Opinion 202503

Advisory Opinion: 202503
Year Issued: 2025
RPCs: 1.1, 1.3, 1.4,1.7, 1.15A, 4.3
Subject: Disputed Funds Held in Trust
ISSUE
How should a lawyer handle disputed trust account funds?
SHORT ANSWER
Most of the duties owed by lawyers—including but not limited to the duties of
competent representation and loyalty—are owed to clients rather than to nonclients.
Nonetheless, there are also times when lawyers owe duties to nonclients. This Advisory
Opinion addresses one set of circumstances in which such duties may be owed.
RPC 1.15A(f) requires that, “Except as stated in this Rule, a lawyer must promptly
pay or deliver to a client or third person the property [including any funds] which the client
or third person is entitled to receive.” After this is done, RPC 1.15A(g) requires that the
lawyer maintain in trust any property whose ownership is disputed until the dispute is
resolved while also “tak[ing] reasonable action to resolve the dispute, including, when
appropriate, interpleading the disputed funds.” Washington Comment [9] to RPC 1.15A
adds by way of explanation that “the extent of the efforts that a lawyer is obligated to take
to resolve a dispute depend on the amount in dispute, the availability of methods for
alternative dispute resolution, and the likelihood of informal resolution.”
To comply with these requirements, a lawyer must communicate with each
potential claimant to determine the basis of that person’s claim and that person’s
response to any claims made by others. Unless the lawyer already has this knowledge,
the lawyer must also conduct at least a preliminary analysis of the strength of each
person’s claim, including whether there is documentation to support each claim.
As further explained below, the nature and extent of the lawyer’s obligations after
that point will depend in part on this assessment and in part on whether the lawyer’s client
or the lawyer are among the claimants. Nonetheless, it is not the lawyer’s job to adjudicate
material issues of fact or law.
ANALYSIS
There are many situations in which a lawyer may hold funds that are subject to
multiple competing claims. Prior Advisory Opinions have addressed some of them:
• An insurance company asserting a contractual subrogation or other claim against
funds held in trust for a client by a lawyer. [n.1]
• A lawyer who had received a deposit from a now-deceased client. [n.2]
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• A creditor of a client asserting a claim based on the lawyer’s guarantee [n.3] or a writ
of garnishment. [n.4]
The General Principles section of this opinion below can be considered as a partial
supplement to those opinions. Following the General Principles section, we will also
address two further situations:
• A client and a third party who provided funds for representation of the client may
dispute who is entitled to any remaining funds after the representation ends.
• Multiple clients who all contributed funds for a joint representation may dispute how
to apportion among them funds remaining after the representation ends. [n.5]
General Principles
RPC 1.15A(g) governs situations in which a lawyer holds funds as a lawyer rather
than in some other capacity: [n.6]
If a lawyer possesses property in which two or more persons (one of
which may be the lawyer) claim interests, the lawyer must maintain the
property in trust until the dispute is resolved. The lawyer must promptly
distribute all undisputed portions of the property. The lawyer must take
reasonable action to resolve the dispute, including, when appropriate,
interpleading the disputed funds.
If, for example, the lawyer has received $100 and has determined that the lawyer
has no personal claim to the funds and that there are no claimants other than the lawyer’s
client who claims $70 and a third party who claims $40. The lawyer must distribute $60 to
the client and $30 to the third party since there is no dispute as to these amounts while
keeping only the disputed $10 in trust. [n.7] The extent of the lawyer’s further obligations
depends on the nature of the dispute, the amount in dispute, the availability of methods for
alternative dispute resolution, and the likelihood of informal resolution. Washington
Comment [9].
For example, as noted in part in Comment [4] to ABA Model Rule 1.15:
[T]hird parties may have lawful claims against specific funds or other property
in a lawyer’s custody, such as a client’s creditor who has a lien on funds recovered
in a personal injury action. . . . A lawyer should not unilaterally assume to arbitrate
a dispute between the client and the third party, but, when there are substantial
grounds for dispute as to the person entitled to the funds, the lawyer may file an
action to have a court resolve the dispute.
It is not possible in the abstract to lay out a set of rules which describe how the
lawyer must or may act in all imaginable disputed funds situations. Nonetheless, the
following guidelines should prove helpful in addressing many such situations:
If the lawyer has not already done so, the lawyer will need to inquire, at least
preliminarily, about the alleged factual and legal basis of each claimant’s position—for
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example, whether the claimant’s position is based on a duly filed and protected medical
lien or on representations allegedly made to the claimant either by the client or by the
lawyer. Similarly, the lawyer will need to inquire, at least preliminarily, about each
claimant’s contentions regarding the claims by the other claimants.
If one of the claimants is a client of the lawyer, the lawyer must provide competent
and diligent representation as required by RPC 1.1 and 1.3 and must communicate with
the client about the representation as required by RPC 1.4, including an explanation of
the potential effects of Rule 1.15A on what the lawyer may or may not do for the client. If,
however, the lawyer and the client are both claimants, the lawyer should make clear to
the client that the lawyer cannot represent the client because of their adverse interests in
the dispute. [n.8]
The lawyer should make clear to claimants other than the lawyer’s client that they
are not the lawyer’s clients and that they must look elsewhere for legal advice. [n.9 ]
Unless there is some reason not to do so, the lawyer may ask the claimants whether
they wish to try to resolve any differences by themselves, with or without the help of
counsel. In suggesting this option, the lawyer may not make any misrepresentations of
fact or law to any of the claimants about the strength or weakness of any claims.
If, following the lawyer’s preliminary analysis or any further analysis that the
lawyer may conduct, the lawyer concludes that more than one claimant has or may have
a factually and legally nonfrivolous claim to the funds, the lawyer must not distribute any
disputed portion of funds to any claimant. The lawyer must instead inform the claimants
that if they cannot or choose not to resolve the dispute on their own, the lawyer will either
continue to hold the funds in trust or will interplead them into court. [n.10]
The lawyer may also set a reasonable time limit on how long the lawyer may hold
the funds before interpleading them. The lawyer may also inform the claimants that with
their consent, the disputed funds may be transferred to another account, such as an
interest-bearing account, pending resolution of the dispute. [n.11]
In assessing whether the claimants have nonfrivolous claims, the lawyer may
consider that a decision by the lawyer to release disputed funds to one claimant will be
subject to second-guessing in subsequent proceedings—whether by the client or by third
parties. Nonetheless, the lawyer cannot ignore the obvious. If, for example, one claimant
is the lawyer’s client and the other is a third party with an unquestionably legally valid
and enforceable statutory lien to which the client appears to have no response that is
even potentially legally and factually cognizable, then the lawyer must honor the lien. If,
on the other hand, the lawyer concludes that the lien is clearly invalid and that the thirdparty
claimant is merely an unsecured creditor of the client to whom no commitments or
promises about how the funds would be handled are alleged to have been made by or on
behalf of the lawyer or the client, then the lawyer must give the funds to the client. If the
lawyer is a claimant, the lawyer may also wish to consider the effects of the attorney lien
provisions in RCW 60.40.010 et. seq.
Two Additional Situations
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We now turn to the two additional situations noted at the outset of this opinion:
1. A client and a third party who provided funds for representation of the client may
dispute who is entitled to any remaining funds after the representation ends.
This situation could arise if, for example, one family member paid an advance
deposit to a lawyer for representation of another family member and, after the
representation ended, the two family members disputed who should receive any amount
remaining in trust. The represented family member might assert that the entire amount
was intended as a gift, and the paying family member might assert that the funds
deposited with the lawyer were always intended and understood to be contingent on the
need to pay for legal services with any excess to be refunded to the paying family
member after the conclusion of the legal services.
A factual and legal analysis of this situation would at least require the lawyer to
ask both family members why they believe they are entitled to the funds and whether
they are aware of any documentation that addresses the issue. The lawyer might also
decide to conduct additional research or consult with another lawyer, for example, about
the law of gifting and trusts. Absent a clear and unchallenged written agreement or a
clear rule of law in favor of one side or the other, a reasonably prudent lawyer may well
conclude under the circumstances that the situation is one that involves conflicting
nonfrivolous claims. [n.12]
Given the lawyer’s duties of competent representation, diligence, and
communication under RPC 1.1, 1.3, and 1.4, as well as the duty owed to nonclients like
the nonclient family member supplying the funds, it is worth noting that this type of
dispute is foreseeable in this kind of situation. If so, it might have been prudent for the
lawyer to have considered discussing with the client the preparation of a written
agreement to be signed by the client, and perhaps also the family member, regarding the
distribution of any remaining funds. This would have allowed both parties to have a clear
understanding of their rights and anticipate and resolve questions of the client and the
family member about what would happen in the event of a dispute.
2. Multiple clients who contributed funds for a joint representation may dispute who is
entitled to receive what portion of any funds remaining after the representation ends.
This situation could arise if several plaintiffs or defendants had agreed to pool their
resources and share counsel. If funds are left in trust after the representation ends, the
former co-clients may have different understandings of how the excess should be
distributed.
The lawyer will again have to conduct at least some factual and legal research or consult
another lawyer to determine whether the clients had ever reached agreement and whether
any of the clients have or may be able to make any nonfrivolous arguments that any
agreement that may have been reached is not binding. However, because all the
claimants here are the lawyer’s clients, the lawyer’s duty of competent representation
suggests a responsibility to have encouraged the clients to agree in advance about how
any extra funds would be distributed. If the lawyer does not do so, then the lawyer risks
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violating the duties of competent representation, diligence, and communication. The
lawyer would also face recusal and a conflict of interest under RPC 1.7.
*********
Endnotes
1. WSBA Advisory Op. 2166 (2007); WSBA Adv. Op. 2213 (2011, amended 2012).
2. WSBA Advisory Op. 2188 (2008), citing WSBA Informal Op. 1313 (1989).
3. WSBA Advisory Op. 185 (1990, amended 2010).
4. WSBA Advisory Op. 2220 (2012).
5. This Advisory Opinion assumes that the lawyer is aware of the identity of all claimants
and can contact them. If not, the lawyer must act consistently with Washington Comment
[6] to RPC 1.15A. Please note, however, that this Advisory Opinion does not consider any
different or additional obligations that might be imposed on a lawyer under RPC 1.8(g),
the aggregate settlement rule.
6. Washington Comment [3] to RPC 1.15A provides that:
This rule does not apply to property held by a lawyer acting solely in a
fiduciary capacity such as attorney-in-fact, trustee, guardian, personal
representative, executor, or administrator, or in any similar capacity where
the lawyer’s investment duties as a fiduciary are controlled by statute or
other law. If a lawyer is acting as both a fiduciary and as the lawyer for the
fiduciary, the character of the funds controls whether the funds should be
deposited in a fiduciary account of the lawyer’s trust account. In some
cases, it may be permissible to put funds received in either the lawyer’s trust
account or the fiduciary account. That determination depends in part on the
substantive law of fiduciary obligations, which is beyond the scope of these
rules. The conflict of interest rules determine whether it is appropriate for a
lawyer who is the fiduciary to also serve as the attorney for the fiduciary.
See generally RPC 1.7; RPC 1.8(a) & cmt. 8; In re Disciplinary Proceeding
Against McKean, 148 Wn.2d 849, 866 n.12, 64 P.3d 1226 (2003).
7. Continuing to hold the funds in the trust account after a dispute arises is compliant with
RPC 1.15A(g), and the funds need not be further separated or transferred to another
account:
No funds belonging to the lawyer may be deposited or retained in a trust
account except . . . funds belonging in part to a client or third person and in part
presently or potentially to the lawyer must be deposited and retained in a trust
account, but any portion belonging to the lawyer must be withdrawn at the
earliest reasonable time. . . .
RPC 1.15A(h)(1)(ii); and see ABA Formal Op. 475 (2016) (discussing duty to safeguard
fees subject to division with other counsel).
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8. See RPC 1.7(a)(2); 1.7(b)(3).
9. See RPC 4.3; Bohn v. Cody, 119 Wash. 2d 357(1992).
10. For further information about interpleader actions, see Washington RCP 22, FRCP 22,
and RCW 4.08.160. As noted in Mack v. Kuckenmeister, 619 F.3d 1010 (9th Cir. 2010),
the stakeholder (in this instance, the lawyer who would file the interpleader), must identify
the actual or potential claimants to the funds but is not required to resolve those claims.
To the contrary, a party filing an interpleader action is asking the court to resolve those
claims.
11. See Washington Comment [14] to RPC 1.15A (“If the client or third person requests
that funds that would be deposited in a non-IOLTA trust account under paragraph (i)(2)
instead be held in the IOLTA account, the lawyer should document this request in the
lawyer’s trust account records and preferably should confirm the request in writing to the
client or third person.”)
12. The lawyer might also be well advised to employ similar advance written clarification
in one or more of the situations referenced in the prior Advisory Opinions cited at the
beginning of this opinion.
***
Advisory Opinions are provided for the education of the Bar and reflect the opinion of
the Committee on Professional Ethics (CPE) or its predecessors. Advisory Opinions are
provided pursuant to the authorization granted by the Board of Governors but are not
individually approved by the Board and do not reflect the official position of the Bar
association. Laws other than the Washington State Rules of Professional Conduct may
apply to the inquiry. The Committee's answer does not include or opine about any other
applicable law other than the meaning of the Rules of Professional Conduct.