokerageaccountsandotheraccountswithdifferingreportingpractices.ClientProperty[3]Everylawyerwhoreceivesfundsbelongingtoaclientmustmaintainatrustaccount.Thegeneralruleisthateveryreceiptofmoneyfromaclientorforaclient,whichwillbeusedordeliveredontheclientsbehalf,isheldintrustandshouldbeplacedinthetrustaccount.Allclientmoneyreceivedbyalawyer,exceptthattowhichthelawyerisimmediatelyentitled,mustbedepositedinatrustaccount,includingfundsforpaymentoffuturefeesandexpenses.Clientfundsmustbepromptlydepositedintothetrustaccount.Clientfundsmustbedepositedinageneraltrustaccount ifthere isnodutyto investonbehalfoftheclient.Generallyspeaking, ifareasonablyprudentpersonwouldconcludethatthefundsinquestion,eitherbecausetheyarenominalinamountoraretobeheld forashort time,couldprobablynotearnsufficient interest to justify thecostof investing, the fundsshouldbedepositedinthegeneraltrustaccount.Indeterminingwhetherthereisadutytoinvest,alawyershallexercisehisorherprofessionaljudgmentingoodfaithandshallconsiderthefollowing:a)Theamountofthefundstobedeposited;b)Theexpecteddurationofthedeposit,includingthelikelihoodofdelayinthematterforwhichthefundsareheld;c)Theratesofinterestoryieldatfinancialinstitutionswherethefundsaretobedeposited;d)Thecostofestablishingandadministeringdedicatedaccountsfortheclient'sbenefit,includingtheservicecharges, the costsof the lawyer's services,and the costsofpreparingany tax reports required for incomeaccruingtotheclient'sbenefit;e)Thecapabilityoffinancialinstitutions,lawyers,orlawfirmstocalculateandpayincometoindividualclients;f)Anyothercircumstancesthataffecttheabilityoftheclient'sfundstoearnanetreturnfortheclient.

    When regularly reviewing the trust accounts, the lawyer shall determine whether changed circumstancesrequirefurtheractionwithrespecttothefundsofanyclient.Thedeterminationofwhetheraclient'sfundsarenominalorshorttermshallrest inthesound judgmentofthe lawyeror lawfirm.No lawyershallbechargedwithanethicalimproprietyorbreachofprofessionalconductbasedonthegoodfaithexerciseofsuchjudgment.[4]AlawfirmwithofficesinanotherstatemaysendaNorthCarolinaclientsfundstoafirmofficeinanotherstateforcentralizedprocessingprovided,however,thefundsarepromptlydepositedintoatrustaccountwithabankthathasbranchoffices inNorthCarolina,and furtherprovided,thefundsaretransportedandheld inasafeplaceuntildeposited intothetrustaccount. Ifthisprocedure isfollowed,clientconsenttothetransferofthefundstoanoutofstateofficeofthefirmisnotrequired.However,allsuchclientfundsaresubjecttotherequirementsoftheserules.Fundsdeliveredtothelawyerbytheclientforpaymentoffuturefeesorexpensesshouldneverbeusedbythe lawyerforpersonalpurposesorsubjectedtothepotentialclaimsofthe lawyerscreditors.[5]Thisruledoesnotprohibitalawyerwhoreceivesaninstrumentbelongingwhollytoaclientorathirdpartyfrom delivering the instrument to the appropriate recipientwithout first depositing the instrument in thelawyerstrustaccount.PropertyfromProfessionalFiduciaryService[6]Thephrase professional fiduciary service, asused in this rule, is servicebya lawyer in anyoneof the

  • 10

    various fiduciary roles undertaken by a lawyer that is not, of itself, the practice of law, but is frequentlyundertaken in conjunction with the practice of law. This includes service as a trustee, guardian, personalrepresentative of an estate, attorneyinfact, and escrow agent, as well as service in other fiduciary rolescustomarytothepracticeoflaw.[7] Property held by a lawyer performing a professional fiduciary servicemust also be segregated from thelawyerspersonalproperty,properlylabeled,andmaintainedinaccordancewiththeapplicableprovisionsofthisrule.[8]Whenproperty isentrusted toa lawyer in connectionwitha lawyers representationofa client, this ruleapplieswhetherornotthelawyeriscompensatedfortherepresentation.However,theruledoesnotapplytoproperty received in connectionwith a lawyers uncompensated service as a fiduciary such as a trustee orpersonalrepresentativeofanestate.(Ofcourse,thelawyersconductmaybegovernedbythelawapplicabletofiduciary obligations in general, including a fiduciarys obligation to keep the principals funds or propertyseparatefromthefiduciaryspersonalfundsorproperty,toavoidselfdealing,andtoaccountforthefundsorpropertyaccuratelyandpromptly).[9]Compensationdistinguishesprofessionalfiduciaryservicefromafiduciaryrolethatalawyerundertakesasafamilyresponsibility,asacourtesytofriends,orforcharitable,religious,orcivicpurposes.Asusedinthisrule,compensatedservicesmeansservicesforwhichthe lawyerobtainsorexpectstoobtainmoneyoranyothervaluableconsideration.Thetermdoesnotrefertoorincludereimbursementforactualoutofpocketexpenses.PropertyExcludedfromCoverageofRules[10]This rulealsodoesnotapplywhena lawyer ishandlingmoney forabusinessor fora religious,civic,orcharitable organization as an officer, employee, or other official regardless of whether the lawyer iscompensated for this service. Handling funds while serving in one of these roles does not constituteprofessionalfiduciaryservice,andsuchserviceisnotcustomarytothepracticeoflaw.BurdenofProof[11]Whena lawyer isentrustedwithpropertybelongingtoothersanddoesnotcomplywiththeserules,theburden of proof is on the lawyer to establish the capacity in which the lawyer holds the funds and todemonstratewhytheserulesshouldnotapply.PrepaidLegalFees[12]Whethera fee that isprepaidby theclientshouldbeplaced in the trustaccountdependsupon the feearrangementwiththeclient.Aretainerfeeinitstruestsenseisapaymentbytheclientforthereservationoftheexclusiveservicesofthe lawyer,which isnotusedtopayforthe legalservicesprovidedbythe lawyerand,byagreementoftheparties,isnonrefundableupondischargeofthelawyer.Itisapaymenttowhichthelawyerisimmediatelyentitledand,therefore,shouldnotbeplacedinthetrustaccount.Aretainer,whichisactuallyadepositby theclientofanadvancepaymentofa fee tobebilledonanhourlyor someotherbasis, isnotapaymenttowhichthelawyerisimmediatelyentitled.Thisisreallyasecuritydepositandshouldbeplacedinthetrustaccount.Asthelawyerearnsthefeeorbillsagainstthedeposit,thefundsshouldbewithdrawnfromtheaccount.Rule1.16(d)requirestherefundtotheclientofanypartofafeethatisnotearnedbythelawyeratthetimethattherepresentationisterminated.AbandonedProperty[13]ShouldalawyerneedtechnicalassistanceconcerningtheescheatofpropertytotheStateofNorthCarolina,the lawyer should contact theescheatofficer at theOfficeof theNorthCarolina StateTreasurer inRaleigh,NorthCarolina.

  • 11

    DisputedFunds[14]A lawyer isnot required to remit to the client funds that the lawyer reasonablybelieves represent feesowed.However, a lawyermaynothold funds to coerce a client into accepting the lawyers contention. Thedisputedportionofthefundsmustbekeptinatrustaccountandthelawyershouldsuggestmeansforpromptresolution of the dispute, such as the State Bars program for fee dispute resolution. See Rule 1.5(f). Theundisputedportionofthefundsshallbepromptlydistributed.[15]Thirdpartiesmayhavelawfulclaimsagainstspecificfundsorotherpropertyinalawyerscustody,suchasaclientscreditorwhohasalienonfundsrecoveredinapersonalinjuryaction.Alawyermayhaveadutyunderapplicablelawtoprotectsuchthirdpartyclaimsagainstwrongfulinterferencebytheclient.Insuchcases,whenthethirdpartyclaimisnotfrivolousunderapplicablelaw,thelawyermustrefusetosurrenderthepropertytotheclientuntiltheclaimisresolved.Alawyershouldnotunilaterallyassumetoarbitrateadisputebetweentheclientandthethirdparty,but,whentherearesubstantialgroundsfordisputeastothepersonentitledtothefunds,thelawyermayfileanactiontohaveacourtresolvethedispute.ResponsibilityforRecordsandAccountings[16]Itisthelawyer'sresponsibilitytoassurethatcompleteandaccuraterecordsofthereceiptanddisbursementofentrustedpropertyaremaintained inaccordancewiththisrule.Therequiredrecordretentionperiodofsixyears set forth in this rule does not preclude the State Bar from seeking records for a period prior to theretention period and, if obtained, from pursuing a disciplinary action based thereon if such action is notprohibitedbylaworotherrulesoftheStateBar.[17]Therulespermittheretentionofrecordsinelectronicform.Astoragedeviceisappropriateforbackingupelectronicrecordsifitreasonablyassuresthattherecordswillberecoverabledespitethefailureordestructionoftheoriginalstoragedeviceonwhich therecordsarestored.Foradiscussionofstoragemethodsnotsolelyunderthecontrolofthelawyer,see2011FEO6.[18]Manybusinessesarenowconvertingpapercheckstoautomatedclearinghouse(ACH)debitstodecreasecostsand increaseoperatingefficiencies.Whenacheckisconverted,thecheck istakeneitheratthepointofsaleor through themail forpayment, theaccount information iscaptured from thecheck,andanelectronictransactioniscreatedforpaymentthroughtheACHsystem.Theoriginalphysicalcheckistypicallydestroyedbytheconvertingentity (althoughan imageof thecheckmaybestored foracertainperiodof time). Ifacheckdrawnonatrustaccount isconvertedtoACH,the lawyerwillnotreceiveeitherthephysicalcheckoracheckimage. The transaction will appear on the lawyer's trust account statement as an ACH debit with limitedinformationaboutthepayment(e.g.,dollaramount,dateprocessed,originatoroftheACHdebit).

    [19]TopreventconversionofachecktoACHwithoutauthorization,alawyerisrequiredtousecheckswithan"AuxiliaryOnUsfield."AcheckwillnotbeeligibleforconversiontoACH if itcontainsanAuxiliaryOnUsfield,which is an additional field that appears in the leftmost position of the MICR (magnetic ink characterrecognition)lineonabusinesssizecheck.Thelawyershouldconfirmwiththelawyer'sfinancialinstitutionthattheAuxiliaryOnUsfield is includedonthe lawyer'strustaccountchecks.IncludinganAuxiliaryOnUsfieldonthecheckwillrequireusingchecksthatarelongerthansixinches.AswiththeotherinformationintheMICRlineofacheck,therouting,accountandpaymentnumbers,thefinancialinstitutionissuingthecheckdeterminesthecontentoftheAuxiliaryOnUsfield.[20]AuthorizedACHdebitsthatareelectronictransfersoffunds(inwhichnochecksare involved)areallowedprovidedthelawyermaintainsarecordofthetransactionasrequiredbyRule1.153(b)(3)and(c)(3).Therecord,whetherconsistingoftheinstructionsorauthorizationtodebittheaccount,arecordorreceiptfromtheregisterof deeds or a financial institution, or the lawyer's independent record of the transaction,must show theamount,date,and recipientof the transferordisbursement,and, in thecaseofageneraltrustaccount,alsoshowthenameoftheclientorotherpersontowhomthefundsbelong.

  • 12

    [21]The lawyer is responsible for keepinga client,oranyotherperson towhom the lawyer is accountable,advised of the status of entrusted property held by the lawyer. In addition, the lawyermust take steps todiscoveranyunauthorizedtransactions involvingtrustfundsassoonaspossible.Therefore, it isessentialthatthelawyerregularlyreconcileageneraltrustaccount.Thismeansthat,atleastonceamonth,thelawyermustreconcile thecurrentbank statementbalancewith thebalance shown for theentireaccount in the lawyer'srecords,suchasacheckregisteroritsequivalent,asofthedateofthebankstatement.Atleastonceaquarter,the lawyermust reconcile the individual clientbalances shownon the lawyer's ledgerwith the currentbankstatementbalance.Monthly reconciliationwillhelp touncoverunauthorizedACH transactionspromptly.Thecurrentbankbalanceisthebalanceobtainedwhensubtractingoutstandingchecksandotherwithdrawalsfromthebankstatementbalanceandaddingoutstandingdeposits to thebank statementbalance.With regard totrustfundsheld inanytrustaccount,there isalsoanaffirmativedutytoproduceawrittenaccountingfortheclientandtodeliverittotheclient,eitherattheconclusionofthetransactionorperiodicallyiffundsareheldforan appreciable period. Such accountings must bemade at least annually or atmore frequent intervals ifreasonablyrequestedbytheclient.BankNoticeofOverdrafts[22] A properly maintained trust account should not have any items presented against insufficient funds.However,eventhebestmaintainedaccountsaresubjecttoinadvertenterrorsbythebankorthelawyer,whichmaybeeasily explained.The reporting requirement shouldnotbeburdensomeandmayhelpavoidamoreseriousproblem.FraudPreventionMeasures

    [23] Themandatorymonthly and quarterly reviews and oversightmeasures in Rule 1.153(i) facilitate earlydetectionof internal theftandearlydetectionandcorrectionoferrors.Theyareminimum fraudpreventionmeasuresnecessaryfortheprotectionoffundsondepositinafirmtrustorfiduciaryaccountfromtheftbyanypersonwithaccesstotheaccount.Internaltheftfromtrustaccountsbyinsidersatalawfirmcanonlybetimelydetected if the recordsof the firms trustaccountsare routinely reviewed.For this reason,Rule1.153(i)(1)requiresmonthlyreviewsofthebankstatementsandcancelledchecksforallgeneral,dedicated,andfiduciaryaccounts.Inaddition,Rule1.153(i)(2)requiresquarterlyreviewsofarandomsampleofthreetransactionsforeachtrustaccount,dedicatedtrustaccount,and fiduciaryaccount includingexaminationofthestatementofcosts and receipts, client ledger, and cancelled checks for the transactions.Reviewof thesedocumentswillenablethe lawyertoverifythatthedisbursementsweremadeproperly.Althoughnotrequiredbytherule,alargersamplethanthreetransactionsisadvisabletoincreasethelikelihoodthatinternaltheftwillbedetected.

    [24]AnotherinternalcontroltopreventfraudisfoundinRule1.152(s)whichaddressesthesignatureauthorityfortrustaccountchecks.Theprovisionprohibitsanemployeewhoisresponsibleforperformingthemonthlyorquarterly reconciliations fora trustaccount frombeingasignatoryonacheck for thataccount.Dividing thecheck signingand reconciliation responsibilitiesmakes itmoredifficult foroneemployee tohide fraudulenttransactions. Similarly, signature stamps,preprinted signature lineson checks, and electronic signatures areprohibitedtopreventtheiruseforfraudulentpurposes.

    [25] In addition to the recommendations in theNorthCarolina StateBar TrustAccountHandbook (see thechapter on Safeguarding Funds from Embezzlement), the following fraud prevention measures arerecommended:

    (1)Enrollingthetrustaccountinanautomatedfrauddetectionprogram;

    (2)Implementationofsecuritymeasurestopreventfraudulentwiretransfersoffunds;

    (3)Activelymaintainingendusersecurityatthe lawfirmthroughsafetypracticessuchasstrongpasswordpolicies and procedures, the use of encryption and security software, and periodic consultationwith aninformationtechnologysecurityprofessionaltoadvisefirmemployees;and

    (4)Insuringthatallstaffmemberswhoassistwiththemanagementofthetrustaccountreceivetrainingonandabidebythesecuritymeasuresadoptedbythefirm.

  • 13

    Lawyersshouldfrequentlyevaluatewhetheradditionalfraudcontrolmeasuresarenecessaryandappropriate.

    DutytoReportMisappropriationorMisapplication

    [26]A lawyer is requiredbyRule1.152(p) to report to theTrustAccountComplianceCounselof theNorthCarolina State Bar Office of Counsel if the lawyer knows or reasonably believes that entrusted property,including trust funds, has been misappropriated or misapplied. The rule requires the reporting of anunintentionalmisapplicationof trust funds,suchas the inadvertentuseofoneclients fundsondeposit inageneraltrustaccounttopaytheobligationsofanotherclient,unlessthelawyerdiscoversandrectifiestheerroronorbeforethenextscheduledquarterlyreconciliation.Alawyerisrequiredtoreporttheconductoflawyersandnonlawyersaswellasthe lawyersownconduct.Areport isrequiredregardlessofwhether informationleadingtothediscoveryofthemisappropriationormisapplicationwouldotherwisebeprotectedbyRule1.6.Ifdisclosureofconfidentialclientinformationisnecessarytocomplywiththisrule,thelawyersdisclosureshouldbelimitedtotheinformationthatisnecessarytoenabletheStateBartoinvestigate.SeeRule1.6,cmt.[15].

    DesignationofaTrustAccountOversightOfficer

    [27]Inafirmwithtwoormorelawyers,personaloversightofalloftheactivitiesinthegeneraltrustaccountsbyallofthe lawyers inthefirm isoften impractical.Nevertheless,any lawyer inthefirmwhodeposits intoageneraltrustaccountfundsentrustedtothelawyerbyoronbehalfofaclientisprofessionallyresponsiblefortheadministrationofthetrustaccountincompliancewithRule1.15regardlessofwhetherthelawyerdirectlyparticipatesintheadministrationofthetrustaccount.Moreover,Rule5.1requiresalllawyerswithmanagerialorsupervisoryauthorityovertheother lawyers inafirmtomakereasonableeffortstoensurethattheotherlawyersconformtotheRulesofProfessionalConduct.Rule1.154providesaprocedurefordelegationoftheoversightof the routineadministrationofageneral trustaccount toa firmpartner,shareholder,ormember(seeRule1.0(h)) inamannerthat isprofessionallyresponsible.By identifying,training,anddocumentingtheappointmentofatrustaccountoversightofficer(TAOO)forthelawfirm,thelawyersinamultiplelawyerfirmmayresponsiblydelegatetheroutineadministrationofthefirmsgeneraltrustaccountstoaqualifiedlawyer.DelegationconsistentwiththerequirementsofRule1.154isevidenceofalawyersgoodfaithefforttocomplywithRule5.1.

    [28]Nevertheless,designationofaTAOOdoesnotinsulatefromprofessionaldisciplinealawyerwhopersonallyengaged indishonestor fraudulentconduct.Moreover,a lawyerhavingactualorconstructiveknowledgeofdishonest or fraudulent conduct or the mismanagement of a trust account in violation of the Rules ofProfessionalConductbyany firm lawyeroremployee remainssubject toprofessionaldiscipline if the lawyerfails to promptly take reasonable remedial action to avoid the consequences of such conduct includingreportingtheconductasrequiredbyRule1.152(p)orRule8.3.SeealsoRule5.1andRule5.3.

    LimitationsonDelegationtoTAOO

    [29]DespitethedesignationofaTAOOpursuanttoRule1.154,eachlawyerinthefirmremainsprofessionallyresponsible for the trust account activity associatedwith the legalmatters forwhich the lawyer providesrepresentation. Therefore, for each legalmatter forwhich the lawyer is primary counsel, the lawyermustreviewandapproveanydisbursementsheetorsettlementstatement,trustaccountentryintheclientledger,and trust accountbalance associatedwith thematter. Similarly, a lawyerwhoestablishes adedicated trustaccountorfiduciaryaccount inconnectionwiththerepresentationofaclient isprofessionallyresponsiblefortheadministrationofthededicatedtrustaccountorfiduciaryaccountincompliancewithRule1.15.

    TrainingforServiceasaTAOO

    [30]AqualifiedprovideroftheeducationaltrainingprogramsforaTAOOdescribedinRule1.154(c)(1)(C)neednotbeanaccreditedsponsorofcontinuinglegaleducationprograms(see27NCAC1D,Rule.1520),butmustbeknowledgeable and reputable in the specific field andmust offer educationalmaterials as part of its usualcourseofbusiness.Trainingmaybecompletedvialivepresentations,onlinecourses,orselfguidedstudy.Selfguidedstudymayconsistofreadingarticles,presentationmaterials,orwebsitesthathavebeencreatedforthepurposeofeducationintheareasoffinancialfraud,safeguardingfundsfromembezzlement,riskmanagementforbankaccounts,informationsecurityandonlinebanking,orbasicaccounting.

  • 14

    HistoryNote:StatutoryAuthorityG.S.8423

    AmendedMarch1,2003;March6,2008;June9,2016

    27N.C.A.C.1D,Rule.1316,IOLTAAccounts(a)IOLTAAccountDefined.PursuanttoorderoftheNorthCarolinaSupremeCourt,everygeneraltrustaccount,asdefinedintheRulesofProfessionalConduct,mustbeaninterestordividendbearingaccount.(Asusedherein,interestshallrefertobothinterestanddividends.)Fundsdepositedinageneral,interestbearingtrustaccountmustbeavailableforwithdrawaluponrequestandwithoutdelay(subjecttoanynoticeperiodthatthebankisrequired to reserve by law or regulation). Additionally, pursuant toN.C.G.S. 45A9, a settlement agentwhomaintainsatrustorescrowaccount forthepurposesofreceivinganddisbursingclosing fundsand loan fundsshalldirectthatanyinterestearnedonfundsheldinthataccountbepaidtotheNCStateBartobeusedforthepurposesauthorizedundertheInterestonLawyersTrustAccountProgramaccordingtosection.1316(d)below.For the purposes of these rules, all such accounts shall be known as IOLTA Accounts (also referred to asAccounts).(b)Eligible Banks. Lawyersmaymaintain one ormore IOLTA Account(s) only at banks and savings and loanassociationscharteredunderNorthCarolinaorfederallaw,asrequiredbyRule1.15oftheRulesofProfessionalConduct,thatofferandmaintainIOLTAAccountsthatcomplywiththerequirementssetforthinthissubchapter(EligibleBanks).SettlementagentsshallmaintainanyIOLTAAccountasdefinedbyN.C.G.S.45A9andparagraph(a) aboveonly at an EligibleBank;however, a settlement agent that isnot a lawyermaymaintain an IOLTAAccount at any bank that is insured by the Federal Deposit Insurance Corporation and has a certificate ofauthoritytotransactbusinessfromtheNorthCarolinaSecretaryofState,providedthebankisapprovedbyNCIOLTA.ThedeterminationofwhetherabankiseligibleshallbemadebyNCIOLTA,whichshallmaintain(i)alistofparticipatingEligibleBanksavailabletoallmembersoftheStateBarandtoallsettlementagents,and(ii)alistofbanksapprovedfornonlawyersettlementagentIOLTAAccountsavailabletononlawyersettlementagents.AbankthatfailstomeettherequirementsofthissubchaptershallbesubjectonlytoterminationofitseligibleorapprovedstatusbyNCIOLTA.Aviolationofthisruleshallnotbethebasisforcivilliability.(c)NoticeUponOpening or Closing IOLTA Account. Every lawyer/law firm or settlement agentmaintainingIOLTAAccountsshalladviseNCIOLTAoftheestablishmentorclosingofeachIOLTAAccount.Suchnoticeshallinclude(i)thenameofthebankwheretheaccountismaintained,(ii)thenameoftheaccount,(iii)theaccountnumber,and(iv)thenameandbarnumberofthelawyer(s)inthefirmand/orthename(s)ofanynonlawyersettlementagent(s)maintainingtheaccount.TheNorthCarolinaStateBarshallfurnishtoeachlawyer/lawfirmor settlementagentmaintainingan IOLTAAccountsa suitableplaqueexplaining theprogram,whichplaqueshallbeexhibitedintheofficeofthelawyer/lawfirmorsettlementagent.(d)DirectivetoBank.EverylawyerorlawfirmandeverysettlementagentmaintainingaNorthCarolinaIOLTAAccountsshalldirectanybankinwhichanIOLTAAccountismaintainedto:(1)remitinterest,lessanydeductionforallowablereasonablebankservicechargesorfees,(asusedherein,"service charges" shall include any charge or fee charged by a bank on an IOLTAAccount) as defined inparagraph(e),atleastquarterlytoNCIOLTA;(2)transmitwitheachremittancetoNCIOLTAastatementshowingforeachaccount:(i)thenameofthelawfirm/lawyeror settlement agentmaintaining the account, (ii) the lawyer/law firms or settlement agentsIOLTAAccountnumber, (iii) theearningsperiod, (iv) the averagebalanceof the account for theearningsperiod,(v)thetypeofaccount,(vi)therateofinterestappliedincomputingtheremittance,(vii)theamountofanyservicechargesfortheearningsperiod,and(viii)thenetremittancefortheearningsperiod;and(3)transmittothelawfirm/lawyerorsettlementagentmaintainingtheaccountareportshowingtheamountremittedtoNCIOLTA,theearningsperiod,andtherateofinterestappliedincomputingtheremittance.

  • 15

    (e)AllowableReasonableServiceCharges.EligibleBanksmayelecttowaiveanyorallservicechargesonIOLTAAccounts. Ifabankdoesnotwaiveservicechargeson IOLTAAccounts,allowable reasonableservicechargesmaybeassessedbutonlyagainstinterestearnedontheIOLTAAccountorfundsdepositedbythelawyer/lawfirmorsettlementagent in the IOLTAAccount forthepurposeofpayingsuchcharges.Allowablereasonableservicechargesmaybedeductedfrom interestonanIOLTAAccountonlyattheratesand inaccordancewiththe bank's standard practice for comparable nonIOLTA accounts. Allowable reasonable service charges forIOLTAAccountsare:(i)areasonableAccountmaintenancefee,(ii)percheckcharges,(iii)perdepositcharges,(iv)afeeinlieuofaminimumbalance,(v)federaldepositinsurancefees,and(vi)automatedtransfer(Sweep)fees.AllservicechargesotherthanallowablereasonableservicechargesassessedagainstanIOLTAAccountaretheresponsibilityofandshallbepaidby the lawyeror law firm.Noservicecharges inexcessofthe interestearned on the Account for anymonth or quarter shall be deducted from interest earned on other IOLTAAccountsorfromtheprincipaloftheAccount.HistoryNote:StatutoryAuthorityG.S.8423ReadoptedEffectiveDecember8,1994AmendmentsApprovedbytheSupremeCourt:March6,2008;February5,2009; January28,2010;March8,2012;August23,201227N.C.A.C.1D,Rule.1317,ComparabilityRequirementsforIOLTAAccounts(a)ComparabilityofInterestRate.EligibleBanksthatofferandmaintainIOLTAAccountsmustpaytoanIOLTAAccountthehighest interestrategenerallyavailablefromthebanktononIOLTAAccounts(ComparableRate)when the IOLTA Account meets or exceeds the same minimum balance or other account eligibilityqualifications, ifany. Indetermining thehighest interestrategenerallyavailable from thebank tononIOLTAaccounts, an Eligible Bank may consider factors, in addition to the IOLTA account balance, customarilyconsidered by the bank when setting interest rates for its customers, provided that such factors do notdiscriminatebetweenIOLTAaccountsandnonIOLTAaccounts.(b) Options for Satisfying Requirement. An Eligible Bankmay satisfy the Comparable Rate requirement byelectingoneofthefollowingoptions: (1)useanaccountproductthathasaComparableRate;(2)withoutactuallychangingtheIOLTAAccounttothebank'sComparableRateproduct,paytheComparableRateontheIOLTAAccount;or(3)paythebenchmarkrate(Benchmark),whichshallbedeterminedbyNCIOLTAperiodically,butnotmorefrequently than every sixmonths, to reflect theoverallComparableRate for theNC IOLTAprogram. TheBenchmarkshallbearateequaltothegreaterof:(i)0.65%or(ii)65%oftheFederalFundsTargetRateasofthefirstbusinessdayoftheIOLTAremittingperiod,andshallbenetofallowablereasonableservicecharges.Whenapplicable,NCIOLTAwillexpresstheBenchmarkinrelationtotheFederalFundsTargetRate.

    (c)OptionsforAccountTypes.AnIOLTAAccountmaybeestablishedas:(1) subject to paragraph (d), a business checking accountwith an automated investment feature (SweepAccount), such as an overnight investment in financial institution daily repurchase agreements ormoneymarket funds invested solely inor fully collateralizedbyUSgovernment securities,whichareUSTreasuryobligations and obligations issued or guaranteed as toprincipal and interest by theUnited States or anyagencyorinstrumentalitythereof;(2)acheckingaccountpayingpreferredinterestrates,suchasmarketbasedorindexedrates;(3)apublic funds interestbearingcheckingaccount,suchasaccountsused forgovernmentalagenciesand

  • 16

    othernonprofitorganizations;(4)aninterestbearingcheckingaccountsuchasanegotiableorderofwithdrawal(NOW)account,orbusinesscheckingaccountwithinterest;or(5)anyothersuitableinterestbearingdepositaccountofferedbythebanktoitsnonIOLTAcustomers.

    (d) Financial Requirements for Sweep Accounts. If a bank establishes an IOLTA Account as described inparagraph(c)(1),thefollowingrequirementsmustbesatisfied:anovernightinvestmentinafinancialinstitutiondailyrepurchaseagreementshallbefullycollateralizedbyUnitedStatesgovernmentsecurities,asdescribedinthisRule,andmaybeestablishedonlywithanEligibleBankthatis"wellcapitalized"or"adequatelycapitalized"as those terms are defined by applicable federal statutes and regulations. A "moneymarket fund" is aninvestmentcompanyregisteredunderthe InvestmentCompanyActof1940,asamended,that isqualifiedtoholditselfouttoinvestorsasamoneymarketfundunderRulesandRegulationsadoptedbytheSecuritiesandExchangeCommission pursuant to saidAct.Amoneymarket fund shall be invested solely inUnited StatesgovernmentsecuritiesorrepurchaseagreementsfullycollateralizedbyUnitedStatesgovernmentsecurities,asdescribed inthisRule,and,atthetimeofthe investment,shallhavetotalassetsofat leasttwohundredfiftymilliondollars($250,000,000.00).(e) InterestCalculation. Interestshallbecalculated inaccordancewithanEligibleBank'sstandardpracticeforcomparablenonIOLTAAccounts.(f)HigherRatesandWaiverofServiceChargesAllowed.Nothinginthisruleshallprecludeaparticipatingbankfrompaying ahigher interest rate thandescribed aboveor electing towaive any service chargeson IOLTAAccounts.History:OrderoftheN.C.SupremeCourtAdoptedJanuary28,2010

    SECTION II: KEY CONCEPTS IN CLIENT TRUST ACCOUNTING Thefollowingsevenkeyconceptsprovidethebackgroundyouneedtounderstandyourclienttrustaccountingresponsibilities.KeyConcept1:SeparateClientsareSeparateAccountsClientA'smoneyhasnothingtodowithClientB'smoney.Evenwhenyoukeeptheminageneraltrustaccount(also known as an IOLTA account), each client's funds are completely separate from thoseof all yourotherclients. Inotherwords,youareNEVERallowedtouseoneclient'smoneytopayanotherclient'soryourownobligations.Inageneraltrustaccount,thewaytodistinguishoneclient'smoneyfromanother'sistokeepaclientledgerofeach individualclient'sfunds.Aclient ledgertellsyouhowmuchmoneyyou'vereceivedonbehalfofaclient,howmuchmoneyyou'vepaidoutonbehalfof thatclient,andhowmuchmoney thatclienthas left inyourgeneral trust account. If you are holdingmoney in your general trust account for ten clients, you have tomaintaintenseparateclientledgers.Ifyoukeepeachclient'sledgerproperly,youwillalwaysknowexactlyhowmuchofthemoneyinyourgeneraltrustaccountbelongstoeachclient.Ifyoudon't,youwilllosetrackofhowmuchmoneyeachclienthas,andwhenyoumakepaymentsoutofyourgeneraltrustaccount,youwon'tknowwhichclient'smoneyyouareusing.Alsonote,ifyourclient'smoneycanearnincomebecausethefundsarelargeenoughinamountorareheldforalongperiodoftime,thenyoucannotplacethefundsinageneraltrustaccount.Thefundsmustbedepositedinan account dedicated to that client or transaction. [Formore information on dedicated trust accounts, seeSectionIII,TrustAccountBasics.]

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    KeyConcept2:YouCan'tSpendWhatYouDon'tHaveEach client has only his or her own funds available to cover their expenses, nomatter howmuchmoneybelongingtootherclients is inyourgeneraltrustaccount.Yourgeneraltrustaccountmighthaveabalanceof$100,000,butifyouareonlyholding$10foracertainclient,youcan'twriteacheckfor$10.50onbehalfofthatclientwithoutusingsomeotherclient'smoney.The following example graphically illustrates this concept.Assume youareholding a totalof$5,000 for fourclientsinyourgeneraltrustaccountasfollows: ClientA $1,000 ClientB $2,000 ClientC $1,500 ClientD $500 Total $5,000Ifyouwriteacheckfor$1,500fromthegeneraltrustaccountforClientD,$1,000ofthatcheckisgoingtobepaidforbyClientsA,B,andC.ThefundsyouareholdingintrustforthemarebeingusedforClientD'sexpenses.Youshouldhaveatotalof$4,500forClientsA,B,andC,butyouonlyhave$3,500leftinthetrustaccount.InStateBardisciplinarymatters, the failure tomaintain a sufficient client trust accountbalancewill support afindingofmisappropriation.KeyConcept3:There'sNoSuchThingasaNegativeBalanceIt'snotuncommoninpersonalcheckbooksforpeopletowritechecksagainstmoneytheyhaven'tdepositedyetoracheckthathasnotclearedyet,andshowthisasanegativebalance.Inclienttrustaccounting,there'snosuch thingasanegativebalance.Anegativebalance isatbestasignofnegligenceand,atworst,asignoftheft.

    Inclienttrustaccounting,thereareonlythreepossibilities:Youhaveapositivebalance(whileyouareholdingmoneyforaclient);Youhaveazerobalance(whenalltheclient'smoneyhasbeenpaidout);orYOUHAVEAPROBLEMbecausethebalanceislessthanzero(asocallednegativebalance).KeyConcept4:TimingisEverythingIttakesanywherefromadaytoseveralweeksafteryoumakeadepositbeforethemoneybecomesavailableforuse.A client's funds aren't available for you touseon the client'sbehalfuntil theyhave cleared thebankingprocessandbeencreditedbythebanktoyourgeneraltrustaccount.(Thisisespeciallytruewhenyoureceivean insurancecompany'ssettlementdraftwhichcannotclearuntil thecompanyactually receives thedraft at its home office during the bank collection process and honors the draft. Thus, insurance companysettlementdraftswilltakelongertoclearyouraccount.)Ifyouwriteacheckforaclientatanytimebeforethatclient's funds clear thebankingprocess and are credited to your general trust account,ordinarily either thecheckwillbounceoryouwillbeusingotherclients'moneytocoverthecheck.Thetime ittakesfortrustaccountfundstobecomeavailableafterdepositdependsontheform inwhichyoudeposit them. Every bank has different procedures, sowhen you open your trust account, get the bank'sscheduleofwhen fundsareavailable forwithdrawal.Dependingon the instrument,youmayhavetowaitasmanyas15workingdaysbeforeyoucanbereasonablyconfidentthatthefundsareavailable.Forexample,evenifyoumakeacashdeposit, themoneymaynotbeavailable foruseuntil the followingday. Ifyoudepositapersonalcheckfromanoutofstatebank,themoneywilltakelongertobeavailable.Eitherway,untilthebankhascreditedadeposittoyourgeneraltrustaccount,youcan'tpayoutanyportionofthatmoneyforthatclient.Youalsoneedtoknowwhattimeyourbankhassetasthedeadlineforpostingdepositstothatday'sbusiness

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    andforpayingcheckspresentedtoit.Otherwise,evenwhenyouhavedepositedcash,youmayendupdrawingonuncollectedfunds.Forexample,let'ssayyourbankcreditsanydepositmadeafter3PMonthefollowingday,but staysopen forbusinessuntil5PM.Your client arrives at3:30 and gives you$5,000 in cash,which youimmediatelydeposit.At4PMyouwriteageneraltrustaccountcheckagainstthatmoneytopayaninvestigator.If the investigatorpresents thecheck forpaymentat thebankbefore itclosesat5PM, thecheckwilleitherbounceorbecoveredbyotherclients'money.Youmay be tempted to do your client a favor bywriting a check from your trust account to the client forsettlementproceedsbefore the settlementcheckhas clearedbecauseyouknow there'smoneybelonging tootherclients inyourgeneral trustaccount tocover this client's check.Dependingon thecircumstances,yourclientmay insist thatyoudo this.Don't. Ifyoudo,you'llendupwritinga check toone clientusinganotherclients'money.Youshouldneverhelponeclientattheexpenseofyourobligationstoyourotherclients.Inotherwords,nomatterhowexpedientorkindorconvenient itseems,don'tmakepaymentsonyourclients'behalfbeforetheirdepositedfundshavecleared.Otherwise,soonerorlater,you'llendupspendingmoneyyourclientsdon'thave.Somebanksofferan instant creditarrangementwhere thebankagrees to immediatelycreditaccounts fordepositswhilethebankwaitsforthefundsfromanotherfinancialinstitution.FormoreinformationonInstantCredit,seeSectionVFundsGoOut.KeyConcept5:YouCan'tPlaytheGameUnlessYouKnowtheScoreInclienttrustaccounting,therearetwokindsofbalances:therunningbalanceofthemoneyyouareholdingforeachclient,andtherunningbalanceofthegeneraltrustaccount.Arunningbalance istheamountyouhave inanaccountafteryouadd inallthedeposits(including interestearned,etc.)andsubtractallthemoneypaidout(includingbankchargesfor itemslikewiretransfers,etc.).Inotherwords,therunningbalanceiswhat'sintheaccountatanygiventime.Therunningbalanceforeachclientiskeptontheclient ledger,andtherunningbalanceforeachtrustaccount iskeptontheaccount journal. [AsampleclientledgerisshowninAppendixB2.]Maintainingarunningbalance foraclient issimple.Everytimeyoumakeadepositonbehalfofaclient,youwritetheamountofthedepositintheclientledgerandaddittothepreviousbalance.Everytimeyoumakeapaymentonbehalfof theclient,youwrite theamount in theclient ledgerand subtract it from thepreviousbalance.Theresultistherunningbalance.That'showmuchmoneytheclienthaslefttospend.Youfigureouttherunningbalanceforthegeneraltrustaccountthesameway.Everytimeyoumakeadeposittothegeneraltrustaccount,youwritetheamountofthedepositintheaccountjournalandaddittothepreviousbalance.Everytimeyoumakeapaymentfromthegeneraltrustaccount,youwritetheamountintheaccountjournalandsubtractitfromthepreviousbalance.Theresultistherunningbalance.That'showmuchmoneyisintheaccount.Since you can't spendwhat you don't have, you should check the running balance in each client's ledgerbeforeyouwriteanygeneraltrustaccountchecksforthatclient.Thatway,ifyourrecordsareaccurateanduptodate,it'salmostimpossibletopayoutmoremoneythantheclienthasintheaccount.KeyConcept6:TheFinalScoreisAlwaysZeroThegoalinclienttrustaccountingistomakesurethateverydollaryoureceiveonbehalfofaclientisultimatelypaidout to theclientat the conclusionof the representationor to thirdpartieson theclientsbehalf.Whatcomesinforeachclientmustequalwhatgoesoutforthatclient;nomore,noless.Many lawyershavesmall, inactivebalances in theirgeneral trustaccounts.Sometimes thesebalancesaretheresultofamathematicalerror,sometimestheyarepartofafeeyouforgottotake,andsometimesacheckyouwroteneverclearedorwasn'tcashed.

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    Whateverthereason,aslongasthemoneyisinyourgeneraltrustaccount,youareresponsibleforit.Thelongerthesefundsstayinthebank,theharderitistoaccountforthem.Therefore,youshouldtakecareofthosesmall,inactivebalancesassoonaspossible,including,ifnecessary,followingupwithpayeestofindoutwhyacheckhasn'tcleared.If you take steps to take careof these smallbalances and are stillunable topayout the funds, you shouldconsiderwhethertheunclaimedmoniesmustbeescheatedtothestate.Formoreinformationonabandonedorunclaimedfunds,seeSectionIII,PartD.KeyConcept7:AlwaysMaintainanAuditTrailAnaudittrail istheseriesofbankcreatedrecords,likecancelledchecks,bankstatements,etc.,thatmakeitpossibletotracewhathappenedto themoneyyouhandled.Anaudittrailshouldstartwheneveryoureceivefundsonbehalfofaclientandshouldcontinuethroughthefinalcheckyouissueagainstthem.Withoutanaudittrail,youhavenowaytoshowthatyouhavetakenpropercareofyourclients'money,ortoexplainwhatyoudidwith themoney if any questions come up. The audit trail is also an important tool for tracking downaccountingerrors. Ifyoudon'tmaintainanaudit trail,youwill find ithard tocorrect thesmallmistakes, likeerrors inadditionorsubtraction,andthebigmistakes, likemiscrediteddeposits,thatare inevitablewhenyouhandlemoney.Thekeytomakingagoodaudittrailisbeingdescriptive.Let'ssayyouarefillingoutadepositslipforfivechecksrelatingtothreeseparateclients.Allthebankrequiresyoutodoiswritedownthebankidentificationcodeforeachcheckandthecheckamounts.Thisdoesn't identifywhichclientthemoneybelongsto.Ifyou includethenameoftheclientandkeepacopyormakeaduplicate,youwillknowwhichclientthecheckwasfor,whichisthepurposeofanaudittrail.Thatwillmakeiteasytoansweranyquestionsthatcomeup,evenyearslater.By thesame token,everycheckyouwrite fromyourgeneral trustaccountshould identifyon the faceof thecheck theclientonwhosebehalf it iswritten,so that it iseasy tomatchup themoneywith theclient.ThatmeansyoushouldNEVERmakeoutageneraltrustaccountchecktocash,becausethereisnowaytoknowlaterwhoactuallycashedthecheck.Ifyouarehandlingmorethanonecasefortheclient,indicatewhichmatterthepaymentsandreceiptsrelatetoonyourchecksanddepositslips.

    SECTION III: TRUST ACCOUNT BASICS A.TrustAccounts:WhatAreTheyandHowManyDoYouNeed?Whatisatrustaccount?Atrustaccountisabankaccountmaintainedincidenttoalawyer'slawpracticeinwhichthelawyerholdsfundsreceivedinafiduciarycapacityonbehalfoforbelongingtoaclient.SeeRule1.151.Whomusthaveatrustaccount?Anylawyerwhoreceivesfundsinafiduciarycapacityinthecontextofhisorherlawpracticemusthaveaccesstoormaintainatrustaccount.Thelawyermusthaveaccesstoorestablishatrustaccountbeforereceivingsuchfunds.SeeRule1.152(a),(b),and(c).Lawyerswhodonotreceivefundsbelongingtooronbehalfofclientsdonothavetohaveatrustaccount.Howmanytrustaccountsdoesalawyerneed?Generallyspeaking,a lawyerneedsonlyonetrustaccounttohandlemoniesreceived intrustwhichareeithernominal in amountorheld for a shortperiodof time.Within this common accountcalled a "general trustaccount"thefundsofmanyclientsmaybecommingledsolongasadequaterecordsarekepttoidentifythefundsofeachclient.SeeRule1.151(h)andRule1.152.Ifdesired,alawyermayhavemultipletrustaccountsforadministrativepurposes.Forexample, lawyersoftenhavetrustaccountsforrealestatetransactionswhichare

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    distinctfromthetrustaccountsusedforotherclientmatters.Doeseachlawyerinafirmneedaseparatetrustaccount?No.Eachlawyerinafirmmayethicallyusethefirm'sgeneraltrustaccountsolongasadequaterecordsofthefunds of each client aremaintained. However,multiple accounts are permissible. A lawyermay personallymaintainseveraltrustaccountsifheorshedesires.SeeRule1.152.Isalawyereverrequiredtoestablishatrustaccountforoneclient,onetransaction,oraseriesofintegratedtransactions?Yes.Thesizeofthedepositorthelengthoftimethedepositedfundsaretobeheldcouldbesuchthataprudentpersonactinginafiduciarycapacitywouldbeexpectedtoinvestthefundsonbehalfofthebeneficiary,andalawyerreceivingfundsundersuchcircumstanceswouldhaveacorrespondingobligationtodepositthefundsina separate interestbearing or "dedicated trust account." Rule 1.151(c). Comment [3] following Rule 1.154containsa listof factors tobeconsideredwhendeterminingwhether there isaduty todeposit funds intoaseparateinterestbearingdedicatedtrustaccount.Anyinterestgeneratedisthepropertyoftheclient.SeeRule1.152(q).Whatsortofbankaccountmustbemaintained?Sincealawyerhasanethicalobligationtopayordeliverclientfundspromptlyasinstructedbytheclient,trustaccounts are generally demand accounts with check writing privileges. Pursuant to an order of the NorthCarolinaSupremeCourt,beginning January1,2008,everygeneral trustaccountmustbean interestbearingaccount, and the establishment of any such general trust accountmust be reported to theNorth CarolinaInterestonLawyersTrustAccountsprogram (NC IOLTA) for inclusion inNC IOLTA.SeeRule1.152(b)and27NCAC1D,Section.1300.TheinterestearnedonsuchaccountsisremittedbythedepositorybankdirectlytotheIOLTABoardofTrusteeswhichsubsequentlydistributesthefundsintheformofgrantstopersonsorentitiesforvariouspublicpurposesinaccordancewiththerulesofNCIOLTA.[FormoreinformationonIOLTAaccounts,seeSectionX.]

    B.OpeningaTrustAccountChoosingaTrustAccountBankRule1.15oftheNorthCarolinaRulesofProfessionalConduct,anditssubparts,containsmanyprovisionsaboutthedutytodepositclientfunds inatrustaccounttoprotectandsecurethefunds.Forexample,Rule1.152(b)admonishes:Alltrustfundsreceivedbyorplacedunderthecontrolofalawyershallbepromptlydepositedineitherageneraltrustaccountoradedicatedtrustaccountofthelawyer.TheruledoesnotsaywherealawyershouldestablishatrustaccountexceptthatitmustbemaintainedatabankinNorthCarolina.Uponwrittenconsentoftheclient,adedicatedtrustaccountcanbemaintainedataninstitutionoutsideofthestate.SeeRule1.152(e).BankisdefinedinRule1.151(a)asabank,savingsandloanassociation,orcreditunioncharteredunderNorthCarolinaorfederallaw.Thedepositorybankforalawyerstrustaccountmustagreetothefollowing:

    ReporttotheNorthCarolinaStateBarwhenanitemdrawnonthetrustaccountispresentedforpaymentagainst insufficientfunds.SeeRule1.152(l).A lawyermaynotmaintainatrustorfiduciaryaccountatabankthatdoesnotagreetomakethereports.SeeAppendixB3foracopyofthedirective.

    Providethelawyerwithallcancelledchecksorotheritemsdrawnonthetrustaccountordigitalimagesofthechecks.Thedigitalimagesmustbelegiblereproductionsofthefrontandbackoftheoriginalitemwithnomorethansixitemsperpageandnoimagessmallerthan13/16x3inches.SeeRule1.153(b)(A).

    If thebankprovidesonlydigital imagesofcanceledchecksand items, itmustmaintain thecapacity toreproduceadditionalorenlargedimagesoftheoriginalitemsuponrequestforaperiodofsixyears.SeeRule1.153(b)(B).

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    AgreetopayIOLTAaccountsthehighestinterestrateavailabletothatbanksothercustomerswhentheIOLTA accountsmeet the sameminimum balance or other account qualifications (also known as thecomparability requirement).SeeRule .1317.Bankswillbe certifiedas eligiblebyNC IOLTAuponafindingthattheyareincompliancewiththiscomparabilityrequirement,andNCIOLTAwillmaintainalistofeligiblebanks.Banksnot foundon theeligible listmustsubmitacompliancestatementandreceiveapprovalbeforeIOLTAaccountsmaybeopenedwiththem.

    Please review the Opening a General (IOLTA) Trust Account: Information Packet before opening a trustaccount.Itincludesahelpfulchecklistforitemstobringwithyoutothebankandcontainsimagesofimportantdocuments.SeeAppendixB4foracopyofthechecklist.Ifyourbank isnotdoingthesethings,youareprofessionallyresponsiblenotthebank.Compliancewiththerequirements varies substantially from bank to bank and from branch office to branch office. Some banksregularly fail tonotify the StateBarwhen a trust account check ispresented against insufficient funds. Thisoccursdespitethefactthelawyerproperlyfiledadirectivewiththebank,pursuanttoRule1.152(l),instructingthebanktonotifytheStateBar.Howdoyoufulfillyourprofessionalresponsibilitytochoosetherightbank?Sinceyouareresponsibleforthebankscompliancewiththenoticeandrecordkeepingrequirements,theonlywayforyoutoactinaprofessionallyresponsiblemanneristoinvestigatethebanksinyourcommunitytofindoutwhich banks understand the requirements and arewilling to comply. If the bankmaintains only digitalimagesofcancelledchecks,youmustensurethatthesizeandfront/backrequirementsarebeingmetandthatthebankmaintainstheabilitytoreproducetherecordsforaperiodofatleastsixyears.Onceyouchooseabank(www.nciolta.org/eligiblebanks),monitorthebankscomplianceand,ifthebankchangesitsprocedures,insistuponcomplianceormoveyour trustaccount toabank thatwillcomply. Ifa localbranchmanagerdoesnotunderstand the notice and recordkeeping rules, or the IOLTA comparability requirement, encourage themanagertocontactthehomeofficeforinstructionsorcalltheStateBar.Thelawyersintheethicsdepartmentandthestaffauditorwouldbegladtoexplaintherulesandrequirements.Arethererestrictionsconcerningthekindsofinstitutionswheretrustaccountsmaybemaintained?Yes.Trustaccountsmayonlybemaintainedat federallyorNorthCarolina charteredbanks savingsand loanassociations,andcreditunionslocatedinNorthCarolinaorwithbranchofficesinNorthCarolina.SeeRule1.152(e)andRule1.151(a).Dedicatedtrustaccountsmaybemaintainedatan institutionoutsidethestateuponwrittenconsentoftheclient.A lawfirmwithoffices inNorthCarolinaandanotherstatemaysendaNorthCarolinaclient'sfundstoafirmoffice in another state for centralized processing without client consent provided the funds are promptlydepositedintoatrustaccountwithabankthathasbranchofficesinNorthCarolina.SeeRule1.154,Comment[4].DedicatedTrustAccountsWiththewrittenconsentoftheclient,atrustaccountdedicatedtooneclient'sfunds(seeRule1.151(c))maybemaintainedatabankoutsideofNorthCarolinaoratafinancialinstitutionotherthanabankinsideoroutsideofNorthCarolina.SeeRule1.152(e).LabelingaTrustAccountAtrustaccountmustbeclearlylabeledanddesignatedasa"trustaccount,"andallchecksdrawnontheaccountmustbesoidentified.Forinstance,anappropriatetitleforageneraltrustaccountmightbe"TheTrustAccountofJohnSmith,Lawyer"or"Smith,Jones&WilliamsTrustAccount."[Foranexampleofaproperlylabeledgeneraltrustaccountcheck,seeAppendixB6.]AlthoughthetaxidentificationnumberofNCIOLTAwillbeassignedtoallgeneraltrustaccounts,thetrustaccountchecksshouldbearthenameassignedbythefirmtotheaccount.

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    Each account inwhich funds are held by a lawyer pursuant to the lawyer's service as a trustee, guardian,personalrepresentative,attorneyinfact,orescrowagentmustbeappropriately labeledasafiduciaryaccountunlesssuchfundsareheldinageneraltrustaccount.SeeRule1.151(c),(e),(h),(l).Forexample,anappropriatetitle fora fiduciaryaccountmightbe "TrustAccount for theEstateof JohnDoe."Similarly,adedicated trustaccountthatholdsthefundsofoneclientmustbeproperlylabeledasatrustaccount(e.g.,"TrustAccountfortheBenefitofJaneSmith").TrustAccountChecksRule1.153(b)(2)requiresthatallitemsdrawnonthegeneraltrustaccountindicateclientname,filenumber,orotheridentifyinginformationoftheclientfromwhosebalancetheitemisdrawn.Therefore,anycheckwrittenfromthetrustaccountmusthaveclientreferencedataonthecheck.Theclientsnameoridentificationnumbermayappearonthecheckstub,checkregister,journal,etc.;however,thisinformationmustalsoappearonthefaceofthecheck.Ifatrustaccountsoftwareprogramoracheckwritingprogramcannotrecordthisreferencedataonthecheck,itshouldbemanuallyrecorded.Ifacheckdrawnonthetrustaccountincludespaymentoffeesorcostreimbursementformorethanoneclient,thecheckshouldindicatetherespectiveindividualpayments.Thepurposeforthedisbursementmaybeindicatedaftertheclientsname(i.e.,fees,costreimbursement,etc.).[SeeAppendixB6foranexample.]Istherearequiredformatfortrustaccountandfiduciaryaccountchecks?Yes,allgeneraltrustaccounts,dedicatedtrustaccounts,andfiduciaryaccountsmustusebusinesssizedchecks(longerthansixinches)thatcontainafieldcalledan"AuxiliaryOnUs"fieldintheMICR(magneticinkcharacterrecognition)lineofthecheck.SeeRule1.153(a).Thespecialcheckformatpreventsconversionofacheckintoan electronic transaction through the automated clearinghouse network for converting checks drawn onconsumer accounts towhichmost financial institutions belong. If a check is converted, the paper check isdestroyed,therebypossiblyeliminatingalawyer'srecordofthetransaction.[Foranexampleofabusinesssizedtrustaccountcheck,seeAppendixB5.]ProperSignatoriesChecksdrawnonatrustaccountmaybesignedbylawyersandsupervisednonlawyeremployees.However,anonlawyeremployeemaynothavesignatoryauthority ifheorshe is responsible forperformingmonthlyorquarterly reconciliations. SeeRule1.152(s).Additionally,prior toexercising signatureauthority,a lawyerorsupervisednonlawyermusttakeaonehourtrustaccountmanagementCLEapprovedbytheStateBarforthispurpose.NOTE:Theinitialdeadlineforcompletingthe1hourCLEistheendofthe2017CLEyear(Feb.18).Subject to the restrictions noted above, a lawyermay grant signatory authority to a nonlawyer employee.However,alawyerisstillprofessionallyresponsiblefortheactionsofthoseunderhisorhersupervision.SignatureRequirementsTrust account checks may not be signed by using signature stamps, preprinted signatures, or electronicsignatures.SeeRule1.152(s).C.TrustAccountManagementMaytheresponsibilityformanagingafirmstrustaccountsbedelegatedtoonelawyerinafirm?Yes,however,unlessthefirmhasappointedatrustaccountoversightofficer (TAOO)pursuanttoRule1.154(see below), allmanaging lawyers in the firmmay be professionally responsible for violations of the trustaccountingrulesthatresultfromfailuretohave ineffectmeasuresgivingreasonableassurancethattheruleswillbefollowed.SeeRule5.1.

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    May a lawyer delegate themanagement of a trust account, including check signing authority, to a staffmemberwhoisnotalawyer?Yes,however, the lawyer isprofessionally responsible for thesupervisionof thenonlawyer.SeeRule5.3andRule8.4(a).A lawyermaybesubjecttoprofessionaldiscipline forviolationsofthetrustaccountingrulesthatresultfromtheinadequatesupervisionofastaffmember.Rule1.154TrustAccountOversightOfficer(TAOO)Rule1.154allows,butdoesnot require,amultimember firm todesignate,annuallyand inwriting,oneormorepartnersasoversightofficersforanygeneraltrustaccount.Therulehelpsafirmensurethatitisproperlymaintainingitstrustandfiduciaryaccounts,andavoidrelianceonanassumptionthattrustaccountsarebeingmaintainedbysomeoneelse in the firm.Designationas theTAOO requires the lawyer tocompleteacertainamount of training to gain proficiency in the trust accounting rules and the firms accounting system, andrequiresthe firmtoadoptawrittenpolicydetailingthe firmstrustaccountmanagementprocedures.Again,this rule isoptional formultimember firms thatwant toaddanextra levelofoversight to their firms trustaccountmanagement.Maya lawyer linkher trustaccountwithherbusinessaccount for thepurposesofdetermining interestearnedorchargesassessed?Alawyercannotpermitthebanktolinkhertrustandbusinessaccountsforthepurposeofdetermininginterestearnedorchargesassessedifsuchanarrangementcausesthelawyertouseclientfundsfromthetrustaccounttooffsetservicechargesassessedonthebusinessaccount.RPC150[AppendixA].D.AbandonedorUnclaimedFunds/PropertyIfalawyerholdsfundsinageneraltrustaccountanddoesnotknoweithertheidentityorthelocationoftheownerofthosefunds,whatshouldbedonewiththemoney?Thelawyermustfirstmakeadiligentattempttodeterminetheidentityand/orthelocationoftheownerofthefunds in order that an appropriate disbursement might be made. This means questioning personnel andinvestigatingrecordsandothersourcesofinformationinanefforttodeterminetheidentityandlocationoftheownerof the funds.SeeRule1.152(q). If thateffort is successful, theentrustedproperty shallbepromptlytransferredtothepersonorentitytowhomitbelongs.Ifthelawyerisunsuccessfulinascertainingtheidentityorthelocationoftheownerofthefunds,thelawyermustdeterminewhetherthefundsqualifyforescheatmenttotheStateofNorthCarolinapursuanttoN.C.Gen.Stat.Chap116B.Pendingescheatment,thefundsshouldbeheldandaccountedforinthelawyer'strustaccount.Ifqualified,suchfundsmustbeescheatedtothestateevenifitisbelieved,butcannotbeconclusivelydocumented,thatthefundsbelongtothelawyer.HowdoIescheatunidentifiedorunclaimedfundsinmytrustaccount?If you have diligently attempted to determine the identity and location of the owner of the fundswithoutsuccess, the fundsshouldbesent to theEscheatandUnclaimedPropertySectionof theOfficeof theNorthCarolinaStateTreasurer.ContacttheStateTreasurer'sOffice forthe formsnecessary totransfer fundsor forassistanceincompletingtheforms:NCDepartmentofStateTreasurerUnclaimedPropertyProgram325NorthSalisburyStreetRaleigh,NC276031385Phone:(919)5081000;5085979Email:[email protected]:www.nctreasurer.comTheprimarypurposeoftheescheatfundistoprovideameansbywhichunclaimedpropertycanbebroughtunderthecontrolofthestateandconvertedtothebenefitofthepeopleofNorthCarolina.Thestatetreasurerinveststhe

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    escheatedmoneysinthesamemannerthatthestateretirementfundsareinvested.TheincomederivedfromthisinvestmentisdistributedannuallytotheStateEducationAssistanceAuthoritytobeusedtomakeloanstoworthyandneedyNorthCarolinastudentswhoareenrolledinstatepublicinstitutionsofferingpostsecondaryeducation.IftherearequestionsconcerninganyaspectoftheEscheatandUnclaimedPropertyProgram,inquiriesshouldbedirectedtotheDepartmentoftheStateTreasurer,UnclaimedPropertyProgram.Formore information about escheating funds, please see Appendix C and theNCHolder ReportingGuide,availablehere:https://www.nctreasurer.com/upp/Resources/NC_Holder_Reporting_Guide.pdf.HowdoIhandletrustfundsforadeceasedclient?Whenthereareexcessfundsleftinalawyerstrustaccountafteraclientdies,thelawyermustcomplywiththeoriginal fee agreement for the representationof the client and disburse the funds accordingly. See EA 2295[AppendixA].MayIchargeadormancyfeeagainstunclaimedfunds?Alawyermaychargeareasonabledormancyfeeagainstunclaimedfundsiftheclientagreesinadvanceandthefeemeetsotherstatutoryrequirements.See2006FEO15[AppendixA].E.ClosingaTrustAccountClosingAccountwithRemainingFundsIfyouhaveanaccountthatyounolongeruse,butfundsremaingintheaccount,theneithertransferthefundsfromtheoldaccountintoanewaccountordisbursethefundstotheownersasshownontheclientledgersfortheaccount.SeeRule1.153(b)(5).Anyfundsondepositforaclientwhoisnolongerrepresentedbythelawyerorthelawfirmshouldbedisbursedtotheownersthereof.Iftransfertoanewaccountisappropriate,youmustdocumentthetransferof the funds from theoldaccount to thenewaccount andaccuratelynote thedepositof fundson theappropriateclients' ledgers.SeeRule1.153(b)(5).Ifany interestwascreditedtothedormantaccount,thismoneyshouldbe sent to theNC IOLTAprogram. If there are unclaimedorunidentified funds in the account, see thediscussionofabandonedfundsintheprecedingpages.LawFirmDissolutionandWithdrawalfromPracticeThepropertyofclientsentrustedtothefirmshouldbeprotectedduringthedissolutionofa lawfirm.RPC48states:A fullandcompleteaccountingofall fiduciarypropertyofclientsentrusted to the firmshouldbemade toeachclient,withwrittenrequestfortheirreturnorfuturedisposition.Failureoftheclienttorespondshouldbetakenasarequestforthereturnofsaidfiduciarypropertytotheclient,unlessgovernedbyacourtorderorproceedingtothecontrary.

    For informationonthewinddownofamissing, incapacitated,deceased,ordisciplined lawyerssolepractice,seeAppendixA.

    SECTION IV: FUNDS GO IN A.WhatGoesIntoaTrustAccount?Thegeneralruleisthateveryreceiptofmoneyfromaclientorforaclientwhichwillbeusedordeliveredontheclient'sbehalfshouldbeplacedinthetrustaccountorafiduciaryaccountifthefundsarereceivedbyalawyerwhileservingasalawyerorotherprofessionalfiduciary.Thisincludesfundsreceivedbythelawyerasanescrowagent.SeeRule1.152(b)and(c),andCommentfollowingRule1.154.

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    Whataboutfundsreceivedbya lawyeractingasacourtappointedfiduciaryorpursuanttoappointment insomespecifictrustitem?A lawyerserving insucha fiduciaryrolemustsegregate fiduciaryproperty fromhisorherpersonalproperty,deposit such funds inadesignated fiduciaryaccount,maintain theminimum financial records required forafiduciaryaccount,and instructany financial institution inwhich fiduciaryproperty isheld tonotify theNorthCarolina State Bar of any negotiable items drawn on the accountwhich are presented for payment againstinsufficientfunds.Suchfundsshouldnotbedepositedinthelawyer'sgeneraltrustaccount.Rules1.151(e)and(f);Rule1.152(c),(e),(f),(k);Rule1.153.[Formoreinformation,seeSectionVIII,FiduciaryAccounts.]Isitappropriatetodeposititemsotherthancashorcashequivalentsinthetrustaccount?Generally speaking, any negotiable itemmay be deposited in a trust accountwhether or not it representscollected funds. Unless specifically permitted by law, the Rules of Professional Conduct or definitiveinterpretationsthereof,however,nowithdrawalshouldbemadewithrespecttoanydeposited itemuntilthefundsrepresentedbythatitemarecollected.SeeRules1.151(i)and1.152(g);seealso,RPC191[AppendixA];01FEO3[AppendixA];and06FEO8[AppendixA].Mustalawyerdepositverysmallsumsofmoneyreceivedfromaclientintoatrustaccount?Yes.Alawyerwhoreceivesfromhisorherclientasmallsumofmoney(forexample,moneywhichistobeusedtopaythecostofrecordingadeed)mustdepositthatmoneyinatrustaccount.RPC47[AppendixA].May a lawyerwho receives a lump sum payment in advance,which is inclusive of the costs of litigation,depositthepaymentinhisoperatingaccountasfees?No.Wherea lawyerreceivesa lumpsumpayment inadvancewhich is inclusiveofthecostsof litigation,theportionrepresentingthecostsmustbedepositedinthetrustaccount.Someofthemoneycollectedbythefirmas fees is actually entrusted funds intended to defray the costs of litigation. The rules require that fundsreceived in the fiduciary capacity,however characterized,bedirectlydeposited into a trust account.RPC51[AppendixA].Maya lawyer closinga residential realestate transactionaskborrowersand sellers toagree inwriting towaivethereturnofverysmallsums,especiallywherethelawyerbearssimilarriskofloss?Yes.WhileRule1.152(h)provides thata lawyermustdisbursepropertyor trust fundsheldonbehalfof theclientastheclientdirects,therulesdonotappeartoprohibitalawyerfromrequestingthatclientsonoccasionagreetowaivethereturnofcertaininsubstantialordeminimisamounts.Ifthepartyorpartiesinvolvedrefusetoagree,thenthelawyermustabidebytheirwishesforthereturnofthefunds.EA2217[AppendixA].

    B.WhatDoesNotGointheTrustAccount?Mayalawyerdeposithisorherownfundsinatrustaccount?Nofundsbelongingtothelawyermaybedepositedinthetrustaccountexceptsuchfundsasarenecessarytoopenormaintain the account,orpay service charges,orare fundsbelonging inpart to a clientand inpartpresentlyorpotentiallytothelawyer,suchaswhereadepositeditemrepresentsboththeclient'srecoveryandthelawyer'sfee.Insuchacase,theportionofthefundsbelongingtothelawyermustbewithdrawnfromthetrustaccountassoonasthelawyerbecomesentitledtothefundsunlesstherightofthelawyertoreceivethatportionisdisputedbytheclient,inwhicheventthedisputedportionmustremaininthetrustaccountuntilthedisputeisresolved.SeeRule1.152(f).Shouldretainersbedepositedinthetrustaccount?Strictlyspeaking,no.Aretainer,preferablyreferredtoasa"generalretainer,"initstruestsense,ismoneypaidtothelawyertoreservetheexclusiveuseofthelawyer'sservicesforaparticulartimeorinregardtoaparticularmatter. See 08 FEO 10 [AppendixA]. Since a general retainer is deemed earnedwhen paid, it immediately

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Lawyer’s Trust Account Handbook The North Carolina State Bar A publication designed to aid lawyers in understanding the procedures and guidelines for trust accounts. Revised 11/2017
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