Old Rule 1.15 Safekeeping Property; Interest-Bearing Accounts to be Established for the Benefit of the Client or Third Persons or the COLTAF

Amended and Adopted by the Court, April 18, 2001

(a) In connection with a representation, an attorney shall hold property of clients or third persons that is in an attorney's possession separate from the attorney's own property. Funds shall be kept in a separate account maintained in the state where the attorney's office is situated, or elsewhere with the consent of the client or third person. Other property shall be identified as such and appropriately safeguarded. Complete records of such account funds and other property shall be kept by the attorney and shall be preserved for a period of seven years after termination of the representation.

(b) Upon receiving funds or other property in which a client or third person has an interest, a lawyer shall, promptly or otherwise as permitted by law or by agreement with the client, deliver to the client or third person any funds or other property that the client or third person is entitled to receive and, upon request by the client or third person, render a full accounting regarding such property.

(c) When in the course of representation a lawyer is in possession of property in which both the lawyer and another person claim interests, the property shall be kept separate by the lawyer until there is an accounting and severance of their interests. If a dispute arises concerning their respective interests, the portion in dispute shall be kept separate by the lawyer until the dispute is resolved.

(d) "Accounts" as used in paragraph (a) above shall mean one or more identifiable interest-bearing, insured depository accounts; provided, that with the consent of the client or third person whose funds are in the account, an account maintained under subparagraph (e)(1) below (interest is paid to the client or third person) need not be an insured depository account, but all accounts maintained under subparagraph (e)(2) below (interest is paid to the Colorado Lawyer Trust Account Foundation) shall be insured depository accounts. For the purpose of this rule, "insured depository accounts" shall mean government insured accounts at a regulated financial institution, on which withdrawals or transfers can be made on demand, subject only to any notice period which the institution is required to reserve by law or regulation.

(e)

(1) Except as may be prescribed by subparagraph (2) below, interest earned on accounts in which the funds are deposited (less any deduction for service charges or fees of the depository institution) shall belong to the clients or third persons whose funds have been so deposited; and the lawyer or law firm shall have no right or claim to such interest.

(2) If not held in accounts with the interest paid to clients or third persons as provided in (e)(1), a lawyer or law firm shall establish a pooled interest-bearing insured depository account for funds of clients or third persons which are nominal in amount or are expected to be held for a short period of time in compliance with the following provisions:

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

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

(c) Lawyers or law firms depositing funds in an interest-bearing insured depository account under this subparagraph (e)(2) shall direct the depository institution:

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

(ii) To transmit with each remittance to the Colorado Lawyer Trust Account Foundation a statement showing the name of the lawyer or law firm on whose account the remittance is sent and the rate of interest applied.

The provisions of this subparagraph (e)(2) shall not apply in those instances where it is not feasible to establish a trust account for the benefit of the Colorado Lawyer Trust Account Foundation for reasons beyond the control of the lawyer or law firm, such as the unavailability of a financial institution in the community which offers such an account.

(3) Information necessary to determine compliance or justifiable reason for non-compliance with subparagraph (e)(2) shall be included in the annual attorney registration statement. The Colorado Lawyer Trust Account Foundation shall assist the court in determining whether lawyers or law firms have complied in establishing the trust account required under subparagraph (e)(2). If it appears that a lawyer or law firm has not complied where it is feasible to do so, the matter may be referred to the disciplinary counsel for investigation and proceedings in accordance with C.R.C.P. 241.

(f) Required Bank Accounts. Every attorney in private practice in this state shall maintain in a financial institution doing business in Colorado, in the attorney’s own name, or in the name of a partnership of attorneys, or in the name of the professional corporation or limited liability corporation of which the attorney is a member, or in the name of the attorney or entity by whom employed:

(1) A trust account or accounts, separate from any business and personal accounts and from any fiduciary accounts that the attorney may maintain as executor, guardian, trustee, or receiver, or in any other fiduciary capacity, into which trust account or accounts funds entrusted to the attorney's care and any advance payment of fees that has not been earned shall be deposited (except that such a trust account shall not be required if the attorney does not ever receive such funds); and,

(2) A business account into which all funds received for professional services shall be deposited.

(3) One or more of the trust accounts may be the account or accounts described in Rule 1.15(e)(2), known as COLTAF (Colorado LAWYER Trust Account Foundation) accounts.

(4) Other than fiduciary accounts maintained by an attorney as executor, guardian, trustee, or receiver, or in any other similar fiduciary capacity, all trust accounts, whether general or specific, as well as all deposits slips and checks drawn thereon, shall be prominently designated as a "trust account." Nothing herein shall prohibit any additional descriptive designation for a specific trust account. All business accounts, as well as all deposit slips and all checks drawn thereon, shall be prominently designated as a "professional account," or an "office account." The COLTAF account or accounts shall each be designated "COLTAF Trust Account."

(5) The name of institutions in which such accounts are maintained and identification numbers of each account shall be recorded on a statement filed with the annual attorney registration payment, pursuant to Rule 227(2). Such information shall be available for use in accordance with paragraph (g) of this Rule. For all COLTAF accounts, the account numbers, the name the account is under, and the depository institution shall be indicated on the same statement.

(6) A trust account shall be maintained only in financial institutions DOING BUSINESS IN COLORADO approved by the Regulation Counsel with policy guidelines by the Board of Trustees of the Colorado Attorneys' Fund for Client Protection, which shall annually publish a list of such approved institutions. A financial institution shall be approved if it shall file with the Regulation Counsel an agreement, in a form provided, to report to the Regulation Counsel in the event any properly payable trust account instrument is presented against insufficient funds, irrespective of whether the instrument is honored; any such agreement shall apply to all branches of the financial institution and shall not be canceled except on thirty days notice in writing to the Regulation Counsel. The agreement shall further provide that all reports made by the financial institution shall be in the following format: (1) in the case of a dishonored instrument, the report shall be identical to the overdraft notice customarily forwarded to the depositor; (2) in the case of instruments that are presented against insufficient funds but which instruments are honored, the report shall identify the financial institution, the attorney or law firm, the account number, the date of presentation for payment, and the date paid, as well as the amount of the overdraft created thereby. Such reports shall be made simultaneously with, and within the time provided by law for, notice of dishonor, if any; if an instrument presented against insufficient funds is honored, then the report shall be made within five banking days of the date of presentation for payment against insufficient funds. In addition, each financial institution approved by the Regulation Counsel must cooperate with the COLTAF program and must offer a COLTAF account to any attorney who wishes to open one. In addition to the reports specified above, approved financial institutions shall agree to cooperate fully with the Regulation Counsel and to produce any trust account or business account records on receipt of a subpoena therefor in connection with any proceeding pursuant to C.R.C.P. 241. Nothing herein shall preclude a financial institution from charging an attorney or law firm for the reasonable cost of producing the reports and records required by this Rule, BUT SUCH CHARGES SHALL NOT BE A TRANSACTION COST TO BE CHARGED AGAINST FUNDS PAYABLE TO THE COLTAF PROGRAM. Every attorney or law firm MAINTAINING A TRUST ACCOUNT in this state shall, AS A CONDITION THEREOF, be conclusively deemed to have consented to the reporting and production requirements BY FINANCIAL INSTITUTIONS MANDATED BY this Rule AND SHALL INDEMNIFY AND HOLD HARMLESS THE FINANCIAL INSTITUTION FOR ITS COMPLIANCE WITH SUCH REPORTING AND PRODUCTION REQUIREMENT. A FINANCIAL INSTITUTION SHALL BE IMMUNE FROM SUIT ARISING OUT OF ITS ACTIONS OR OMISSIONS IN REPORTING OVERDRAFTS OR INSUFFICIENT FUNDS OR PRODUCING DOCUMENTS UNDER THIS RULE. THE AGREEMENT ENTERED INTO BY A FINANCIAL INSTITUTION WITH THE REGULATION COUNSEL SHALL NOT BE DEEMED TO CREATE A DUTY TO EXERCISE A STANDARD OF CARE AND SHALL NOT CONSTITUTE A CONTRACT FOR THE BENEFIT OF ANY THIRD PARTIES THAT MAY SUSTAIN A LOSS AS A RESULT OF LAWYERS OVERDRAWING ATTORNEY TRUST ACCOUNTS.

(7) A lawyer may deposit funds reasonably sufficient to pay anticipated service charges or other fees for maintenance or operation of such account into an account maintained under paragraph (f)(1), (f)(3), or (f)(4). Such funds shall be clearly identified in the attorney’s records of the account.

(g) Required Accounting Records. Attorneys, partnerships of attorneys, professional corporation and limited liability corporations in private practice in this state shall maintain in a current status and retain for a period of seven years after the event which they record:

(1) Appropriate receipt and disbursement records of all deposits in and withdrawals from accounts specified in subsection (a) of this rule and any other bank account which concerns their practice of law, specifically identifying the date, source and description of each item deposited as well as the date, payee, and purpose of each disbursement. All trust account receipts shall be deposited intact and the duplicate deposit slip should be sufficiently detailed to identify each item. All trust account withdrawals shall be made only by authorized bank or wire transfer or by check payable to a named payee and not to cash. Only an attorney admitted to practice law in this state or a person supervised by such shall be an authorized signatory on a trust account; and,

(2) An appropriate record-keeping system identifying each separate trust client, for all trust accounts, showing the source of all funds deposited in such accounts, the names of all persons for whom the funds are or were held, the amount of such funds, the description and amounts of charges or withdrawals from such accounts, and the names of all persons to whom such funds were disbursed. A regular trial balance of the individual client ledgers shall be maintained and reconciled at least quarterly with the applicable bank statements.

(3) Copies of all retainer and compensation agreements with clients; and,

(4) Copies of all statements to clients showing the disbursement of funds to them or on their behalf; and,

(5) Copies of all bills issued to clients and,

(6) Copies of all records showing payments to any persons, not in their regular employ, for services rendered or performed; and,

(7) All bank statements and prenumbered canceled checks; and,

(8) Copies of those portions of each client's case file reasonably necessary for a complete understanding of the financial transactions pertaining thereto.

(h) Type and Availability of Accounting Records. The financial books and other records required by subsections (f) and (g) of this rule shall be maintained in accordance with generally accepted accounting principles, such as the accrual method, the cash basis method and the income tax method. Bookkeeping records may be maintained by computer provided they otherwise comply with this Rule and provided further that printed copies can be made on demand in accordance with this subsection or subsection (g). They shall be located at the principal Colorado office of each attorney, partnership, professional corporation, or limited liability corporation. (i) Dissolutions. Upon the dissolution of any partnership of attorneys or of any professional corporation or limited liability corporation, the former partners or shareholders shall make appropriate arrangements for the maintenance by one of them or by a successor form of the records specified in paragraph (g) of this Rule.

(j) Availability of Records. Any of the records required to be kept by this Rule shall be produced in response to a subpoena duces tecum issued in connection with proceedings pursuant to C.R.C.P. 241. When so produced, all such records shall remain confidential except for the purposes of the particular proceeding and their contents shall not be disclosed by anyone in such a way as to violate the attorney-client privilege.

COMMENT

A lawyer should hold property of others with the care required of a professional fiduciary. Securities should be kept in a safe deposit box except when some other form of safekeeping is warranted by special circumstances. All property which is the property of clients or third persons should be kept separate from the lawyer's business and personal property and, if monies, in one or more trust accounts.

Trust accounts of funds of clients or third persons held in connection with a representation must be interest-bearing for the benefit of the client or third person or for the benefit of the Colorado Lawyer Trust Account Foundation where the funds are nominal in amount or expected to be held for a short period of time. A lawyer should exercise good faith judgment in determining initially whether funds are of such nominal amount or are expected to be held by the lawyer for such a short period of time that the funds should not be placed in an interest-bearing account for the benefit of the client or third person. The lawyer should also consider such other factors as (i) the cost of establishing and maintaining the account, service charges, accounting fees, and tax report procedures; (ii) the nature of the transaction(s) involved; and (iii) the likelihood of delay in the relevant proceedings. A lawyer should review at reasonable intervals whether changed circumstances require further action respecting the deposit of such funds.

Separate trust accounts may be warranted when administering estate monies or acting in similar fiduciary capacities.

Lawyers often receive funds from third parties from which the lawyer's fee will be paid. If there is risk that the client may divert funds without paying the fee, the lawyer is not required to remit the portion from which the fee is to be paid. However, a lawyer may not hold funds to coerce a client into accepting the lawyer's contention. The disputed portion of the funds should be kept in trust and the lawyer should suggest means for prompt resolution of the dispute, such as arbitration. The undisputed portion of the funds shall be promptly distributed.

Third parties, such as a client's creditors, may have just claims against funds or other property in a lawyer's custody. A lawyer may have a duty under applicable law to protect such third-party claims against wrongful interference by the client, and accordingly may refuse to surrender the property to the client. However, a lawyer should not unilaterally assume to arbitrate a dispute between the client and the third party.

The obligations of a lawyer under this rule are independent of those arising from activity other than rendering legal services. For example, a lawyer who serves as an escrow agent is governed by the applicable law relating to fiduciaries even though the lawyer does not render legal services in the transaction. See Rule 1.16(d) for standards applicable to retention of client papers.

A "client's security fund" provides a means through the collective efforts of the bar to reimburse persons who have lost money or property as a result of dishonest conduct of a lawyer. Where such a fund has been established, a lawyer should participate.

Committee Comment

This Rule is similar in substance to the code. See, DR 9-102. The Rule extends the concept to monies held for the benefit of third parties, which probably is implied under the Code.