This post is prompted by an inquiry I received yesterday.
Keeping with the alliterative theme of a blog known for its Five For Friday feature, here a “Tuesday’s Ten Trust (Account) Tips.”
The tips are no substitute for the rules themselves. Rather, they’re meant to serve as a starter kit.
Tuesday’s Ten Trust (Account) Tips
1. When a lawyer holds funds of clients or third persons in connection with a representation, the funds must be held separately from the lawyer’s.
2. When a lawyer holds funds of clients or third persons in connection with a representation, the funds must be held in in one or more accounts in a financial institution.
3. Funds held as a result of a representation in a lawyer-client relationship must be held in a “trust” account.
4. Funds held as a result of a fiduciary relationship that arises in the course of a representation or as a result of a court appointment shall be held in a “fiduciary” account.
5. At a minimum, a lawyer’s trust accounting system must include:
- a system showing all receipts & disbursements from the account, including entries that show the source of the receipts & the nature of the disbursements;
- a record for each client or person for whom funds are held that shows all receipts and disbursements made for that client or third person and carries that client or third person’s running account balance;
- records documenting timely notice of receipts & disbursements to all clients and persons for whom funds are held;
- records documenting timely reconciliation of all accounts, with “timely” defined as “no less than monthly;” and,
- a single source that identifies all trust & fiduciary accounts maintained by the lawyer.
6. Funds held in connection with a representation that are not reasonably expected to earn net interest or dividends not only must be held in a “trust” account, they must deposited into a “pooled interest-bearing trust account” – aka “an IOLTA account.”
7. IOLTA accounts may only be held at approved financial institutions.
8. A lawyer must promptly disburse funds that a client or third person (including the lawyer) is entitled to receive.
9. A lawyer may deposit the lawyer’s own funds in a trust account, but only in an amount necessary to pay service charges & fees on the account.
10. Complete records of all funds held in trust must be maintained for 6 years following the termination of the representation.
Here are additional resources:
- Trust Accounting: Basic Requirements
- Trust Account Tuesday: Don’t Commingle
- Don’t disburse without collected funds.
- Teddy KGB on prompt notification and delivery
- When a third-party asserts an “interest” in funds held in trust
- Nonrefundable fees
- Misappropriation: Don’t.
- With trust accounts, verify
- Third-Party Claims against Client Funds
- Trust Account Scams Continue
- T.I. & Jack Torrance: an overview of the trust account rules
- Want to save $2.5 million? Learn to identify trust account scams
- The basics of fee agreements
The Trust Account Videos
- Don’t Fear, Simplify. (25 minutes)
- Basic Requirements(41 minutes)
- Contingent Fees, Referral Fees & Fee Sharing(22 minutes)
- Flat Fees, Misappropriation & Trust Account Scams(35 minutes)
- Collecting & Disbursing Funds(33 minutes)