Rule Change Addresses Unidentified Funds in IOLTA Accounts

On April 7 the Illinois Supreme Court announced changes to Rule of Professional Conduct 1.15 concerning how lawyers and law firms should handle unidentified funds accumulated in their IOLTA accounts. The amended rule directs lawyers who discover unidentified funds to make reasonable efforts over a period of 12 months to identify the owner and return unidentified funds, after which they are to be remitted to the Lawyers Trust Fund if the lawyer believes continued efforts will not succeed. The amended rule, which can be viewed here, takes effect July 1, 2015. The announcement from the Supreme Court is­ ­here.

The amended rule defines unidentified funds as “amounts accumulated in an IOLTA account that cannot be documented as belonging to a client, a third person, or the lawyer or law firm.” The heart of the changes to the rule is in new paragraph (i), which instructs lawyers about what to do after discovering unidentified funds in an IOLTA account. The rule provides that “no charge of ethical impropriety or breach of professional conduct shall attend to a lawyer’s exercise of reasonable judgement” under paragraph (i). Paragraph (i) also includes a provision regarding the refund of unidentified funds remitted to the Lawyers Trust Fund in error.

Unidentified funds in IOLTA accounts commonly result from bookkeeping errors, mistaken bank interest payments, or failures to collect earned fees in a timely manner. The resulting unidentified fund balances cannot be traced to a client or third party owner. The amendments to Rule 1.15 provide a mechanism for lawyers or their successors to remove unidentified funds from IOLTA accounts after making diligent efforts to identify the owner and secure their return. Funds remitted to the Lawyers Trust Fund will support grants made to non-profit organizations providing civil legal aid to the poor throughout Illinois.

The rule does not provide for the remittance of unclaimed funds, whose owner is known but to whom payment cannot be effected (typically because the owner cannot be located or will not cash a check). Unclaimed funds should be handled in accordance with the provisions of the Uniform Disposition of Unclaimed Property Act (765 ILCS 1025 et seq.).

The rule changes concerning unidentified funds take effect July 1, 2015. The Lawyers Trust Fund will publish additional guidance for lawyers, including detailed instructions for remitting unidentified funds and claiming refunds. Questions about the unidentified funds rule should be directed to LTF General Counsel David Holtermann (via email or phone at 312-938-3076).

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