Trust Accounting in One Hour for Lawyers seeks to instruct lawyers and their staff on proper handling of their client trust account. Here are five important lessons for you to learn today.
1. Never lose sight that you are ultimately responsible for safeguarding your client’s property. If you delegate any of the accounting and reconciliation duties, you remain responsible. Train your staff, but oversee the accounting process. Review bank statements, individual client ledgers, and the trust account journal of transactions or checkbook register monthly with the person who you have tasked with the daily entry of transactions. These three financial records should equal one another. This “three-way reconciliation of the trust account” is easy to do monthly when the bank statement arrives.
2. Do not spend what you do not have. Before making any disbursements from the trust account, be certain that the client for whom you are about to withdraw trust account funds has adequate funds in the trust account. Until the funds have been collected from the issuing bank, they are not in your bank account. When the bank says funds are available, they are not verifying that the money belonging to your client can now be disbursed. If you disburse funds before they are collected from the issuing bank, then you are spending other clients’ money. When funds are wired, they are transferred into the receiving bank upon the wire transfer. Not so when a check is drawn on Bank A is deposited into Bank B. The question to ask is, “have these funds been collected?”
3. Have a second signer on the trust account to ensure that your clients can be refunded their money if you become impaired, disabled or die. Check your jurisdiction for specific rules concerning who can be a signer on a trust account. Washington requires the signer to be an attorney, while Oregon does not.
4. Do not commingle your funds with your client funds. Most jurisdictions follow the ABA Model Rule 1.15 Safekeeping Client Property: “(b) A lawyer may deposit the lawyer’s own funds in a client trust account for the sole purpose of paying bank service charges on that account, but only in an amount necessary for that purpose.”
5. Provide regular accountings to your client about the funds you hold in your trust account. “(d) Upon receiving funds or other property in which a client or third person has an interest, a lawyer shall promptly notify the client or third person. Except as stated in this rule or otherwise permitted by law or by agreement with the client, a lawyer shall promptly deliver to the client or third person any funds or other property that the client or third person is entitled to receive and, upon request by the client or third person, shall promptly render a full accounting regarding such property.” Providing regular accountings is easy when you send out billing statements to your clients. Explain all checks written and all deposits received on behalf of the client, with the opening and closing trust account balance. For deposits received, provide the date, the amount, the purpose and the source or the payer of the deposited funds; for checks written, provide the date, the amount, the purpose and the recipient of the disbursed funds. If you require a set amount to remain in the retainer according to your engagement agreement, be sure that the client know the current balance and how much must be deposited to bring it up to the agreed-upon amount.
If you remember these five tips, you will be in a safer position with your ethical and fiduciary duties to your client.