“TAON” stands for Trust Account Overdraft Notification, the short name for MPRC 1.15A, adopted by the Michigan Supreme Court, effective September 15, 2010. Pursuant to the TAON rule, lawyers may only place their trust accounts at Michigan financial institutions which have agreed to notify the Grievance Administrator of any transaction which overdrafts the account or would have resulted in an overdraft, if completed.
Must every attorney maintain a trust account?
No. An attorney must maintain a trust account if:
1. The attorney receives client or third party funds;
2. The attorney receives advance fees or cost payments from clients;
3. The attorney is asked to hold funds on behalf of clients.
Is it feasible for an attorney to have more than one trust account?
An attorney may have several trust accounts at one time. This does create more book keeping responsibility, and therefore more time and effort is involved. Having multiple accounts may also increase the risk of an accounting error.
If an attorney deposits a check into a trust account is there a set period of time they must wait before issuing checks drawn on those funds?
When an attorney deposits a check into a trust account it may take several days for the deposits to clear and the funds to be made available. Banks may vary in the amount of time taken to process a deposit. If the attorney has any doubt whether the deposited instrument has cleared; they should not issue any checks drawn on the funds. Instead, they should contact their bank’s customer service line to verify that the funds are available.
May an attorney leave a substantial amount of money in the trust account as a “cushion” to prevent an overdraft?
No, an attorney may leave only a nominal amount of extra funds in the trust account to cover miscellaneous expenses such as check printing.
Will every overdraft prompt an investigation?
Although an overdraft, no matter how nominal, may be a violation of the attorney’s ethical obligations, not all overdrafts will prompt a full investigation. A nominal overdraft will result in a preliminary inquiry to determine if further investigation is warranted.
Will every overdraft prompting a full investigation result in formal charges against the attorney?
No. Each overdraft notice will be evaluated on an individual basis. Whether formal disciplinary charges are filed is within the sole discretion of the Attorney Grievance Commission. The Attorney Grievance Commission may direct that formal charges be filed, the attorney be admonished or that the request for investigation be dismissed. The Commission may also condition disposition of the file on the lawyer’s participation in remedial education.
What types of records should a lawyer keep to assist them in properly maintaining their trust account?
At a minimum, a lawyer should keep a general trust account ledger and a separate ledger for each client or third person for whom funds are being held. A lawyer must immediately notify clients or third persons whenever funds are deposited or withdrawn from the trust account. For additional information on proper record keeping, see A Discussion of Trust Accounts for Michigan Lawyers (2009), available at http://www.michbar.org/pmrc/articles/0000145.pdf
What information is the lawyer’s financial institution required to provide the Grievance Administrator when an overdraft occurs?
1. The identity of the financial institution;
2. The identity of the account holder;
3. The account number;
4. Information identifying the transaction item; and,
5. The amount and date of the overdraft and either the amount of the returned
instrument or other dishonored debit to the account and the date returned or
dishonored, or the date of presentation for payment and the date paid.
If a transaction results in a trust account overdraft what types of information may the lawyer be required to provide to the grievance administrator?
The lawyer may be required to provide:
1. A signed written explanation for the overdraft or presentment of check(s) against
non-sufficient funds specifically identifying the payee and purpose of the
paid/returned check(s), the source and purpose of the related deposit, if any, and
what steps, the lawyer took to rectify the situation, including paying any
associated bank fees;
2. Copies (front and back) of the paid or returned item(s);
3. Copies of the account signature card, and the lawyer’s complete (all pages)
IOLTA bank statements for the preceding three (3) months, including any
statement(s) that reflect the overdraft(s);
4. Copies of any and all records that correspond with the lawyer’s last three monthly
IOLTA bank statements referenced above, including but not limited to records
showing the source and purpose of deposits and information as to the payee and
purpose of checks drawn from the account; general ledgers; client ledgers; etc.;
5. The lawyer’s trust account reconciliations, for the preceding three (3) months.
How long must a lawyer maintain trust account records?
A lawyer must preserve complete records of such account funds and other property for a period of five (5) years after termination of the representation. MCR 9.115(b)(2).