New York Attorney Escrow Account Rules and Requirements

New York attorney escrow account rules require any lawyer holding money for a client or third party to keep those funds in a separately labeled trust account at a qualifying bank, never mixed with the lawyer’s own money, with detailed records preserved for seven years. The framework sits in Rule 1.15 of the Rules of Professional Conduct and Judiciary Law § 497, and it is backed by automatic overdraft reporting, mandatory peer reporting, and discipline that reaches suspension or disbarment even when no client ends up out of pocket.¹

No Commingling With Firm or Personal Funds

Rule 1.15(a) treats every attorney holding another person’s funds in connection with the practice of law as a fiduciary and prohibits both misappropriation and commingling.¹ A client’s settlement check does not go into the firm’s operating account or the lawyer’s personal account. It goes into escrow.

One narrow exception exists. A lawyer may deposit personal funds into the escrow account solely to cover bank service charges, and only in an amount sufficient for that purpose.¹ Nothing else the lawyer owns belongs in the account.

Where the Account Must Be Held and How It Is Labeled

The account must be maintained at a banking institution located in New York State that has agreed to provide dishonored check and overdraft reports under 22 NYCRR Part 1300. Funds may sit at a bank outside New York only if that bank also complies with the reporting rule and the person whose money is involved gives prior written approval identifying the bank by name and address.² Qualifying institutions include state and national banks, trust companies, savings banks, savings and loan associations, and credit unions.

Every escrow account must be labeled “Attorney Special Account,” “Attorney Trust Account,” or “Attorney Escrow Account.” The checks and deposit slips must carry that title. Additional descriptive language is allowed only if it further distinguishes the account from personal or business accounts.¹

Signatories and Withdrawals

Only a lawyer admitted to practice in New York can be an authorized signatory on the account. Every withdrawal must be made to a named payee — never to “cash” — and must go out by check, or by bank transfer if the person entitled to the funds has given prior written approval.¹ A paralegal, office manager, or other non-lawyer employee cannot hold signatory authority. A signature stamp used by a paralegal is permitted with pre-approved parameters for each payment and a review process afterward, and the attorney remains fully responsible for every transaction.

IOLA Accounts and Separate Interest-Bearing Accounts

Not every deposit earns interest for the client. When the amount is too small or the expected holding period too short for interest to meaningfully benefit the individual client, Judiciary Law § 497 requires the lawyer to deposit those funds into an Interest on Lawyer Account (IOLA).³ Every New York attorney who handles client funds must maintain an IOLA account.⁴

Interest earned on IOLA deposits does not belong to the client or the attorney. It flows to the IOLA Fund of the State of New York, which uses the money to finance civil legal services for low-income New Yorkers on matters like housing, employment, and health care.⁵ The lawyer decides whether particular funds qualify as IOLA deposits based on factors like the expected interest, the cost of setting up a separate account, and whether the bank can track interest for individual clients. That judgment rests with the attorney, but funds that clearly qualify cannot be parked in a non-interest-bearing account.³

When the amount is large enough, or will sit long enough, that the client would earn meaningful interest, the lawyer should open a separate interest-bearing account for that client rather than depositing the funds into the pooled IOLA account.

Seven Years of Records

Rule 1.15(d) requires records of every transaction passing through an escrow account to be kept for seven years. The records must identify the date, source, and description of each deposit, and the date, payee, and purpose of each withdrawal. For each client whose funds are in the account, the lawyer must maintain a ledger showing the source of funds, the amount held, and the details of every disbursement.¹

Checkbooks and check stubs, bank statements, prenumbered canceled checks, and duplicate deposit slips must all be retained for the full seven-year period. Entries in the books of account must be made at or near the time of the transaction, not reconstructed later.¹

What Can Be Kept Electronically

Some records can be stored electronically; others cannot. Original checkbooks, bank statements, canceled checks, and deposit slips must stay in paper form for the full seven years. Records where the rule permits “copies,” such as retainer agreements, client disbursement statements, and bills, may be stored as digital images. Books of account created electronically can remain in that format. Any electronic storage system has to use a format that prevents undetected alteration, guards against accidental destruction, and allows prompt production of accurate copies on request.

Notifying Clients and Producing Accountings

When a lawyer receives funds, securities, or other property in which a client or third party has an interest, the lawyer must promptly notify that person, maintain complete records of the property held, and provide appropriate accountings.¹ When a client or third party requests delivery of funds or property they are entitled to receive, the lawyer must turn it over promptly.

Handling Disputed Funds

Money leaves an escrow account only to the client, to third parties with the client’s authorization, or as a court directs. The lawyer cannot decide unilaterally who gets what when entitlement is in dispute.

When two or more people claim an interest in the same funds, the lawyer must hold the disputed portion in the account until the dispute is resolved, while promptly distributing any portion that is not in dispute.¹ If a client disputes a $5,000 medical lien from a $50,000 settlement, the $5,000 stays in escrow and the remaining $45,000 (less fees and costs) goes to the client without delay. The disputed portion is released only when the parties agree or a court orders it. Sitting on undisputed funds because the broader situation feels unresolved is itself a violation.

Automatic Overdraft Reporting

Under 22 NYCRR 1300.1, every bank that offers attorney trust accounts must report to the Lawyers’ Fund for Client Protection whenever an instrument is presented against an escrow account with insufficient funds. The report is required whether the bank honors the check or bounces it.⁶

Banks must mail the report within five banking days. The Lawyers’ Fund then holds it for ten business days so the bank can withdraw it if it was filed by mistake. The attorney depositing more money to cover the shortfall does not give the bank grounds to withdraw the report. After the hold, the Fund forwards the report to the attorney disciplinary committee with jurisdiction over that lawyer.⁶

Every lawyer admitted in New York is deemed to have consented to this system. There is no opt-out. It exists because escrow overdrafts are one of the earliest visible signs of misappropriation.

What Happens When the Rules Are Broken

Violations go to the grievance committee in the lawyer’s judicial department. Sanctions range from a private letter of caution or admonition to public censure, suspension, or disbarment, depending on the nature and duration of the misconduct, whether any client actually lost money, and prior disciplinary history.

Intent to steal is not required for serious consequences. New York courts have treated negligent or inadvertent invasions of client funds as misappropriation. A lawyer who dips into escrow to cover a temporary cash-flow gap, fully intending to replenish the account, is still misappropriating funds. Prolonged commingling, using escrow money for personal expenses, or failing to maintain ledgers and reconcile accounts can produce a multi-year suspension even when every client is ultimately made whole.

Rule 8.3 adds a peer-reporting duty. A lawyer who knows another lawyer has committed a violation raising a substantial question about that lawyer’s honesty or fitness must report the violation to the appropriate authority.⁷ Escrow problems are not just between the offending lawyer and the disciplinary committee; colleagues who become aware of them have their own duty to report.

The Lawyers’ Fund for Client Protection

When a lawyer steals or misappropriates client funds and the money cannot be recovered, the Lawyers’ Fund for Client Protection serves as a reimbursement program of last resort. The Fund can reimburse up to $400,000 per client loss caused by a lawyer’s dishonest conduct.⁸

The Fund is financed in part through the biennial attorney registration fee. Of the $375 fee, $60 is allocated to the Lawyers’ Fund.⁹

A client must file a claim within two years of the later of the date the dishonest conduct occurred or the date the client discovered it.¹⁰ The Fund covers dishonest conduct only. Malpractice, neglect, and fee disputes are not eligible.¹¹ Poor legal work belongs in a civil malpractice case; a lawyer who took a settlement and spent it is the situation the Fund is built for.

1
Legal Information Institute. New York Code 22 NYCRR 1200.1.15 – Preserving Identity of Funds and Property of Others
2
New York State Unified Court System. Joint Order – Part 1200 – Rule 1.15
3
New York State Senate. New York Judiciary Law 497 – Attorneys Fiduciary Funds Interest-Bearing Accounts
4
New York State Bar Association. Escrow Accounts, Iola and Ethics
5
IOLA Fund of the State of New York. Welcome to IOLA
6
New York Lawyers’ Fund for Client Protection. Dishonored Check and Overdraft Reporting Rule
7
New York State Unified Court System. New York State Rules of Professional Conduct
8
The Lawyers’ Fund for Client Protection. About the Lawyers’ Fund for Client Protection
9
New York State Unified Court System. Registration FAQs
10
The Lawyers’ Fund for Client Protection. Trustee Regulations
11
The Lawyers’ Fund for Client Protection. FAQs