Lawyers are governed by a set of ethics rules. Missouri Supreme Court Ethics Rule 4.-1.15(a)(6) establishes that a lawyer must wait a reasonable period for deposited funds to be collected by the financial institution in which the trust account is located before disbursing funds on that deposit. It is not sufficient to wait only until the deposit is “cleared” or “available” according to the financial institution records.
Comment 5 on Ethics Rule 4.15 establishes the presumption that waiting 10 days after the date the bank records the deposit is presumed to be a reasonable period.
I go over this with every client as soon as approach settlement time. The process for getting paid after a case settles can be a timely one and is not something that can be rushed.
Once a case settles, a client must sign release of claims and settlement summary forms. These documents effectively close your personal injury case and show you where each dime of the settlement is going to. There should never be any question as to who is getting how much.
The lawyer sends the release of claims form to the insurance company. The insurance company then issues the check to the law firm. This process can take one to three weeks, depending on the insurance company. This is a shorter time frame is shorter than many court ordered judgments. Insurance companies are typically given thirty days to issue settlement funds on court orders.
Upon receiving the check, all funds are deposited into the lawyer’s IOLTA account. An Interest On Lawyers’ Trust Account (IOLTA) is a bank account to which the Missouri Bar is a co-signer. The interest from settlement funds are used to raise money for charitable purposes. Some people may think that the lawyer receives interest from deposited settlement funds. Such a scenario is improper and could land the lawyer in trouble with the bar association.
The interest on all settlement funds is automatically taken by the Missouri Bar and used on charitable legal purposes, such as providing funding for indigent clients. Aside from attorney’s fees earned, a majority the funds in an IOLTA account are being held for the lawyer’s clients.
The funds used to issue settlement payment to the client and to pay all of the client’s medical bills are all kept in the IOLTA account. It is ethically improper for a lawyer to make any of their own contributions to the IOLTA account or to have any firm expenses paid directly with IOLTA account funds. A lawyer may only take out their legal fees after they have been earned. In short, the account must be monitored with the strictest of rules.
The danger of the IOLTA account is from mismanagement. A lawyer will be promptly investigated if the IOLTA account is ever overdrawn. This investigation can be time consuming and costly. The Missouri Bar is a co-signer on the account and is notified as soon an overdraft occurs.
A lawyer cannot overdraw on this account because the presumption is that the funds in this account belong to the client, not to the lawyer. Every year there are several lawyers who are disbarred from mismanaging their IOLTA account. They either overdraw or commingle their personal funds with IOLTA funds. Some disbarred lawyers borrow against their client’s settlements with the hope they will get more money later to replenish it with a later settlement. Such occurrences, while rare, are unfortunate and leave a bad mark on the legal community.
Ethics rules call for a 10-day period as the presumptive time a lawyer must wait to ensure that either the bank issuing the check or the lawyer’s bank does not call the check back. If this were to happen, the new payments out of the account would come out of other client’s money already in the IOLTA account or would cause the account to be overdrawn. The lawyer would then have violated their duty to their other clients.
In conclusion, all settlement payments, including legal fees, will not be taken from the IOLTA account until at least 10 days after the settlement check has been deposited into the IOLTA account.