When Client Funds Go Unclaimed: IOLTA and Unclaimed Property Rules

The Dormant Balance Problem

In any active practice, it's common to end up with small residual balances in closed client matters. A disbursement came out slightly less than expected. A check was returned. A refund arrived after the matter closed. These balances — sometimes a few dollars, sometimes more significant — can sit unnoticed in your trust account for years if your system doesn't flag them.

Bar rules and unclaimed property laws treat dormant trust balances as a specific compliance obligation, not just a bookkeeping loose end.

What Bar Rules Require

Most state bar rules require attorneys to:

• Make reasonable efforts to identify and locate clients with unclaimed trust balances
• Document those efforts in writing
• Follow state unclaimed property procedures once the applicable dormancy period has passed

"Reasonable efforts" typically means attempting contact by mail, phone, and email to the client's last known addresses and contact information. The documentation of these attempts is what protects you if the bar ever asks why a balance was remitted to the state rather than returned to the client.

State Unclaimed Property Laws

Every state has unclaimed property (escheatment) statutes that apply to attorney trust funds once the applicable dormancy period has passed — typically three to five years of inactivity. After that period, the funds must be remitted to the state, along with identifying information about the client.

The remittance requirement is not optional and not waived by bar rules. Attorneys who hold dormant trust funds beyond the escheatment period without remitting them to the state face potential liability under both unclaimed property law and bar rules.

What You Should Do With Dormant Balances

1. Identify them early — run a dormant ledger report at least quarterly. Any matter with no activity in 12 months warrants a check.
2. Contact the client — attempt contact by all known means. Document each attempt with date and method.
3. Wait the required period — if contact fails, allow the full dormancy period required by your state's unclaimed property law to pass.
4. Remit to the state — file the unclaimed property report and remit the funds to your state's unclaimed property administrator.
5. Keep the records — maintain documentation of the dormant balance, your contact attempts, and the remittance for the full record retention period.

IOLTATrusts Dormant Ledger Report

IOLTATrusts includes a built-in Dormant/Stale Ledger report that identifies every client matter with no activity beyond a threshold you set. Run it monthly alongside your reconciliation and you'll never miss a dormant balance until it becomes a compliance issue.