Dos and don’ts of client trust accounts
“The buck stops with you,” says Sheila M. Blackford of the Oregon State Bar Professional Liability Fund in a paraphrase of President Truman’s famous quote, explaining that it’s ultimately the lawyer who is responsible for his client trust account, even if he designates someone else to help him handle it.
In her Law Practice Magazine article, “Managing Your Client Trust Account,” Blackford cites Model Rule 1.15 on safekeeping property, and writes that the number one reason for lawyers getting into regulatory hot water is due to mishandling their client trust accounts.
To help lawyers properly manage their accounts, Blackford offers eight tips:
Always remember that money that belongs to your client belongs in your trust account—and until you’ve actually earned the money, it continues to belong to your client. Caveat: Some lawyers like to use “earned upon receipt” fee agreements so the money can be put into their general account, thereby avoiding the need to use a trust account. Be sure to check your state rules governing this type of fee arrangement before you try to write one.
Explain in your fee agreement how you apply money held in your trust account toward the legal fees and costs incurred. Also explain that a statement will be provided showing these charges, along with the balance and any amount that’s needed to replenish the trust account balance to a required minimum balance, known as an “evergreen account.”
Only use funds in the trust account for client’s expenses. Write a trust account check payable to your firm and deposit it into your general account and then write a general account check to pay for your associated overhead expenses (e.g., do not pay your bar dues out of your trust account, please).
Keep a clear, detailed “paper trail” of all trust account deposits and withdrawals.
Wait an appropriate amount of time for deposits to clear before writing a trust account check. Be careful to verify that funds have been collected and are in the account first.
Watch out for fraudulent cashier checks, which frequently hit on the day before a bank holiday. Ditto for scams involving wire transfers. And take extra steps to protect your trust account check supply and checkbook from getting into the hands of an embezzler or thief. Lock them in a drawer or in your office safe.
Plan ahead to protect your clients’ funds in the event of your death, impairment or disability. Who will sign a trust account check to refund money belonging to each of your clients? Contact your bar for help in making provisions to have a special authorized signer on your trust account if you are a solo practitioner.
And for our final to-do—and it’s a big one—maintain your trust account records for the proper time as required in your jurisdiction, likely five years from the date the matter is closed. Be sure to back up your computer to preserve any electronic records, too.“Managing Your Client Trust Account” is from the January/February 2011 issue of Law Practice Magazine, a publication of the Law Practice Management Section.