Beware Trust Account Overdrafts

If a lawyer’s trust account becomes overdrawn, this may trigger an automatic investigation by disciplinary counsel into the status of that lawyer’s trust account.

Numerous states – California, Idaho, Louisiana, Nevada, Tennessee, and Wisconsin, to name a few – mandate that financial institutions that provide lawyer trust account services agree to provide notice should the account become overdrawn. Louisiana, for example, requires a lawyer who maintains a trust account to sign an authorization that provides:

The financial institution with which I (or my law firm) maintain(s) a trust or escrow account is hereby authorized to provide to the Office of Disciplinary Counsel written and/or electronic notification of any instance of overdraft occurring on such account(s) in accordance with the rules of the Louisiana Supreme Court and Act 249 of the Louisiana Legislature (Regular Session 2005).

http://www.lasc.org/rules/supreme/RuleXIXApp.F.pdf.

Other states, including my home state of Missouri, do not presently require financial institution to report a trust account overdraft. But some banks will nevertheless provide notice of an overdraft, which my trigger an investigation by disciplinary authorities.

Most jurisdictions permit a lawyer to keep personal funds in a trust account to pay bank charges related to the operation of the trust account. If your jurisdiction permits keeping such a cushion, you may want to seriously consider it, even if there is no automatic overdraft notification. After all, this would be a lot easier than dealing with the headaches that may result from a disciplinary investigation following a bank fee-induced overdraft.