The Arkansas Supreme Court has issued an order soliciting comments from the bar and public regarding proposed changes to the Arkansas Rule of Professional Conduct governing IOLTA accounts that would lay out a mechanism for addressing situations where an attorney, law firm, or estate of a deceased attorney (1) winds up in possession of client or third party funds and the client or third party cannot be located, despite diligent efforts to locate the rightful owner; or (2) is in possession of funds in a client trust account that cannot be traced back to a particular client.
In the first scenario—involving “unclaimed” trust account funds—the Arkansas Uniform Disposition of Unclaimed Property Act has historically served as the only source of guidance. Under that Act, client funds are presumed to be abandoned after seven years have passed without any contact or instructions from the property’s owner. The process for disposing client funds under this Act is often cumbersome—particularly for attorneys dealing with relatively small amounts of money—and it is inconsistent with the five-year period that attorneys are normally required to retain client records.
In the second scenario—involving “unidentifiable” trust account funds—there is no guidance whatsoever for what attorneys should do with such funds, as the Arkansas Uniform Disposition of Unclaimed Property Act contemplates that there is a known person who is the rightful owner. Some examples of situations that might result in unidentifiable funds in a trust account include:
- When a lawyer tries to reconcile an account after a number of years;
- When a lawyer who has died kept no or inadequate records and the representative of the estate is unable to determine what clients may be entitled to the remaining funds;
- When law firms merge and combine records, there may be balances that have no client identifier surviving in the records.
A number of other states have implemented or considered implementing provisions to address the problem of unclaimed or unidentified trust account funds.
The proposed Arkansas rule change addresses these scenarios by providing a simple process for attorneys to dispose of unclaimed and unidentifiable funds consistent with applicable ethical obligations, while generating additional revenue for the IOLTA Program of the Arkansas Access to Justice Foundation, which will use the funds to make grants supporting the provision of free civil legal aid to the poor. Historically low interest rates have resulted in catastrophic decreases in IOLTA revenue over the last five years, resulting in significant funding cuts for legal aid.
Comments should be submitted in writing and addressed to Stacey Pectol, Clerk of the Arkansas Supreme, Court, Attn: Rule 1.15, Justice Building, 625 Marshall Street, Little Rock, Arkansas 72201. The deadline for submitting comments is September 15, 2015.