The current turmoil in the banking industry with predictions of numerous bank failures, especially among smaller regional banks, means it is now appropriate to review your client trust account banking arrangements. In Client Trust Account Principles & Management for Kentucky Lawyers we provided the following information on insured bank accounts:
Kentucky Rule of Professional Conduct 1.15 does not require that client trust accounts be insured, but good risk management does. Accounts should be opened only in banks that are covered by the Federal Deposit Insurance Corporation (FDIC) that provides insurance up to $100,000 for each account. If the funds in a trust account exceed the $100,000 FDIC coverage, be sure the bank has adequate other insurance. Confirm this in writing. In some cases it may be necessary for the lawyer to purchase firm insurance for the account or to open additional accounts in other banks to adequately protect client funds. It is always good practice to get client instructions on how large amounts are to be deposited and with what security.
You must follow the FDIC disclosure rules to acquire $100,000 FDIC insurance for the funds of each client held in a pooled client trust account. In addition, make sure that a client does not have an account in the same bank as your trust account that combined with the client’s funds in the trust account exceeds $100,000. Go to http://www.fdic.govand search for fiduciary accounts or lawyer fiduciary accounts for guidance on how to comply with FDIC rules.