In short
New York attorney escrow account rules are set by Rule 1.15 of the Rules of Professional Conduct (22 NYCRR Part 1200). A lawyer holding others' money is a fiduciary and must keep it in an account titled Attorney Special, Trust or Escrow Account at a bank that reports dishonored checks to the Lawyers' Fund. Rule 1.15(d) lists the bookkeeping records required, which must be kept for seven years.
Key takeaways
- Rule 1.15(a) makes a lawyer holding other people's money a fiduciary and forbids misappropriating it or commingling it with the lawyer's own money.
- The account must be titled "Attorney Special Account", "Attorney Trust Account" or "Attorney Escrow Account", and held at a New York banking institution that agrees to send dishonored check reports under 22 NYCRR Part 1300.
- Rule 1.15(d) lists the required bookkeeping records, which must be kept for seven years after the events they record, with entries made at or near the time of each transaction.
- Withdrawals must be to a named payee, never to cash, and only a lawyer admitted in New York may sign; bank transfers need the prior written approval of the party entitled to the money.
- A bank must report an escrow check presented against insufficient funds to the Lawyers' Fund for Client Protection within five banking days, and the Fund forwards it to the attorney disciplinary committee after ten business days.
The rule and who it applies to
New York's trust account rule is Rule 1.15 of the New York Rules of Professional Conduct, published as Part 1200 of Title 22 of the New York Codes, Rules and Regulations. It applies to every lawyer and law firm in the state that holds money or property belonging to someone else in the course of practice. New York's rule is more detailed than the ABA model described in our guide to IOLTA trust account rules, particularly on account titles, bank reporting and the bookkeeping records required.
The starting point is Rule 1.15(a). A lawyer in possession of money or property belonging to another person is a fiduciary, and must not misappropriate it or commingle it with the lawyer's own. Misappropriation means using it for anything other than the purpose for which it is held. Commingling means mixing it with the firm's money. New York's interest program for pooled client money is run by the New York State Interest on Lawyer Account Fund, known as IOLA.
Special, trust and escrow accounts
Rule 1.15(b) requires client money to be kept in a special account at a New York State banking institution that has agreed to provide dishonored check reports under 22 NYCRR Part 1300. An account at a bank outside the state is allowed only with the prior written approval of the person the money belongs to. The account must be titled "Attorney Special Account", "Attorney Trust Account" or "Attorney Escrow Account", and its checks and deposit slips must carry the same title. Extra words are allowed if they distinguish the account from the firm's other accounts.
Only limited firm money may go in. A lawyer may deposit enough to keep the account open or pay its bank charges. Where money belongs partly to a client and partly to the lawyer, it stays in the account and the lawyer's share is withdrawn when due. If the client disputes the lawyer's right to it, the disputed part stays in the account until the dispute is resolved.
The bookkeeping records Rule 1.15(d) requires
Rule 1.15(d)(1) lists the records every lawyer must keep. Rule 1.15(d)(2) requires accurate entries of every financial transaction in the receipt and disbursement records, the special account records, the ledgers and any other books of account, made at or near the time of the event recorded. Copies may be kept as originals, photocopies, microfilm, optical images or any medium that preserves the image of the document in a form that cannot be altered without detection.
The rule does not set a reconciliation interval. It does require records that would make a reconciliation possible at any time: a record of every deposit and withdrawal and a record for each person showing the money held for them. Firms that reconcile monthly using the three-way trust account reconciliation method can show at any date that the bank, the journal and the client records agree.
| Rule 1.15(d)(1) | Record |
|---|---|
| (i) | Records of all deposits into and withdrawals from the special accounts, and any other bank account used in the practice, with the date, source and description of each deposit and the date, payee and purpose of each withdrawal |
| (ii) | A record for special accounts showing the source of all money deposited, the names of everyone for whom money is held, the amount held for each, and the payee of every disbursement |
| (iii) | Copies of all retainer and compensation agreements with clients |
| (iv) | Copies of all statements to clients or others showing the disbursement of money to them or on their behalf |
| (v) | Copies of all bills sent to clients |
| (vi) | Copies of records of payments to lawyers, investigators or others not regularly employed by the firm |
| (vii) | Copies of retainer and closing statements filed with the Office of Court Administration |
| (viii) | Checkbooks and check stubs, bank statements, prenumbered cancelled checks and duplicate deposit slips |
Seven-year retention and producing records
The records in Rule 1.15(d)(1) must be kept for seven years after the events they record. That is longer than the five years in the ABA model and in California, and it runs from each event, so a ledger covering a matter that ran for four years must be kept until seven years after its last entry. When a firm dissolves, Rule 1.15(h) requires the former partners to arrange for one of them, or a successor firm, to keep the records.
Under Rule 1.15(i), the records must be kept at, or made available at, the lawyer's principal New York office. They must be produced in response to a notice or subpoena issued in a disciplinary complaint or investigation. Rule 1.15(j) provides that a lawyer who fails to keep or produce them is in violation of the Rules and subject to disciplinary proceedings. In practice, a firm should be able to produce, for any date a committee chooses, the bank balance and the amount held for each client at that date.
Withdrawals and signatories
Rule 1.15(e) requires every withdrawal from a special account to be made to a named payee and not to cash. Withdrawals are made by check or, with the prior written approval of the party entitled to the money, by bank transfer. Only a lawyer admitted to practice in New York may be an authorized signatory on the account, so a firm administrator or bookkeeper may prepare payments but may not sign them.
If a sole signatory dies, Rule 1.15(g) allows an application to the Supreme Court to appoint a successor signatory, who must be a New York lawyer in good standing. If a lawyer cannot find a client who is owed money, Rule 1.15(f) requires an application to the court. The court orders payment of the fees and disbursements the lawyer is owed, and the balance goes to the Lawyers' Fund for Client Protection.
Dishonored check reporting to the Lawyers' Fund
New York's distinctive safeguard is automatic bank reporting. Under 22 NYCRR Part 1300, as amended from April 1, 2021, a bank must report whenever a properly payable instrument is presented against an attorney special, trust or escrow account with insufficient available funds, whether or not the bank honors it. The report goes to the Lawyers' Fund for Client Protection within five banking days of presentment. It names the bank, the lawyer or firm, the account number, the date of presentment, the date paid and the amount of the overdraft.
The Fund holds each report for ten business days so that a bank can withdraw one sent by mistake. Making a deposit to cover the shortfall is not a reason to withdraw it. After that period the Fund forwards the report to the attorney disciplinary committee with jurisdiction over the account holder. By opening the account, lawyers are deemed to have consented to this reporting. One overdrawn escrow check can therefore start a disciplinary inquiry, even if the firm fixed the cause the same day.
Worked example: how one bounced escrow check reaches the committee
An 8-lawyer residential real estate practice in Westchester issues a $45,000.00 check from its attorney escrow account to refund a buyer's down payment after a deal falls through. Its records show the buyer's deposit in the account. In fact the buyer's deposit check was returned unpaid the week before, and the return was never recorded against the buyer's ledger. When the refund check is presented on Thursday, the account holds $41,200.00 of available funds, all belonging to other clients, and the bank honors the check.
Because the instrument was presented against insufficient available funds, the bank must report it even though it paid. The payment also used $41,200.00 of other clients' money. The firm finds the unrecorded return on Friday and deposits $45,000.00 of firm money to restore the other clients' money and clear the overdraft, recording why. That puts the clients right but does not withdraw the report. A firm reconciling its escrow account to the bank and to client ledgers every day would have seen the returned deposit before the refund check was signed.
| Day | Event | Rule |
|---|---|---|
| Day 0 (Thursday) | $45,000.00 check presented; $41,200.00 available; bank honors it | 22 NYCRR 1300.1: report required whether or not honored |
| Day 1 (Friday) | Firm finds the unrecorded return and deposits $45,000.00 of firm money | Rule 1.15(a): other clients' money must be restored; record the reason |
| Within 5 banking days | Bank mails the overdraft report to the Lawyers' Fund | 22 NYCRR 1300.1 |
| 10 business days after receipt | Fund forwards the report to the attorney disciplinary committee | 22 NYCRR 1300.1 |
| On request | Firm produces records and the balance held per client | Rule 1.15(i) |
Controls for a New York firm
The controls that keep a New York firm out of the dishonored check process are straightforward. Post every receipt and payment to the right client record on the day it happens. Check the client's own balance, not the account total, before signing any escrow check. Reconcile the escrow account to the bank and to the client records at least monthly, and daily during heavy closing periods. Keep every record for seven years from the event. Firms that also hold client money in other states should compare New York's duties with California's CTAPP reporting.
Safeheld reconciles client money every day for regulated firms, works every difference to its cause and keeps the record auditors ask for, and is extending that work to law firm trust accounting in the United States. If your firm holds client money in New York attorney escrow accounts, talk to us about escrow account reconciliation.
Frequently asked questions
What are the rules for an attorney escrow account in New York?
Rule 1.15 of the New York Rules of Professional Conduct requires client money to be held in a titled special, trust or escrow account at an approved New York bank, never commingled or misused, with detailed records kept for seven years.
How long must New York attorneys keep escrow records?
Seven years after the events they record, under Rule 1.15(d).
What must a New York escrow account be called?
"Attorney Special Account", "Attorney Trust Account" or "Attorney Escrow Account", and the title must appear on its checks and deposit slips.
What happens if an escrow check bounces in New York?
The bank must report it to the Lawyers' Fund for Client Protection within five banking days, even if it honored the check. After ten business days the Fund forwards it to the attorney disciplinary committee.
Can a non-lawyer sign on a New York escrow account?
No. Rule 1.15(e) allows only a lawyer admitted to practice in New York to be an authorized signatory.
Does New York require monthly reconciliation of escrow accounts?
Rule 1.15 does not set an interval, but it requires records that show at any time how much is held for each person. Monthly reconciliation is the practical way to meet that duty.
References
- New York State Unified Court System, Rules of Professional Conduct (22 NYCRR Part 1200)
- New York Appellate Division, Joint Order amending Rule 1.15 and Part 1300 (effective April 1, 2021)
- Lawyers' Fund for Client Protection, Agreement to Provide Notice of Dishonored Checks and Overdrafts
- New York State Interest on Lawyer Account Fund (IOLA)
About Safeheld
Safeheld reconciles client money every day, resolves every difference and prepares every regulatory return for sign-off, for regulated firms in the United States, the United Kingdom, the European Union, Canada, Australia, Singapore and Hong Kong. To discuss your operations, contact us at safeheld.com/contact.
This article is for general information and does not constitute legal or regulatory advice.