The safekeeping of property is a well-known responsibility of lawyers. Attorneys understand that we must take great care in holding and accounting for any money in our possession that belongs to clients or third parties. But what happens when a lawyer has kept a client’s money safe, and the client is nowhere to be found come time for distribution? Does the lawyer keep the money in trust indefinitely? Do the funds become the property of the law firm? Review the steps below to identify and process abandoned funds.
Step 1: Reconcile Your Trust Account RegularlyFirst, reconcile your trust account regularly. We recommend monthly reconciliation. Proper reconciliation includes a three-way comparison of the following:
- The total of all individual client ledgers;
- The total trust balance reflected in the firm’s account journal or check register; and
- The trust balance reflected in the monthly bank statement (less any outstanding withdrawals and deposits).
Regular reconciliation makes error detection and correction easy, and it helps prevent an overdraft. If you need assistance reconciling your trust account records, see our resources below.
Step 2: Identify Abandoned FundsNext, sometimes clients or third parties fail to claim funds or to deposit outstanding checks. When this happens, determine whether you can find the owner or whether the property is abandoned. Money in a lawyer trust account is presumed abandoned if the owner has not expressed an interest in the funds for two years. File review and regular reconciliation can help you evaluate whether the owner has shown any interest in their money, including initiating or responding to contact with you, or adding to or removing some of the funds. Funds abandoned as of June 30 each year must be reported in October of the same year.
Due DiligenceFor funds over $100, you are required to make diligent efforts to locate the owner before reporting abandoned funds. These efforts should begin as soon as the property is deemed abandoned, and they must be finished at least 60 days prior to reporting and remitting unclaimed funds. Due diligence may consist of review of the file for correspondence, communication, or contact information, and may also include phone calls, letters, Internet searches, or public notices. Document any attempts to locate the owner of abandoned funds, and maintain those records with your trust account. (See the Oregon Department of State Lands resources below for information on attempting to locate owners, including a sample due diligence letter.)
Unknown OwnerIf you find yourself with funds in your trust account that you cannot attribute to a particular owner, do some additional investigation before deeming the funds abandoned. Review any settlement accountings to be sure that all payments and disbursements were made. Consider, too, whether you have any earned attorney fees that have yet to be distributed. Without the identity of an owner, it may be difficult to conclude that funds are in fact abandoned. In addition, the inability to identify an owner may create other reporting challenges or implicate ethics issues.
Step 3: Report and Remit FundsReporting and remitting abandoned funds held in lawyer trust accounts differs from other unclaimed property reporting. You must report unclaimed money in your lawyer trust account to the Department of State Lands, but you remit the funds to the Oregon State Bar with a copy of your DSL report. (See the Oregon DSL resources below for reporting forms.)
EscheatHowever, if you learn that the owner of the abandoned funds has died, due diligence may require you to determine whether an heir exists or an estate proceeding has been initiated. If you know that the owner of unclaimed property is deceased, but you are unable to identify an heir, the funds escheat to the State of Oregon, and are remitted to the Department of State Lands.
Different StatesIf you have an owner whose last known address is in another state, review that state’s law. The funds may be subject to a different reporting period, or may need to be reported directly to that state. In addition, your state of incorporation or domicile may affect where you report funds for unknown owners or owners without addresses.
Even a well-managed trust account may end up with abandoned funds. These funds do not belong to the law firm, and they do not remain held in trust in perpetuity. Instead, lawyers must reconcile their trust accounts regularly, identify abandoned funds timely, and report and remit any unclaimed money to the proper organization.
ResourcesPLF Practice Aids and Publications (available online at www.osbplf.org)
- Frequently Asked Trust Account Questions
- Trust Account Reconciliation
- Checklist for Closing Your IOLTA Account
- A Guide to Setting Up and Using Your Lawyer Trust Account
- Formal Opinion No 2005-48
Trust Accounts: Unclaimed Client Funds in Trust
- See ORS 98.302-98.436 re: Uniform Disposition of Unclaimed Property Act