What to Do With Unclaimed or Unidentified Funds in a Law Firm Trust Account

Almost every law firm that has held a trust account for a few years eventually finds money it cannot easily return. It might be a refund check a former client never cashed, a small leftover balance from a matter that closed years ago, or a deposit that was never assigned to a client at all.

These funds cannot simply stay in the trust account forever, and they cannot be moved to the firm’s operating account. Here is how law firms can approach unclaimed and unidentified trust funds.

What Are Unclaimed Trust Funds?

Unclaimed trust funds are amounts that belong to a known client or third party who cannot be located or has not collected the money. Common examples include:

• Uncashed refund or settlement checks
• Small remaining retainer balances on closed matters
• Funds held for a medical provider or lienholder that never cashed a payment
• Overpayments that were never refunded

What Are Unidentified Trust Funds?

Unidentified funds are amounts sitting in the trust account that the firm cannot connect to any particular client. These often appear when:

• A deposit was never posted to a client ledger
• Records were lost during a software change
• A bookkeeper left without documenting older activity
• Reconciliations were skipped for months or years

Unidentified funds are usually a sign of a deeper recordkeeping problem and should be treated seriously.

Why Can’t the Firm Just Keep the Money?

Money in trust belongs to clients or third parties unless it has been earned by the firm. The fact that the owner cannot be found does not make the money the firm’s property. Transferring it to operating, using it to cover bank fees, or applying it to another client’s matter can all be treated as misuse of client funds.

Step 1: Investigate Stale Checks and Old Balances

The first step is to find these funds before they become a long-term problem. During each monthly reconciliation, the firm should review:

• Outstanding checks that have not cleared after a reasonable period
• Client ledgers with balances on closed matters
• Any amount in the account that does not belong to a client ledger

An uncashed check does not mean the money has been paid. Until the check clears, the funds are still in the trust account and still belong to the payee.

Step 2: Make a Diligent Effort to Find the Owner

For known clients or payees, the firm should make and document reasonable efforts to locate them. These may include:

• Calling the last known phone numbers
• Sending letters and emails to the last known addresses
• Searching public records and online directories
• Contacting referral sources or related parties, where appropriate

Each attempt should be documented with the date, method, and result. If the owner is located, the firm can reissue payment and void the original check.

Step 3: Reconstruct Records for Unidentified Funds

For money that cannot be tied to a client, the firm may need to work backward through bank statements, deposit records, old ledgers, and billing files to determine where the funds came from. This can be time-consuming, especially when several years of records are involved.

In some cases, the research shows that the funds belong to the firm, such as earned fees that were never transferred. In other cases, the funds can be traced to a specific client. Either way, the findings and any corrections should be clearly documented.

Step 4: Follow the Applicable Unclaimed Property Process

When a client or payee truly cannot be found, the funds generally must be handled under the applicable unclaimed property laws. In Florida, unclaimed property is governed by Chapter 717 of the Florida Statutes and is reported to the Florida Department of Financial Services, Division of Unclaimed Property, once the applicable dormancy period has passed.

Escheatment is not optional for holders of unclaimed property. Attorneys should review the current statutes and the rules regulating trust accounts, and consult ethics counsel, before disposing of unclaimed or unidentified trust funds. The specific process may depend on whether the owner is known, how long the funds have been held, and the amount involved.

How Can Firms Prevent Unclaimed Funds?

Many unclaimed fund problems can be avoided with good habits:

• Refund unused balances promptly when matters close.
• Confirm client contact information before issuing final payments.
• Follow up on checks that have not cleared within 30 to 60 days.
• Post every deposit to a client ledger when it is received.
• Complete three-way reconciliations every month.
• Review closed-matter balances on a regular schedule.

Get Help Cleaning Up Old Trust Balances

A&W Associates helps law firms in Wesley Chapel, Tampa, and throughout the Tampa Bay area investigate stale checks, reconstruct trust account records, and resolve old and unidentified balances. We can help your firm bring its trust account current and keep it that way.

Contact A&W Associates to learn more about our trust accounting and IOLTA management services.

This article is provided for general informational purposes and does not constitute legal advice. Attorneys should review the trust accounting rules and unclaimed property laws applicable to their jurisdiction and consult appropriate legal or ethics counsel when necessary.