Significant New Revenue Source for Legal Services Begins Interest on Trust Accounts

• NCJ Number: 81468
• Journal: NLADA Briefcase Volume: 38 Issue: 3 and 4 Dated: (Winter 1981) Pages: 100-106
• Author(s): R C Berg
• Date Published: 1981
• Length: 7 pages
• Sponsoring Agency: Legal Services Corporation
• Publication Format: Article
• Language: English
• Country: United States of America

Annotation

This paper describes the Florida and California experiences in establishing programs to permit certain funds received in trust by attorneys to be placed in interest-bearing accounts to generate revenue for legal services; recommendations are also provided to other States interested in establishing such a program.

Abstract

The Interest on Trust Account Program applies only to funds which are either nominal in amount or held for a short period of time, thus making it uneconomical to establish an interest-bearing account with interest accruing to the individual client. These nominal or short-term balances have normally been placed in commercial bank-checking accounts, which do not pay interest. Under the Interest on Trust Account Program, the funds may be placed in a negotiable order of withdrawal (NOW) checking account, with the interest paid over to a nonprofit corporation such as a bar foundation or association to provide revenue for public interest law projects. Many common law countries have been using this concept for many years. The Florida program was adopted in 1978 and the California program should be implemented in early 1982. The program has been endorsed by the Conference of Chief Justices of the 50 State courts. The Florida program was implemented following a State supreme court ruling and extensive negotiations with the Internal Revenue Service regarding Federal income tax treatment of the interest earnings. In contrast, proponents of the California program worked through the State legislature to secure a mandate for the program. The experience in these two States shows that proponents should become knowledgeable about the program, organize a small group of lawyers willing to donate time to creating the program, obtain judicial support for the program, and obtain bar sponsorship and support at the outset. Other steps to be followed in establishing a program are also explained. Footnotes which contain references are provided.