How Long Can a Lawyer Hold Money in Trust?

Fiduciary Duty and State Bar Prompt Disbursement Rules

In the practice of law, client money must never be commingled with an attorney general business operating accounts. When a settlement draft, court judgment, or real estate escrow deposit is received, it is deposited into an Interest on Lawyers Trust Account (IOLTA). Before an attorney can distribute net settlement proceeds to a client, banking hold periods must clear (typically three to ten business days) to ensure the issuing bank draft does not bounce.

Beyond bank clearance times, resolving statutory liens represents the most common reason an attorney holds funds for extended periods. In personal injury cases, hospitals, private health insurers, Medicaid, and Medicare assert statutory liens against the settlement proceeds. An attorney is legally bound to negotiate and satisfy these third-party liens before releasing the remaining net balance to the client to protect both client and law firm from civil liability.

Comparing typical trust account disbursement timelines across common legal scenarios clarifies expected holding durations below.

IOLTA Mechanics: Settlement Clearing, Medical Liens, and Subrogation

The foundational mandate governing attorney trust accounts is prompt notification and delivery under ABA Model Rule 1.15. The rule explicitly states that upon receiving funds in which a client or third person has an interest, a lawyer must promptly notify the client and promptly deliver any funds the client is entitled to receive. While the word promptly is not defined as an arbitrary number of days, the legal standard requires action within a reasonable timeframe without unwarranted delays.

Bank clearing holds represent the first mandatory delay. Insurance settlement checks are often issued in large dollar amounts drawn on out-of-state corporate financial institutions. An attorney must wait until the settlement check has fully collected and cleared through the Federal Reserve banking system before issuing trust account checks. Distributing funds against uncleared checks risks bouncing checks against other clients trust funds—an egregious banking violation that triggers immediate state bar audits.

Understanding the ethical boundaries governing attorney trust accounts distinguishes legitimate legal delays from bar grievances below.

Legitimate Hold Reasons Versus Ethical Violations and Escrow Disputes

Resolving third-party statutory liens is the primary reason settlement funds remain in trust for sixty to ninety days. If Medicare, Medicaid, an ERISA health insurance plan, or a hospital filed a notice of lien for crash-related medical care, state and federal statutes hold the attorney personally liable if they disburse funds to the client without satisfying the lien. Attorneys spend weeks negotiating with collection adjusters to reduce lien balances, directly increasing the net cash the client takes home.

When disputes arise over trust funds, the attorney must retain the disputed portion in escrow while immediately releasing the undisputed balance. For example, if an attorney charges a thirty-three percent fee and the client disputes five percent of the fee calculation, the lawyer must disburse the remaining sixty-seven percent client share and eighty percent of the fee immediately, holding only the disputed five percent in trust until the fee dispute is mediated.

Clients possess clear legal rights to inspect trust account records. An attorney is ethically required to provide a complete, written closing statement showing every dollar received, exact deductions for litigation expenses, medical lien payments, attorney legal fees, and the net payout amount. If an attorney refuses to disburse cleared funds or ignores requests for trust accounting, clients can file an ethics complaint with the state bar client security fund.