Banks and credit unions should be aware that the Michigan Bar Association is implementing new rules applying to law firm trust accounts which go into effect in September 2010. Banks and credit unions that want to continue holding law firm trust accounts and benefiting from the ancillary business that results must comply with these new trust account rules. Law firms are responsible for confirming their bank or credit union complies with these rules.
On September 15, 2010, a New Michigan Rule of Professional Conduct - Rule 1.15A, also known as the Trust Account Overdraft Notice Rule (TAON) will take effect. The rule serves to enhance enforcement of attorneys' ethical obligation to safeguard the funds of clients or third parties. A brief summary of the TAON Rule requirements is provided below:
- Before the effective date of the TAON Rule, financial institutions doing business in Michigan must submit a signed agreement to the State Bar of Michigan to obtain approval to maintain attorney trust accounts as defined by MRPC 1.15(a).
- Attorneys must confirm that their financial institutions are on the list of approved financial institutions posted on the State Bar's website. The list is available here.
- No further action is required by attorneys for their preexisting IOLTA accounts; these accounts have already been identified as attorney trust accounts by financial institutions when opened by attorneys.
- After confirming that their financial institution is on the State Bar's list, attorneys must contact their financial institutions to change the name on their non-IOLTA accounts to include the term "trust" or "escrow" if not already included in the account name.
- After confirming that their financial institution is on the State Bar's list, attorneys may download a form (Non-IOLTA Lawyer Trust Account Notice to Financial Institution) from the State Bar's website and submit the completed form to their approved financial institutions for each non-IOLTA trust account and must send a copy to the State Bar.
- Attorneys must continue to safeguard client and third-party funds held in trust to avoid all overdrafts to their IOLTA and non-IOLTA accounts.
- Approved financial institutions maintaining attorney trust accounts must submit overdraft reports within five banking days of any overdrafts to the grievance administrator of the Attorney Grievance Commission.
- The State Bar is in the process of communicating with financial institutions to invite their participation in the TAON Program.
- The State Bar will continue to update the list of approved financial institutions as signed TAON agreements are received from financial institutions.
- Attorneys should wait until the name of their financial institution appears on the State Bar's list of approved financial institutions before submitting a completed non-IOLTA notice form.