Matters of Trust: do you trust your trust accounting system?

If you’ve been paying attention, you know that 11 of Vermont’s last 15 disciplinary decisions involve trust account violations.  The Professional Responsibility Board has directed Disciplinary Counsel to contract with accounting firms to conduct more audits of attorney trust accounts.  If selected, will your trust accounting system pass muster?

While the trust accounting rules aren’t exactly in plain English, here are the highlights:

  • If it’s your money, it can’t be in your trust account.  Rule 1.15(a)(1).  Exception: you may deposit your own funds into trust, but only in an amount necessary to pay service charges or fees on the account. Rule 1.15(c).
  • When you receive funds in which a client or third person has an interest, you must notify them.  Rule 1.15(d)
  • You must promptly deliver to clients & third persons funds that they are entitled to receive and, upon request, must render a full accounting of funds that you held in trust.  Rule 1.15(d).
  • If you are holding funds to which two or more people claim an interest, you must keep the funds separate until the dispute is resolved. This includes situations in which you are one of the people who claims an interest in the funds.  Do not resolve the dispute on your own.  Any portion that is not in dispute must be disbursed to the owner.  Rule 1.15(e).
  • You must not disburse funds from trust unless the funds are “collected funds.”  Rule 1.15(f)(1).  There are certain instruments that you may presume constitute “collected funds” upon deposit.  Rule 1.15(g).
  • You must instruct your bank that the interest generated on your trust account is to be paid to the Vermont Bar Foundation. Rule 1.15B(a)(1).
  • At a minimum, your trust accounting system must include:
    • a system that shows all receipts & disbursements, Rule 1.15A(a)(1),
    • a record for each client that shows all receipts, disbursements, and a running balance, Rule 1.15A(a)(2),
    • records documenting timely notice to clients of receipts & disbursements; Rule 1.15A(a)(3),
    • a single source that identifies each and every trust account that you maintain. Rule 1.15A(a)(4).

Don’t commingle.  Reconcile on a monthly basis.  And, at any given time, know how much money you have in trust and to whom every penny belongs.

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