Wisconsin
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, 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
Wisconsin Lawyer
