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4000 - Advisory Opinions


Insurance Coverage Afforded Operating Funds of an Attorney or Law Firm and Funds Held on Behalf of Clients

FDIC-91-66 August 1, 1991 Joseph A. DiNuzzo, Senior Attorney

This is in response your letter dated July 16, 1991, requesting an opinion regarding the deposit insurance coverage afforded to accounts held by an attorney or a law firm for the benefit of the attorney or law firm's clients. You also ask how such insurance coverage relates to deposit accounts maintained by an attorney or a law firm for the attorney or law firm's own benefit.

Generally, the Federal Deposit Insurance Corporation ("FDIC") insures deposit accounts according to the ownership "rights and capacities" in which they are held. All accounts held in the same right and capacity are added together and insured up to $100,000 in the aggregate. Accounts maintained in different rights and capacities are insured separately.

For deposit insurance purposes, a law firm's general account is insured as either a corporate account or a partnership account, depending on the organizational structure of the firm. Section 330.9 of the FDIC's uniform rules and regulations provides that deposit accounts of corporations and partnerships engaged in an "independent activity" shall be added together and insured up to $100,000 in the aggregate. Such entities are deemed to be engaged in an independent activity if they are operated for some purpose other than to increase deposit insurance. In addition, assuming compliance with the recordkeeping requirements described below, if a corporation or a partnership maintains deposit accounts in a representative or fiduciary capacity, such accounts are treated as custodial accounts and insured separately from the funds owned by the corporation or partnership. (See 12 C.F.R. sections 330.9 and 330.6)

The rules governing the account(s) of an attorney acting as a sole practitioner differ from those that govern an incorporated business or partnership. Section 330.5(b) of the FDIC's regulations provides that funds owned by a sole proprietor and deposited in one or more accounts in the name of the business shall be treated as an individual account belonging to the sole proprietor. As a result, those funds would be added to any other individual account(s) held at the same insured depository institution and the combined total would be insured up to $100,000. (See 12 C.F.R. section 330.5(b)(1).) Thus, deposit accounts held at a depository institution by a sole practitioner for the law firm would be aggregated with deposits held at the same institution by the attorney in his or her individual capacity. Under section 330.6 of the FDIC's regulations, deposit insurance coverage for trust or agency accounts maintained by a sole practitioner, however, would be afforded to his or her clients based on their respective ownership interests.

In order for deposit accounts maintained in a trust or agency capacity by law firms organized as corporations or partnerships, as well as by attorneys operating as sole practitioners, to achieve the pro rata or "pass-through" coverage, however, certain recordkeeping requirements must be met. Section 330.4 of the FDIC's regulations require that the deposit account records of an insured depository institution expressly disclose, by way of specific references, the existence of any fiduciary relationship including, but not limited to, relationships involving a trustee, agent, nominee, guardian, executor or custodian, pursuant to which funds in an account are deposited and on which a claim for insurance coverage is based. These records must also disclose the existence of a relationship which might provide a basis for additional insurance, and the details of the relationship and the interests of other parties in the account must be ascertainable either from the deposit account records of the insured depository institution or from records maintained, in good faith and in the regular course of business, by the depositor or by some person or entity that has undertaken to maintain such records for the depositor. (See 12 C.F.R. sections 330.4(b)(1) and 330.4(b)(2).) For your reference enclosed is a copy of the FDIC's insurance regulations published in the Federal Register on May 15, 1990.

Finally, you ask if each owner's funds deposited in an attorney trust account are aggregated with other funds belonging to that same owner and deposited in the same insured depository institution for purposes of determining the maximum deposit insurance coverage. The answer is yes. Under section 330.6 of the FDIC's regulations, funds owned by a principal or principals and deposited into one or more deposit accounts in the name of an agent, custodian or nominee, other than an insured depository institution, are insured to the same extent as if deposited in the name of the principal(s).

To summarize our responses to the questions posed in your letter:

1. Each owner's funds deposited into an attorney's "trust account" operated pursuant to the requirements of the *** Rules of Professional Conduct will be insured separately from the funds of the other owners whose funds also are deposited into the same trust account, as long as the substantive and recordkeeping requirements of the above-cited FDIC regulations are satisfied.

2. Assuming compliance with the applicable FDIC regulations, funds in a deposit account in the same insured depository institution belonging to the attorney or law firm which established such a "trust account" will be insured separately from the insurance afforded to the owner(s) of the funds in the "trust account."

3. Each owner's (i.e., principal's) funds deposited into such a "trust account" would be aggregated for deposit insurance purposes with other funds belonging to the same owner and deposited into the same insured depository institution.

I hope this information has been responsive to your inquiry. If you have any additional questions, feel free to call me at (202) 898-7349.


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