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    Protecting Client Funds in an Uncertain Economy

    Lawyers have a duty to ensure client funds are protected in financial institutions, even in times of economic uncertainty and unstable banks.

    Mary Hoeft Smith

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    Wisconsin LawyerWisconsin Lawyer
    Vol. 81, No. 9, September 2008

    Protecting Client Funds in an Uncertain Economy

    Lawyers have a duty to ensure client funds are protected in financial institutions, even in times of economic uncertainty and unstable banks.

    by Dean R. Dietrich & Mary Hoeft Smith

    Concern has been voiced recently about the stability of banks across the country and what this might mean to lawyers and their clients. Lawyers are obligated to ensure that monies held in trust on behalf of a client are placed in secure financial institutions. This is required both by the Rules of Professional Conduct and by the fiduciary duty that a lawyer owes to a client.

    Lawyers should make sure that funds held in trust on behalf of clients are placed in a properly insured institution. FDIC coverage is normally limited to the first $100,000 of any funds held by an institution. The $100,000 limitation applies to each individual who may own an interest in funds placed in a financial institution, so the amounts of total protection may be higher depending on the number of individuals who own an interest in the funds and are named on the account.

    Dean R. 
Dietrich Mary Hoeft Smith

    Dean R. Dietrich, Marquette 1977, of Ruder Ware, Wausau, is chair of the State Bar Professional Ethics Committee. Mary Hoeft Smith administers the Trust Account Program for the Office of Lawyer Regulation, Madison.

    The Wisconsin Comment on SCR 20:1.15 states that “a lawyer must hold the property of others with the care required of a professional fiduciary.” Lawyers should take precautions to ensure that funds are properly protected. This may require the splitting of funds into different accounts or different financial institutions. This also may involve verifying the financial stability of the financial institution to ensure the funds are protected. A decision on whether to place funds in different financial institutions will depend on how long the funds are being held and the financial viability of the financial institutions involved. What is most important is that the lawyer should do everything possible to protect the client funds.

    A lawyer who places client or third-party funds in a credit union should obtain specific information regarding the scope of the institution’s insurance coverage and should ensure that coverage reasonably fulfills a fiduciary’s duty of care.

    The Rules of Professional Conduct also place requirements on lawyers when designating the institution that will hold client funds. SCR 20:1.15(e)(2) requires lawyers to maintain trust accounts in insured financial institutions. The rule and Comment are as follows:

    Insurance requirements. Each trust account shall be maintained at a financial institution that is insured by the federal deposit insurance corporation, the national credit union share insurance fund, the Wisconsin credit union savings insurance corporation,1 the securities investor protection corporation, or any other investment institution financial guaranty insurance.

    Comment: Pursuant to SCR 20:1.15(e)(2), trust funds are required to be held in accounts that are insured by the federal deposit insurance corporation (FDIC), the national credit union share insurance fund, the Wisconsin credit union savings insurance corporation, the securities investor protection corporation or any other investment institution financial guaranty insurance. However, since federal law limits the amount of the insurance coverage, funds in excess of the limit are not insured. Consequently, the purpose of the insurance requirement is not to guarantee that all funds are adequately insured. Rather, it is to assure that trust funds are held in reputable financial institutions.

    Endnotes

    1The Wisconsin Credit Union Savings Insurance Corporation is now defunct.




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