After making a deposit to trust, how long do I have to wait before I disburse funds?
Most state and local bar rules require attorneys to make sure that a settlement check deposited into a client trust account has cleared the bank prior to disbursing any funds.[1] Many attorneys disburse funds from trust accounts as soon as they become available because they confuse availability of funds with the check clearing (a check clears when the money from the check writer’s bank account is actually moved into the account where the check was deposited). If you disburse funds from trust when the funds become available and the check fails to clear you will have to put the funds back into the trust account which can be a significant problem if your client refuses to return the funds to you.[2]
The amount of time that you have to wait before disbursing funds from trust depends on your state and local bar rules. Some states require attorneys to call the bank and verify that the check has cleared before disbursing funds to clients.[3] (If you call your bank, you will most likely be told that the only way to know if a check has cleared it to wait three-four weeks to see if you get an NSF notice.)
Other states recommend that attorneys follow the 3-, 5-, and 10-day rule, meaning that you wait 3 days to disburse the proceeds of local checks, 5 days to disburse the proceeds of in-state checks and 10 days to disburse the proceeds of out-of-state check.[3]
In the end, it is best to check with your state and local bar association to see how long they require you to wait after making a deposit to trust before disbursing trust funds.
References
1. IOLTAs and Client Trust Accounts
2. Did That Check Really Clear?
3. Managing Client Trust Accounts