Funds in a Client Fund Trust Account
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Retainers – fee advancesCosts and expensesEstate proceedsEscrow fundsSettlementsJudgment paymentsFunds from third parties to pay client
Retainers /Fee Advances
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A fee advance is deposited into the trust account.
The fee may not be withdrawn until it is earned.
Does not apply to “true” retainers
Escrow Funds
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Reasons a firm will receive escrow funds:Real estate transactionsWhen a debtor's payments are made to a creditor
If there is a dispute regarding a debt
Client’s PropertyProperty other than cash must be
accounted forSecurities, stock certificatesPersonal property
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Interest on Lawyers Trust Accounts IOLTA Accounts
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Mandatory deposit to IOLTA account:“Nominal” fundsFunds held for “short period of time”
Compliance is mandatoryInterest goes to state bar association
Funds legal service programs for indigentFunds client security fund
Generally, IOLTA accounts or unsegregated accountsDifferent client’s funds are deposited in same
account
Non-IOLTA Client Trust AccountsAn interest bearing client trust account
where the interest is payable to the client
May be segregated or unsegregatedPOINTER:
Better practice to establish individual segregated accounts for each client
Difficult to account for and allocate the interest between several clients in a segregated account
Assign client’s SSN or EIN to the account
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Rules Applicable to All Trust AccountsThe account must be clearly identified as a
“Trust Account” or “Client Trust Account”Signatories on the account should be
licensed attorneysCannot deposit law firm funds in the accountCannot keep law firm funds in the accountCannot withdraw trust funds and apply to a
disputed fee(cont.)
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Rules Applicable to All Trust Accounts (cont.)If a client asks for trust funds you
must deliver promptlyMust account to the client for
funds held in trustMust account to the State Bar if
requestedMust keep trust account records
for five (5) year following completion of representation
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Trust Account Accounting RulesManual vs. Computerized systemsMinimum Requirements
1. Client Ledger2. Account Journal3. Bank Statements and cancelled
checks4. Reconciliation Report5. Journal of Other Non-cash
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Client LedgerA written ledger for each client that
includes:Date of transactionSource of deposit and amountPayee and purpose of payments and amount
Running balance of client’s account
Useful where trust account holds several client’s funds
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•Chk •Fees •Costs •Trust Funds
•Date
•Description •No. •Charge •Rec’d •Balance
•Adv. •Rec’d •Balance
•Rec’d •Paid •Balance
•2/25 •Client Deposit •2434
•$2,500 •2,500.00
•3/1 •Legal Fees •$475.00 •$475.00 •2500.00
•3/1 •Fee Payment •467 •475.00 •-0- •475.00 •2,025.00
•3/10 •Filing fee •470 •120.00 •1,905.00
•4/1 •Legal fees & costs
•860.00 •860.00 •145.00 •145.00 •1905.00
•4/1 •Fee Payment •474 •860.00 •-0- •145.00 •-0- •1005.00 •795.00
•5/1 •Legal fees & costs
•525.00 •525.00 •27.80 •27.80
•5/1 •Fee Payment •482 •525.00 •-0- •27.80 •-0- •552.80 •242.20
•5/5 •Client Deposit •2564
•1000.00 •1242.20
•5/15 •Deposition Svc •491 •345.00 •897.20
•6/1 •Fees & costs •395.00 •395.00 •15.20 •15.20
•6/1 •Fee Payment •500 •395.00 •-0- •15.20 •-0- •410.20 •487.00
Account JournalSimilar to the Client Journal Records all transactions for the
accountIncludes all interest paid and bank charges deducted
Keeps a running balance of the account
If you have a segregated trust account Client Ledger is sufficient
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Trust Account AbusesMisappropriation
Using trust funds for personal purposes
Overdrawing trust accountUsing one client’s funds to pay another clients obligation – Example:
Client A $1,000Client B 500
Firm writes a check for $600 for Client B
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Trust Account Abuses (cont.)Comingling
Client’s funds are intermingled with attorney’s Leaving a buffer or reserve in the trust account
Depositing a “true retainer” in trust accountFailure to pay fees when earned
Failure to promptly disburse funds in trustSettlement proceedsClient expensesAttorney’s fees
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