(Editor’s Note: Due to the recent failures of Silicon Valley Bank and Signature Bank, the Bar’s Ethics Hotline has been fielding questions from attorneys regarding bank failures and trust accounts. To provide some guidance, we are republishing this 2008 column written by former Bar’s Ethics Counsel Ruth Smith.)

Recent bank failures are causing lawyers to give greater consideration to the safety of their client trust funds and whether any steps need to be taken to avoid or lessen any threats to those funds.

Rule 5-1.1(a), Rules of Professional Conduct, mandates that a lawyer hold in trust all funds and property of clients that come into the lawyer’s possession. Such funds are to be held in a bank or savings and loan association in an account that is a “clearly labeled and designated” trust account. IOTA accounts, which are to be established for nominal or short-term client funds (where the costs to earn income for the client would exceed the income), are to be established in a bank or savings and loan that is insured by the FDIC. Rule 5-1.1(g)(1)(D). In view of the duty to safeguard client property, non-IOTA accounts should be held in an FDIC-insured financial institution as well, unless the client directs otherwise.

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