Hot Topic: Are Lawyers Liable for Client Trust Accounts at Failed Banks?
If the bank holding my client trust funds fails, could I be held responsible?
That is the question many attorneys are now asking bar associations after the recent failure of California-based IndyMac Bank, and the answer appears to be a qualified yes, according to the National Law Journal.
Disciplinary authorities in a number of states say they won’t punish lawyers if the funds are held in an Federal Deposit Insurance Corp.-insured bank account at a bank that isn’t obviously unstable, according to the legal publication. However, there could be an issue if the amount in the account exceeds the FDIC-insured limit, which is currently $250,000. (The safest course is to hold no more than $250,000 at any one FDIC-insured bank.)
And civil litigation is always a possibility, as far as unhappy clients are concerned, the NLJ points out. “A New York lawyer was once sued when a bank failed, taking client funds with it. With that in mind, bar counsel are cautioning lawyers to consult their insurance carriers and ‘take reasonable precautions.’ “
Related coverage:
The Lawyer: “Law Soc advises on client money held in insolvent banks”
Updated at 3:20 p.m. to add link to related Lawyer coverage.
