Since the old times when law is practiced in the early civilization, people entrusted their money and property to lawyers and with that comes the duty to account. The legal system has insisted to safeguard and protect client funds, while also protecting the lawyer from the perception of improper, or illegal behavior. And now trust accounting became one of the most challenging tasks for lawyers. It is a MUST for them to maintain trust accounts accurately and ethically. After all, if you make a mistake, you could be facing an ethics violation and can be subject to disbarment.
Here’s a guide for Proper Trust Account Management:
1. Safekeeping Property
a. Funds deposited into a trust account are not lawyer’s property nor the firm. Know what to include and what not to include.
b. When receiving funds or other property in which a client or third person has an interest, a lawyer should inform the client or third person. c. All funds in a trust or escrow account shall be distributed only to authorized person entitled to receive them.
2. Any unearned fee or advance payment of expenses should be deposited into a trust account.
3. Commingling or mixing the attorney’s or the law firm’s funds with the clients is generally not allowed but with exception. This exception permits the deposit of funds if it is “reasonably sufficient to pay for fees or obtain a waiver of fees or to keep the account open.”
4. Know the IOLTA rules for the treatment of interest-bearing trust accounts.
5. Open trust account in approved financial institutions.
6. Maintain the trust accounts and proper bank reconciliation:
a. Monthly Three-Point Trust Account Reconciliation. With this, you should be able to answer 3 important questions: What is the balance in the trust bank account? What is the balance of your trust liability account on your balance sheet and does it match with your trust account bank balance? Can you provide a breakdown of the trust bank balance per client?
b. Have an individual trust ledger for each client. You must be able to monitor from beginning transactions to the last transactions from the trust account by client.
c. Lawyer should be able to generate trust reports on regular basis. It is important to know that your trust balance by client/case as per the report equals the balance in your IOLTA or trust bank account for the same period.
7. Lawyer is required to keep a client’s trust account records as mandated by law after the termination of the client’s representation. These records should include how the trust account was used.
There are many rules regarding trust accounts and the lack of understanding of these rules is not an acceptable defense when facing sanctions. It is the responsibility of lawyers to adhere to trust account rules and regulations.
If you need help with avoiding these trust account violations or need help with your firm’s bookkeeping and tax preparation, contact us today at firstname.lastname@example.org or 832-437-0385.
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