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Trust Accounts and Bank Failures

By Janice G. Inman

The failure of California's IndyMac Bancorp Inc. and other smaller banks over the past year, along with the fear that more such failures are to come, has made many attorneys nervous. They are inundating their state and local bar associations with questions about what their personal and firm responsibilities are when client trust accounts are held in banks that fail. Bar associations are responding with Web postings and formal ethics opinions.

Federal Deposit Insurance Corp. (FDIC) insures bank deposits in FDIC-backed banks for up to $250,000, but what should you do with client trust monies that exceed that amount? And what if your client trust dollars are not in an FDIC-insured account? Because attorneys practicing in the medical malpractice field are often responsible for holding client funds in trust, the issue may prove significant in the current financial climate. Large firms will have financial departments to handle these issues, but small firms and solo practitioners might be able to use a little advice.

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