All funds of clients or third persons held by a lawyer or law firm in connection with a representation shall be deposited in one or more identifiable trust accounts as set forth in paragraphs (d) through (g) and as defined in paragraph (o). No funds belonging to the lawyer or law firm shall be deposited therein except as follows:
(1) funds of the lawyer or law firm reasonably sufficient to pay service charges may be deposited therein;
(2) funds belonging in part to a client or third person and in part presently or potentially to the lawyer or law firm must be deposited therein.
A lawyer must withdraw earned fees and any other funds belonging to the lawyer or the law firm from the trust account within a reasonable time after the fees have been earned or entitlement to the funds has been established and the lawyer must provide the client or third person with: (i) written notice of the time, amount, and purpose of the withdrawal; and (ii) an accounting of the client's or third person's funds in the trust account. If the right of the lawyer or law firm to receive funds from the account is disputed by the client or third person claiming entitlement to the funds, the disputed portion shall not be withdrawn until the dispute is finally resolved. If the right of the lawyer or law firm to receive funds from the account is disputed within a reasonable time after the funds have been withdrawn, the disputed portion must be restored to the account until the dispute is resolved.
A lawyer shall:
(1) promptly notify a client or third person of the receipt of the client's or third person's funds, securities, or other properties;
(2) identify and label securities and properties of a client or third person promptly upon receipt and place them in a safe deposit box or other place of safekeeping as soon as practicable;
(3) maintain complete records of all funds, securities, and other properties of a client or third person coming into the possession of the lawyer and render appropriate accounts to the client or third person regarding them;
(4) promptly pay or deliver to the client or third person as requested the funds, securities, or other properties in the possession of the lawyer which the client or third person is entitled to receive; and
(5) except as specified in Rule 1.5(b)(1) and (2), deposit all fees received in advance of the legal services being performed into a trust account and withdraw the fees as earned.
Each trust account referred to in paragraph (a) shall be an account in an eligible financial institution selected by a lawyer in the exercise of ordinary prudence.
A lawyer who receives client or third person funds shall maintain a pooled trust account ("IOLTA account") for deposit of funds that are nominal in amount or expected to be held for a short period of time.
All client or third person funds shall be deposited in the account specified in paragraph (e) unless they are deposited in a:
(1) separate trust account for the particular third person, client, or client's matter on which the earnings, net of any transaction costs, will be paid to the client or third person; or
(2) pooled trust account with subaccounting which will provide for computation of earnings accrued on each client's or third person's funds and the payment thereof, net of any transaction costs, to the client.
In determining whether to use the account specified in paragraph (e) or an account specified in paragraph (f), a lawyer shall take into consideration the following factors:
(1) the amount of earnings which the funds would accrue during the period they are expected to be deposited;
(2) the cost of establishing and administering the account, including the cost of the lawyer's services;
(3) the capability of financial institutions described in paragraph (d) to calculate and pay earnings to individual clients.
Only funds that could not accrue earnings for the client, net of the costs described in subparagraph (2) above, may be placed or retained in the account specified in paragraph (e).
Every lawyer engaged in private practice of law shall maintain or cause to be maintained on a current basis, books and records sufficient to demonstrate income derived from, and expenses related to, the lawyer's private practice of law, and to establish compliance with paragraphs (a) through (f). Equivalent books and records demonstrating the same information in an easily accessible manner and in substantially the same detail are acceptable. The books and records shall be preserved for at least six years following the end of the taxable year to which they relate or, as to books and records relating to funds or property of clients or third persons, for at least six years after completion of the employment to which they relate.
Every lawyer subject to paragraph (h) shall certify, in connection with the annual renewal of the lawyer's registration and in such form as the Clerk of the Appellate Court may prescribe, that the lawyer or the lawyer's law firm maintains books and records as required by paragraph (h). The Lawyers Professional Responsibility Board shall publish annually the books and records required by paragraph (h)
Lawyer trust accounts, including IOLTA accounts, shall be maintained only in eligible financial institutions approved by the Office of Lawyers Professional Responsibility. Every check, draft, electronic transfer, or other withdrawal instrument or authorization shall be personally signed or, in the case of electronic, telephone, or wire transfer, directed by one or more lawyers authorized by the law firm.
A financial institution, to be approved as a depository for lawyer trust accounts, must file with the Office of Lawyers Professional Responsibility an agreement, in a form provided by the Office, to report to the Office in the event any properly payable instrument is presented against a lawyer trust account containing insufficient funds, irrespective of whether the instrument is honored. The Lawyers Professional Responsibility Board shall establish rules governing approval and termination of approved status for financial institutions, and shall annually publish a list of approved financial institutions. No trust account shall be maintained in any financial institution that does not agree to make such reports. Any such agreement shall apply to all branches of the financial institution and shall not be canceled except upon three days' notice in writing to the Office.
The overdraft notification agreement shall 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, and should include a copy of the dishonored instrument, if such a copy is normally provided to depositors;
(2) in the case of an instrument that is presented against insufficient funds but which instrument is honored, the report shall identify the financial institution, the lawyer or law firm, the account number, the date of presentation for payment and the date paid, as well as the amount of 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.
Every lawyer practicing or admitted to practice in this jurisdiction shall, as a condition thereof, be conclusively deemed to have consented to the reporting and production requirements mandated by this rule.
Nothing herein shall preclude a financial institution from charging a particular lawyer or law firm for the reasonable cost of producing the report and records required by this rule.
Definitions. "Trust account" is an account denominated as such in which a lawyer or law firm holds funds on behalf of a client or third person(s) and is: (1) an interest-bearing checking account; (2) a money market account with or tied to check-writing; (3) a sweep account, which is a money market fund or daily overnight financial institution repurchase agreement invested solely in or fully collateralized by U.S. Government Securities; or (4) an open-end money market fund solely invested in or fully collateralized by U.S. Government Securities. An open-end money market fund must hold itself out as a money market fund as defined by applicable federal statutes and regulations under the Investment Act of 1940, and, at the time of the investment, have total assets of at least $250,000,000. "U.S. Government Securities" refers to U.S. Treasury obligations and obligations issued or guaranteed as to principal and interest by the United States or any agency or instrumentality thereof. A daily overnight financial institution repurchase agreement may be established only with an institution that is deemed to be "well capitalized" or "adequately capitalized" as defined by applicable federal statutes and regulations.
"IOLTA account" is a pooled trust account in an eligible financial institution that has agreed to:
(1) remit the earnings accruing on this account, net of any allowable reasonable fees, monthly to the IOLTA program as established by the Minnesota Supreme Court;
(2) transmit with each remittance a report that shall identify each lawyer or law firm for whom the remittance is sent, the amount of remittance attributable to each IOLTA account, the rate and type of earnings applied, the amount of earnings accrued, the amount and type of fees deducted, if any, and the average account balance for the period in which the report is made; and
(3) transmit to the depositing lawyer or law firm a report in accordance with normal procedures for reporting to its depositors.
An approved eligible financial institution must pay no less on IOLTA accounts than (i) the highest earnings rate generally available from the institution to its non-IOLTA customers on each IOLTA account that meets the same minimum balance or other eligibility qualifications, or (ii) 80 percent of the Federal Funds Target Rate on all its IOLTA accounts. The rate to be paid shall be fixed on the first day of each month, subject to rate changes during the month reflected in normal month-end calculations. Accrued earnings and fees shall be calculated in accordance with the eligible financial institution's standard practice, but institutions may elect to pay a higher earnings rate and may elect to waive any fees on IOLTA accounts. A financial institution may choose to pay the higher sweep or money market account rates on a qualifying IOLTA checking account.
"Allowable reasonable fees" for IOLTA accounts are per check charges, per deposit charges, sweep fees, and similar charges assessed against comparable accounts by the eligible financial institution. All other fees are the responsibility of, and may be charged to, the lawyer maintaining the IOLTA account. Fees or charges in excess of the earnings accrued on the account for any month or quarter shall not be taken from earnings accrued on other IOLTA accounts or from the principal of the account. Eligible financial institutions may elect to waive any or all fees on IOLTA accounts.
"Eligible financial institution" for trust accounts is a bank or savings and loan association authorized by federal or state law to do business in Minnesota, the deposits of which are insured by an agency of the federal government, or is an open-end investment company registered with the Securities and Exchange Commission authorized by federal or state law to do business in Minnesota.
"Properly payable" refers to an instrument which, if presented in the normal course of business, is in a form requiring payment under the laws of this jurisdiction.
"Notice of dishonor" refers to the notice which an eligible financial institution is required to give, under the laws of this jurisdiction, upon presentation of an instrument that the institution dishonors.
(Amended effective January 1, 1990; amended effective for all lawyer conduct occurring on or after August 1, 1999; amended effective October 1, 2005; amended effective July 1, 2007; amended effective July 1, 2010; amended effective July 1, 2011.)