Vol. 84, No. 2, February 2011
I know there are only limited transactions that can be made from my lawyer trust account. What are the restrictions on withdrawals from my trust account?
You are correct. There are only limited methods by which a lawyer can withdraw funds from (or deposit funds into, for that matter) the lawyer trust account. Lawyer trust accounts are often called IOLTA accounts because the Wisconsin Trust Account Foundation uses the interest from the accounts to fund legal services for disadvantaged persons. The Wisconsin Trust Account Foundation is able to distribute funds to a number of legal services providers using money from state allocations, lawyer assessments, and interest from lawyer trust accounts. Unfortunately, the amount of money received by the Wisconsin Trust Account Foundation from the lawyer-trust-account interest has been very limited over the past several years because of very low interest rates established by the federal government. Banks pay interest on lawyer trust accounts comparable to the interest paid on business accounts maintained by bank customers.
SCR 20:1.15(e), “Operational Requirements for Trust Accounts,” governs transactions from lawyer trust accounts. SCR 20:1.15(e)(4), “Prohibited Transactions,” directly addresses the types of transactions related to lawyer trust accounts that may not be engaged in. This provision provides as follows:
(4) Prohibited transactions.
a. Cash. No disbursement of cash shall be made from a trust account or from a deposit to a trust account, and no check shall be made payable to “Cash.”
b. Telephone transfers. No deposits or disbursements shall be made to or from a pooled trust account by a telephone transfer of funds. This section does not prohibit any of the following:
1. Wire transfers.
2. Telephone transfers between non-pooled draft and non-pooled non-draft trust accounts that a lawyer maintains for a particular client.
c. Internet transactions. A lawyer shall not make deposits to or disbursements from a trust account by way of an Internet transaction.
d. Electronic transfers by 3rd parties. A lawyer shall not authorize a 3rd party to electronically withdraw funds from a trust account. A lawyer shall not authorize a 3rd party to deposit funds into the lawyer’s trust account through a form of electronic deposit that allows the 3rd party making the deposit to withdraw the funds without the permission of the lawyer.
e. Credit card transactions. A lawyer shall not authorize transactions by way of credit card to or from a trust account. However, earned fees may be deposited by way of credit card to a lawyer’s business account.
f. Debit card transactions. A lawyer shall not use a debit card to make deposits to or disbursements from a trust account.
Dean R. Dietrich, Marquette 1977, of Ruder Ware, Wausau, is chair of the State Bar Professional Ethics Committee.
This section of the trust account rule provides that “a lawyer shall not authorize transactions by way of credit card to or from a trust account.” However, there are provisions in the trust account rule that allow use of a credit card for an advance-fee payment if the lawyer establishes a credit-card trust account and then deposits monies from the credit-card trust account into the lawyer trust account when a client pays by credit card. These provisions are found in SCR 20:1.15(e)(4)h.
The above provisions clearly identify lawyer-trust-account prohibited transactions. These prohibited transactions exist because of the need for documentation of a transfer to or payment from a lawyer trust account. The recordkeeping requirements for a lawyer trust account will be addressed in an upcoming Wisconsin Lawyer article.
Many banks are moving to electronic banking. In some instances, banks charge higher fees if a lawyer uses checks to make both deposits and withdrawals from the lawyer trust account. The Office of Lawyer Regulation and the State Bar of Wisconsin recognize the growing use of electronic transfers, but as of today, lawyers may not use that type of service to make deposits or withdrawals from a lawyer trust account. Wire transfers from lawyer trust accounts are allowed because of the amount of documentation that is independently generated by the banking institution when a wire transfer takes place.
Lawyers must keep in mind the appropriate recordkeeping when depositing or withdrawing funds from a lawyer trust account. Electronic banking for lawyer trust accounts may become more acceptable in the future if banks are able to provide appropriate documentation.