Rule 1.15 Safekeeping Property

[1] A lawyer must hold property of others with the care required of a professional fiduciary. Securities must be kept in a safe deposit box, except when some other form of safekeeping is warranted by special circumstances. For purposes of this Rule, the term “fiduciary” includes personal representative, trustee, receiver, guardian, committee, custodian, and attorney-in-fact. All property that is the property of clients or third persons must be kept separate from the lawyer's business and personal property and, if funds, in one or more trust accounts. Separate trust accounts may be warranted when administering estate funds or acting in similar fiduciary capacities.

[2] Separation of the funds of a client from those of the lawyer not only serves to protect the client but also avoids even the appearance of impropriety, and therefore commingling of such funds should be avoided. [2a] In relation to (b)(5), consent can be inferred from the engagement agreement or any consequential agreement between the lawyer and the client regarding the disbursement of fees, i.e., when earned fees are routinely withdrawn from the lawyer’s trust account upon an accounting to the client, when costs and expenses of litigation are routinely withdrawn, or when other fees/costs or expenses are agreed upon in advance.

[3] Lawyers often receive funds from third parties from which the lawyer's fee will be paid. If there is risk that the client may divert the funds without paying the fee, the lawyer is not required to remit the portion from which the fee is to be paid. However, a lawyer may not hold funds to coerce a client into accepting the lawyer's contention. The disputed portion of the funds should be kept in trust and the lawyer should suggest means for prompt resolution of the dispute, such as arbitration or mediation. The undisputed portion of the funds shall be promptly distributed.

[4] Paragraphs (b)(4) and (b)(5) do not impose an obligation upon the lawyer to protect funds on behalf of the client’s general creditors who have no valid claim to an interest in the specific funds or property in the lawyer’s possession. However, a lawyer may be in possession of property or funds claimed both by the lawyer’s client and a third person; for example, a previous lawyer of the client claiming a lien on the client’s recovery or a person claiming that the property deposited with the lawyer was taken or withheld unlawfully from that person. Additionally, a lawyer may have a duty under applicable law to protect such third-party claims against wrongful interference by the client, and accordingly may refuse to surrender the property to the client. For example, if a lawyer has actual knowledge of a third party’s lawful claim to an interest in the specific funds held on behalf of a client, then by virtue of a statutory lien (e.g., medical, workers’ compensation, attorneys’ lien, a valid assignment executed by the client, or a lien on the subject property created by a recorded deed of trust) the lawyer has a duty to secure the funds claimed by the third party. Under the above described circumstances, paragraphs (b)(4) and (b)(5) require the lawyer either to deliver the funds or property to the third party or, if a dispute to the third party’s claim exists, to safeguard the contested property or funds until the dispute is resolved. If the client has a non-frivolous dispute with the third party’s claim, then the lawyer cannot release those funds without the agreement of all parties involved or a court determination of who is entitled to receive them, such as an interpleader action. A lawyer does not violate paragraphs (b)(4) and (b)(5) if he has acted reasonably and in good faith to determine the validity of a third-party’s claim or lien.

[5] The reconciliations required by paragraph (d)(3) must include an explanation of any discrepancy discovered and how it was corrected. This explanation must be approved by the lawyer who approves the reconciliations.

[6] The obligations of a lawyer under this Rule are independent of those arising from activity other than rendering legal services. For example, a lawyer who serves as an escrow agent is governed by the applicable law relating to fiduciaries even though the lawyer does not render legal services in the transaction.

[7] Nothing in this Rule is intended to prohibit an attorney from using electronic checking for his trust account so long as all requirements in this Rule are fulfilled. It is the lawyer’s responsibility to assure that complete and accurate records of the receipt and disbursement of entrusted property are maintained in accordance with this rule. Many businesses are now converting paper checks to automated clearinghouse (ACH) debits. Authorized ACH debits that are electronic transfers of funds (in which no checks are involved) are allowed provided the lawyer maintains a record of the transaction as required by this rule. The record, whether consisting of the instructions or authorization to debit the account, a record or receipt from the financial institution, or the lawyer’s independent record of the transaction, must show the amount, date, recipient of the transfer or disbursement, and the name of the client or other person to whom the funds belong. PRIOR RULE COMPARISON This rule is substantially the same as the original Rule 1.15 adopted January 1, 2000 except that the language has been substantially simplified for ease of understanding and the portions regarding the Financial Institutions duties redacted as they are appropriately incorporated into the “Trust Account Notification Agreement” signed by all Virginia approved financial institutions. COMMITTEE COMMENTARY The Committee chose to modify the rule for ease of understanding and enforcement with no substantive changes to a lawyer’s safekeeping property and recordkeeping requirements. _____________ The amendments effective June 21, 2011, rewrote the Rule and commentary. The amendments effective November 1, 2013, clarified that paragraph (a)(1) requires that funds must be placed in an identifiable trust account, while other property may be placed in a safe deposit box or other place of safekeeping. The amendment effective March 15, 2020, adopted January 9, 2020, rewrote paragraphs (c) and (d) to simplify and clarify the trust account recordkeeping requirements, use terminology that is more easily understood, and spell out in the body of the rule exactly what information must be included in the required records. The revised rule removes the word “cash” from the recordkeeping requirements, substituting the term “receipts and disbursements journal”; likewise, “subsidiary ledger” has been replaced by “client ledger” to clarify that the rule only requires a separate record or ledger page tracking funds received and disbursed for each client. Paragraphs (d)(3)(ii) and (d)(3)(iii) were revised to include an explanation of what steps are involved in the required reconciliations, and to require that all reconciliations be completed monthly. New Comment [5] requires that any discrepancies found in the reconciliation process must be explained, and that explanation must be approved by the lawyer who approves the reconciliations. The amendment effective February 20, 2022. Rule 1.15 Comment [1] repeatedly uses the word “should” to describe what is required. As above, the amendments replace “should” with “must” to clarify that these are mandatory obligations.