Financial Considerations

It is incumbent upon the attorney or law firm to determine whether the amount of interest an account will generate will justify the cost of opening and maintaining the account for the client. If the attorney can earn interest for the client, the attorney must do so. In deciding what benchmark rate of interest a separate client trust account could earn, the attorney may, but is not required to, consider all costs associated with such an account. However, attorneys are reminded that they may, if they choose, bear all costs associated with the account so that the client may earn net interest.

Several cost factors that may be considered in this determination include:

Internal costs:

  1. The expense of the attorney's or law firm's staff time in establishing a separate account
  2. The preparation and filing of tax forms relating to the IRS (e.g., IRS 1099 forms)
  3. The bookkeeping and accounting expenses for tracking the account
  4. The monthly reconciliation of the account for the client
  5. Closing the account at the bank and remitting the funds to the client

External costs:

  1. The minimum balance requirement at the bank at which the account is placed
  2. The service charges, if any, assessed against the account by the bank
  3. Other additional fees that the bank may have for investment policies

After an approximation of these costs has been made, this amount becomes the benchmark amount of interest. If a particular client's funds earn that benchmark figure, then the money must be placed in a separate account for the client.

Principal Deposit: $1,000
Number of days required to generate $100 of interest at .80% compounded daily: 4,565

Principal Deposit: $3,000
Number of days required to generate $100 of interest at .80% compounded daily: 1,522

Principal Deposit: $5,000
Number of days required to generate $100 of interest at .80% compounded daily: 915

Principal Deposit: $10,000

Number of days required to generate $100 of interest at .80% compounded daily: 385

Principal Deposit: $50,000
Number of days required to generate $100 of interest at .80% compounded daily: 92

Principal Deposit: $75,000

Number of days required to generate $100 of interest at .80% compounded daily: 62

Principal Deposit: $100,000
Number of days required to generate $100 of interest at .80% compounded daily: 46

 

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