2. Law Practice Management Class #8 Trust Accounting and Rules

3. Bank Accounts Three checking accounts on day 1:Three checking accounts on day 1: –Personal account –Office account –Trust (IOTA) account Tip: Use time/billing/accounting software customizations to color key screen checks to actual paper checks – avoids confusion

4. Personal account Print “Personal Account” on:Print “Personal Account” on: –Checks –Checkbook –Deposit Slips Clearly indicate that this is not a firm operating account or trust accountClearly indicate that this is not a firm operating account or trust account Only for non-office personal or family expendituresOnly for non-office personal or family expenditures Spouse may be a signatory on this accountSpouse may be a signatory on this account

5. Office account Print “Office Account” on:Print “Office Account” on: –Checks –Checkbook –Deposit Slips For all items that are, or might be, related to the income and expenses of the law practiceFor all items that are, or might be, related to the income and expenses of the law practice Spouse or assistant may be signatory on this account, but for use only in clearly defined situationsSpouse or assistant may be signatory on this account, but for use only in clearly defined situations

6. Trust (IOTA) account Print “Trust (or “IOTA”) Account” on:Print “Trust (or “IOTA”) Account” on: –Checks –Checkbook –Deposit Slips NEVER use for your own moneyNEVER use for your own money You are the ONLY signatoryYou are the ONLY signatory Be aware of the rules for accounts and record keepingBe aware of the rules for accounts and record keepingaccounts record keepingaccounts record keeping

7. Required Trust Account Records (FL Rule 5-1.2) Designated as “trust account”Designated as “trust account” Original or duplicate deposit slipsOriginal or duplicate deposit slips Original cancelled checksOriginal cancelled checks Documentation for disbursements and transfers from trustDocumentation for disbursements and transfers from trust Separate cash receipts and disbursements journalSeparate cash receipts and disbursements journal Separate file or ledger for each client or matterSeparate file or ledger for each client or matter All bank statements for each trust accountAll bank statements for each trust account Retain all of above for 6 yearsRetain all of above for 6 years

8. Trust account maintenance Surest and fastest way to get suspended or disbarred is to ignore trust account rulesSurest and fastest way to get suspended or disbarred is to ignore trust account rulessuspended or disbarred suspended or disbarred Read Foonberg’s The ABA Guide to Lawyer Trust AccountsRead Foonberg’s The ABA Guide to Lawyer Trust AccountsThe ABA Guide to Lawyer Trust AccountsThe ABA Guide to Lawyer Trust Accounts

9. Foonberg’s trust account tips Use “Trust” in account name and on all account materialsUse “Trust” in account name and on all account materials Use red checkbook cover (to designate “danger”)Use red checkbook cover (to designate “danger”) You are the only signerYou are the only signer Reconcile account monthly (required by FL Bar Rules)Reconcile account monthly (required by FL Bar Rules) Understand the IOTA rulesUnderstand the IOTA rules

10. Foonberg’s trust account tips (cont.) Notify the client promptly of all changes to their trust account balanceNotify the client promptly of all changes to their trust account balance Know if your jurisdiction permits non-refundable retainers (directly to operating account, not to trust)Know if your jurisdiction permits non-refundable retainers (directly to operating account, not to trust)non-refundable retainers non-refundable retainers Do not commingle firm or personal funds with client funds in the trust accountDo not commingle firm or personal funds with client funds in the trust account Do not write checks on funds deposited into trust until you know the deposited check is good (overdrawing trust account is per se ethical violation - no defenseDo not write checks on funds deposited into trust until you know the deposited check is good (overdrawing trust account is per se ethical violation - no defense

11. Check security tips Don’t use a check writing machineDon’t use a check writing machine Don’t use a signature stampDon’t use a signature stamp Keep all checks in a securely locked drawer or cabinetKeep all checks in a securely locked drawer or cabinet Restrict access to checks to self and trusted assistant (and/or spouse)Restrict access to checks to self and trusted assistant (and/or spouse) Avoid leaving a space between the dollar sign and the written number to keep the check from being alteredAvoid leaving a space between the dollar sign and the written number to keep the check from being altered

12. More check security tips Order checks and deposit slips from a reputable sourceOrder checks and deposit slips from a reputable source Make sure checks have appropriate security features:Make sure checks have appropriate security features: –Chemically sensitive paper –Erasure protection –Microprint signature line –Warning box and security screen in endorsement area on back Personally sign all checks and do monthly reconciliationPersonally sign all checks and do monthly reconciliation

13. Other bank accounts Savings accountSavings account –Not much use early in life of your practice Payroll account (or use a service)Payroll account (or use a service)service –Use as a separate checking account for payroll and payroll taxes –Use special payroll checks with spaces for withholding –Transfer enough from “office” account to equal gross pay plus (per Foonberg, p 415) 12% to 15% for payroll taxes, workers comp., etc.

14. Avoid being a money launderer Client may ask you to deposit one of their checks in exchange for a check from your accountClient may ask you to deposit one of their checks in exchange for a check from your account Could subject you to state and federal criminal and civil liabilityCould subject you to state and federal criminal and civil liability

15. Selecting a bank IOTA accounts profitable for banks (and also for indigent legal services)IOTA accounts profitable for banks (and also for indigent legal services) Convenient location (to office or route between home and office) is importantConvenient location (to office or route between home and office) is important Low or no fees:Low or no fees: –No service charges on any accounts –Free check printing (within limits) –Courteous (even preferential) treatment