1. Chapter 9 The Client Funds Trust Account

2. Funds in a Client Fund Trust Account
Retainers – fee advances
Costs and expenses
Estate proceeds
Escrow funds
Settlements
Judgment payments
Funds from third parties to pay client

3. Retainers /Fee Advances
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The fee may not be withdrawn until it is earned.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

4. Escrow Funds Real estate transactions
Reasons a firm will receive escrow funds:
Real estate transactions
When a debtor's payments are made to a creditor
If there is a dispute regarding a debt

5. Client’s Property Property other than cash must be accounted for
Securities, stock certificates
Personal property

6. Two Types of Client Trust Accounts
IOLTA Accounts
Non-IOLTA Account

7. Interest on Lawyers Trust Accounts IOLTA Accounts
Mandatory deposit to IOLTA account:
“Nominal” funds
Funds held for “short period of time”
Compliance is mandatory
Interest goes to state bar association
Funds legal service programs for indigent
Funds client security fund
Generally, IOLTA accounts or unsegregated accounts
Different client’s funds are deposited in same account

8. Non-IOLTA Client Trust Accounts
An interest bearing client trust account where the interest is payable to the client
May be segregated or unsegregated
POINTER:
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

9. Rules Applicable to All Trust Accounts
The account must be clearly identified as a “Trust Account” or “Client Trust Account”
Signatories on the account should be licensed attorneys
Cannot deposit law firm funds in the account
Cannot keep law firm funds in the account
Cannot withdraw trust funds and apply to a disputed fee
(cont.)

10. Rules Applicable to All Trust Accounts (cont.)
If a client asks for trust funds you must deliver promptly
Must account to the client for funds held in trust
Must account to the State Bar if requested
Must keep trust account records for five (5) year following completion of representation

11. Trust Account Accounting Rules
Manual vs. Computerized systems
Minimum Requirements
Client Ledger
Account Journal
Bank Statements and cancelled checks
Reconciliation Report
Journal of Other Non-cash Properties held

12. Client Ledger A written ledger for each client that includes:
Date of transaction
Source of deposit and amount
Payee and purpose of payments and amount
Running balance of client’s account
Useful where trust account holds several client’s funds

14. Chk
Fees
Costs
Trust Funds
Date
Description
No.
Charge
Rec’d
Balance
Adv.
Paid
2/25
Client Deposit
2434
$2,500
2,500.00
3/1
Legal Fees
$475.00
Fee Payment
467
475.00
-0-
2,025.00
3/10
Filing fee
470
120.00
1,905.00
4/1
Legal fees & costs
860.00
145.00
474
795.00
5/1
525.00
27.80
482
552.80
242.20
5/5
2564
5/15
Deposition Svc
491
345.00
897.20
6/1
Fees & costs
395.00
15.20
500
410.20
487.00

15. Account Journal Similar to the Client Journal
Records all transactions for the account
Includes 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

18. Trust Account Abuses Misappropriation
Using trust funds for personal purposes
Overdrawing trust account
Using one client’s funds to pay another clients obligation – Example:
Client A $1,000
Client B
Firm writes a check for $600 for Client B

19. 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 account
Failure to pay fees when earned
Failure to promptly disburse funds in trust
Settlement proceeds
Client expenses
Attorney’s fees

20. Trust Account Abuses (cont.)
Failure to account to client for trust funds
Failure to notify client of receipt of trust funds
Use of Trust account to assist client in secreting assets
Creditors
Other owners – spouse in divorce, partner, shareholder