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hello and welcome to trust accounts by the book I'm Christine Bilbrey I'm a senior practice management advisor at legal fuel the practice resource center of the Florida Bar and I'm Elizabeth Harvard ethics counsel for the Florida Bar there are a few key concepts in dealing with trust accounting before we get into the nuts and bolts of how to do it the first concept is you're a fiduciary the second is your money has to be kept separate from the clients money any money entrusted to you by a client or third party has to be kept separate from your own money that's called commingling finally tasks can be delegated so you can have non lawyer assistance or an accountant handle some of the actual tasks of trust accounting that the responsibility always stays with the lawyer so you are always responsible for what happens the fiduciary is a person or organization that goes to someone else the duties of good faith and trust all lawyers are fiduciaries with regard to their clients and when they accept money from clients or third parties in connection with representation they're fiduciaries to that money so it is the highest legal duty of one party to another and it means that you are required to act ethically to protect the interests of that other person and in this case when you're dealing with trust accounting you're obligated to act in the other either the client or third parties best interests when dealing with their money or their other property so a lawyer can delegate specific tasks so a non lawyer can be a signatory on a trust account as we'll talk about a little bit more later and you may have a bookkeeper who handles a lot of the tasks such as the reconciliations that have to be done a lot of lawyers hire accountants to actually audit their trust accounts so that they have a third party looking at what they're doing to make sure they're doing it correctly however again the ultimate responsibility remains with the lawyer the bar does not discipline your non lawyer assistants or your accountant so commingling the third main concept in dealing with trust accounting is prohibited so a lawyer has to hold and Trust under the rules any funds or any property that belonged to a client or a third party that the lawyer takes in connection with representation the lawyer has to hold those things separate from the lawyers own property when you're talking about money that means it has to be held in a separate trust account so all funds that do not belong to the lawyer are kept in a separate trust account so that can include advances for fees advances for costs and other expenses related to the litigation anything that is not earned on receipt has to be held in trust so there's two main types of trust accounts the first one is the interest on trust accounts and that is what if it's short-term we're gonna go into more detail about this it's short-term and it's it's just a small amount it's got to go into the iota a trust account non iota accounts are actually where it's the interest is going to be earned on behalf of the client so the first one is the one that you're probably most familiar with the interest that's earned is automatically transmitted by your financial institution to the Florida Bar Foundation so that money goes to help for legal services and different things that the Bar Foundation uses that fork the rule has changed about financial institutions so you now can use a credit union Elizabeth when did that go into effect I think it was like February 1st yeah February 1st in 2018 so that was a big change so the eligible institutions whether it's a bank or credit union will calculate and remit the interest on your all your client trust funds send that quarterly you don't have to keep track of the interest that's being earned it's just going to come and go that's not part of your reconciliation and like I said the Florida Bar Foundation will use these funds to promote their access to justice and help address the civilly legal needs of the poor non IATA trust accounts are typically opened for an individual client because it's going to be a large amount of funds or the attorney is going to be holding it for a longer period of time and that is when you want the interest to accrue for the benefit of the client just a little note there's actually a rule that says a lawyer cannot earn interest on trust accounts and that's again because you're a fiduciary you're not allowed to make money off of a client or their party's money so when you're getting ready to open a trust account for the first time I you really have to make sure that you're using the correct title the words trust account have to be in the title so typically it's going to be the name of your law firm Smith and Jones trust account some people have I Oh detect on that that's that's not a replacement for the words trust account also do not put the Florida Bar foundations name in the title of your trust account sometimes financial institutions you've set it up correctly and then you get your checks and it turns out they've changed it and so if you call us we're gonna say yes you do need to get that corrected because those checks are going to go out and they do have to be titled correctly you can never have overdraft protection on your trust account don't link it to your operating account don't have an ATM card you can't go and take cash out of that trust account and then the thing that is very important there's a letter that the attorney is going to sign and give to the financial institution that tells the bank that anytime that the account has become overdrawn or that a check is returned if it's not Bank error they do have to notify us and a good thing to do is if that happens is to go ahead and turn yourself in it'll be noted that you took care of that if it was a mistake and I believe you call it a caps to do that yes or you can email a cat trust at Florida bar's auto work so there's three main forms that you need when you're going to go down to the bank and open a trust account those are all available at our website legal fuel com the first one is the notice to bar foundation form this alerts the Florida Bar Foundation that you have opened this account you need to print these out and take them with you because there's information you're gonna get from the bank that will go on those forms the notice eligible institution lets the bank know what the requirements are and then the trust account bank notification letter is what I just talked about instructing the bank that they must notify the Florida Bar if there has been an overdrive left or a return check so there are official forms you'll find these on our site you can also go to the Florida Bar Foundation website and find these so this is the the one that goes salable institution and then this is a template for a letter so you'll need to put your own firm name customize this and sign it and take it to the bank with you so when you open a trust account we get a lot of questions about this the rule just talks about having a small amount typically and it's not in the rule but typically most attorneys are going to open that with two hundred dollars or so and it's really just to cover in case the bank takes a fee out of your trust account you don't want to have an overdraft or a return check because the bank and it vernal II took something out a fee related thing out of your trust account so you do you can maintain funds this isn't considered commingling it's the only time that that you can have a little bit of money in the account and you do maintain that an important thing to do is do have a client ledger card that's actually for your firm otherwise a lot of times people can't reconcile their account because they forgot that they have that little bit of money in the account so one tip to help you distinguish between your operating account and your trust account is to have the checks be a different color so say have your trust account checks be green and your operating account checks be red this means that you will not inadvertently use an operating account check instead of a trust account or vice versa the vice versa is the one that's going to get you into more trouble uh-huh yeah something that that's very clear because just because you accidentally shoved the wrong check in the printer it's still going to come out of the the wrong account there's also high security checks that decrease the odds of becoming a victim it's like the the old checks even if it was an ink they could basically wash them and take off and have you know change the payee on them so look into that when you're ordering your checks so there is a relatively new rule that went into effect in 2014 that requires all law firms who have accounts to have a written trust account plan so anybody who has more than one attorney has to have a written plan in place for each of the farms trust accounts so a firm might have an iota a trust account and a separate interest bearing account with sub accounts for individual clients where the interest is occurring to the benefit of those clients so you would have to have a separate written plan for each of those accounts the written plan has to include the names of all people who have our signatories on the trust account so as we've said before you can have a non lawyer who is a trusted lawyer via signatory on your trust account but anybody who has a signatory authority in your trust account anybody who can sign checks for your trust account has to be listed on the plan anybody who is responsible for reviewing trust accounts or responsible for overseeing the reconciliation on a monthly and annual basis of the firm's trust accounts those people have to be listed as well and these forms again are available on legal fuel com in our document library and in this section under trust accounting so again a firm manager again it has to be somebody who's a trusted employee or a CPA can be authorized to sign trust account checks but the lawyer is responsible for making sure they oversee that person's tasks that they perform it's often a good idea to insure them and even bond the non lawyer that you are authorizing to sign on your trust account that person's name and title would be written in the plan along with the name of the partner who's responsible for overseeing that that signatory oh and a frequently asked question on this topic after you draft the trust accounting plan and sign it it's something that you maintain with your trust accounting records at your firm don't mail it in to us another thing to remember is you need to update the plan periodically if you have changed signatories that plan has to be changed to reflect accurately who the current signatories are so we'll talk about a little bit about some of the kinds of things that get deposited into your trust account first of all non-refundable flat fee non-refundable flat fees are often charged in cases like immigration or criminal defense and they are earned on receipt you don't then deposit them into your operating account not your trust account unless the client writes you a check that represents both a non-refundable fee plus costs that are too to be expended in the case in that case you would deposit the entire check into your trust account and then within a reasonable time remove the portion that represents your non-refundable and therefore earned fee that is it's yours the minute you get it it doesn't belong to the client anymore now in order for a non-refundable fee to be a non-refundable fee you have to designate it as such in order for that to be true you also have to do that in writing so you have to either have a written agreement with a client that both you and the client sign or you have to confirm to the client in writing after you've discussed with a client the fact that you're gonna charge a non-refundable flat fee so that there's documentation but that's what the fee is intended to be so again those go into operating not trust retainers retainers are often an often misunderstood term a lot of people use the team term retainer to be interchangeable with an advance fee they are not the same day a true routine err is a amount of money that's given to a lawyer to guarantee their availability to a particular client so they're not funds against which future services are billed and they're paid to guarantee the lawyer will be available if the client needs the lawyers legal services they are like the non-refundable flat fee earned on receipt so again with those you put them into your operating account and again unless they're given to you say with an advance on costs in which case you put the entire check into trust and remove the part that represents your retainer which is yours the third kind of fee that often is charged and as advanced on fees and costs so advances are fees against which err it's an amount of money went against which you're gonna bill usually on an hourly basis so they're the property of the client because you haven't earned them yet that has to be placed into trust and you bill against it and take fees out on a in a reasonable period of time after you've earned them so they're held separate from your money so as Christine said earlier iota is only short-term or nominal funds so you have to determine what's nominal or short-term so if you have funds that are either such a small amount of money or going to be held by you for such a short period of time that they really cannot generate beneficial interest for the third person or the client that you're holding it for then we're gonna that's iota that's nominal or short term so basically the cost of administering figuring out how much the interest is going to be is more than the cot then the interest is going today so the way that's handled is those are aggregated all together not only the funds that you're holding on behalf of all these third parties but also other funds from lawyers who are also holding them in an iota account those all get activated together they actually can generate interest under those circumstances and that interest is sent to the foundation so it's actually important to remember when you're dealing with that that you the lawyer have to make that determination in good faith as to whether it's short term or nominal do not have your clients sign something saying they agree that they are short-term or nominal or that you're going to treat them as short-term normal or the client agrees that they will be placed in trust the reason for that is it creates a tax liability for the client if the client is the one who controls the money then the IRS will tax them so you the lawyer have to make the determination that it's nominal or short-term it takes the clients autonomy out of that situation and they are not going to get taxed on it so you make that judgment and you just do it in good faith just Firstman against uncollected funds lawyers are not permitted to disburse funds that are held in a trust account until the funds are actually collected collected means they've been deposited settled and actually credited and released to the lawyer's account sometimes you will get your bank accounts and see that the funds are listed as being available that does not necessarily mean that they are they collected that means the bank is looking at your account and sometimes they're looking at all of the accounts you're holding in a single institution and deciding okay if you write against those funds you have enough funds in all of your aggregated accounts to cover it so they will say the funds are available even when they haven't been collected so you need to make sure that the funds are collected funds before you disperse unless one of the exceptions apply so what are those exceptions there are certain types of deposits from different institutions that carry a very limited risk that they're not going to actually be collected so under those circumstances you're allowed to disperse against on collected funds so for example if you have a certified check or a cashier's check that you're depositing into your trust account or it's loan proceeds issued by a federally or state chartered bank then you have a bank check an official check a traveler's check a money order a check that's written against a licensed Florida bar members trust account or a real estate brokers trust account a check that's been issued by the United States the state of Florida or any kind of agency of the state of Florida or a check this issue by an insurance company title insurance company or licensed title insurance agency authorized to do business in the state of Florida these are all things that the bar the and the court really thinks are minimal risks they're going to be collected at some point there is a very small chance that those funds will be subject to say a stop order or something so you can disperse against uncollected funds and under those limited circumstances the important thing to remember though if you are dispersing against uncollected funds you're responsible for those funds so even though it's permissible many lawyers choose not to disperse against funds until they are collected because it's a not required and be at your own risk if for some reason those funds never become collected it's the lawyers responsibility to make up the difference all right if you just first against uncollected funds in any situation other than the exceptions that we just talked about that can be of grounds for finding of professional misconduct so it's a its grounds for discipline and the reason for that is you're gonna rob Peter to pay Paul other clients funds are going to be used to cover the funds that you dispersing it gasps so you're actually misappropriating another clients funds when you do even if the check isn't returned because you had those other clients money's in the account so trust account shortages what do you do if there is ever a shortage in your trust account well you hope that never happens to you but the reality is there are lots of times where there is a theft from a trust account either because a lawyer in the firm has a signatory on the account steals funds or sometimes a trust hit non-lawyer employee is a signatory on the account steals funds additionally there are sometimes just a shortage because maybe you had a bank and a bank error that occurs and the bank paid out too much on the check for example because it misread the check so if you have a situation where you have a shortage in your trust account it's the lawyers obligation to act immediately to protect the funds of the other clients depending on the circumstances you may even have to shut down a trust account and move the funds to a new trust account just it particularly in a situation where there's been a theft and particularly in a situation where there has been some kind of scam where you don't even know who the third party is who had access to those funds so if if the lawyer does what the lawyers should do and and makes up that shortage and their trust account they're not going to be considered guilty of professional misconduct however if the lawyer makes up that shortage the lawyer does have to notify the bar so that bar knows there was a shortage and the lawyers trust account and again you'll have the opportunity to explain that to the Florida Bar and this actually happened that a firm that I was at they did workers compensation claims and a grocery store chain had paid out the settlements that were agreed to deposited collected and then that particular grocery store chain filed for bankruptcy and when the bankruptcy officer came in they stopped payment all the checks and so we were scrambling to replace the funds through no fault of the attorneys so again a lawyer is allowed to deposit their own funds into trust to replenish a shortage in the trust account either because of a theft or the bank error it can't be more than what is required to make up that shortage and again the lawyer has to immediately notify the Florida bar's for your regulation Department at that the name of their trust account the cause of the shortage and the amount of the replenishment and that can all be sent to a cap trust at Florida Bar org one of the things we get a lot of questions about is monthly reconciliation this is a requirement under the rules and this means every single month that you are going to do what we call a three rate would three-way reconciliation and so that involves the trust account journal which is basically the checkbook register of the entire trust account the monthly bank statement from your financial institution and then a total of all the client ledger cards meaning that every client you have that has money in your account needs to have an individual ledger card so that's like the checkbook register of that clients matter so if you we have forms on legal fuel com and so each month you need to reconcile these three so that means and you'll see this on the form that any checks that you've written but the bank doesn't know about them you're gonna have to write in or if you have made a deposit but it hasn't been credited on that month's bank statement you've got to add that in and that would cause it to balance if you if you note those two differences well the lawyers ask why we have so many requirements that seem very technical and they really actually do make sense the reason you have a trust account ledger which is basically your checkbook is you have to be able to know what the balance is in your trust account at any given moment because you do not want to have an overdraft and the reason why you have separate individual ledger cards is again because you're a fiduciary you have an obligation to be able to notify your clients at any time or upon their request exactly how much of their money you are holding for them and this is one of the things that comes up with the file retention rules so all these trust account records have to be maintained for a minimum of six years from the close of a matter so don't forget to print out those ledger cards and keep those two with the file so this is an example if you don't have trust accounting software so if you're not doing this on your computer you can actually download these Excel forms on legal fuel comm and save them and you can this this will meet the requirements but you do have to do this every month and if you fill in it's all pre-programmed for you so if you add in the amounts from your bank statement and your client ledger cards are already in there you're gonna be able to balances each month I recommend that you actually actually reconcile it each month that you print out the reconciliation form and date it in science so you have that proof on hand that you've done that if you let it I think you know attorneys are very busy they'll a few months will go by and they'll realize they haven't done this stay on top of this if it just becomes a habit it'll only take a few minutes each month and so you are required to maintain this record that you have reconciled your account so I mentioned that you do have to retain these records and so when you are operating a trust account there are some documents that you have to keep and you you can after you have these documents it's perfectly fine to scan them in you can maintain them digitally but you need the deposit slips and the deposit slip should show the date the amount of the deposit and where it's coming from and which client matter it goes to so you're gonna actually the bank typically will give you these the old ones for a carbon and you would fill out if you're depositing multiple checks you'd write on every matter you have to have the cancelled checks for all trust checks it's you've written and it must be the front and the back of the check a lot of banks were only sending in that bank statement they would send you a picture of the front of all of your cheques and so you need to if your bank isn't aware of it let them know that it is a rural requirement that they also maintain the back because we have to see who actually endorsed the cheque let's get the head there you need detailed records of all electronic transfers so if you are banking online and you've build a client and so you're now permitted to move the fee that you've earned from the trust account to the operating account and you do it online you still have to create a paper trail of all the details of that electronic transfer just as if it was a paper check if you go into the rules there's going to be detailed requirements for what goes into a wire transfer I think it's like who initiated it when it happened a lot of details for that you need the cash receipts and disbursements journal and then the ledger card or page for each client and the bank statement so if you're just checking your account online real quick go ahead and save that bank statement as a PDF if you're doing digital files or print that out and staple it to that form that shows that you reconciled your account balance the rule states that a law firm or attorney must maintain their trust account records as I mentioned for at least six years from the final conclusion of representation of that matter if you your firm dissolves and you are actually going to another firm or you were a solo and you're joining a big firm you do have to still maintain those records if you sell your firm the law firm or the partners have to make reasonable arrangements for the maintenance and retention of those client trust account records just like they would the actual matter files so if you sell it that's mentioned in the rule to make make arrangements how the buyer is going to maintain those records because if a client comes looking for you years later you need to they need to be able to find out where their information is so unfortunately this happens a lot you're you've been reconciling your account you think you're on top of everything and then you find that you wrote a check a few months ago and that client never cashed it now you can't find that client you've tried to contact them for a period of time and that amount is just sitting there in your trust account so there is a rule about that it's in Florida Statutes and we have instructions from the Laura bar so you are required to state that the funds are designated on the trust account record is being held for a missing owner so you would actually put that on the client ledger card however you're maintaining those records you have to have made a diligent attempt to contact the clients so you go back through the file any addresses you had do a search and really try to get that money to the client that's the thing but if you have done that and you still can't locate the client you are going to have to turn those funds over to the state of Florida and that's when the Florida Statutes enters into this so the unclaimed forms are reported to the Florida Department of Financial Services and if you come to our website or you can email us we can send you there's just a little quick handbook of how you go online you register yourself and you turn those funds over to the state of Florida and so this is their telephone number the website is that Florida treasure hunt a lot of people go on there looking to see if somebody left the money that they don't know about but it's also the same website if you need to turn over unclaimed funds often it's not that you can't find a person sometimes it's the firm can't figure out who the money belongs to you follow the same exact procedure under those circumstances yeah and sometimes it's little amounts and so someone will call us and say well I've got ten dollars on this one and five dollars for this one if you can't return those the state of Florida lets you bundle that together because I think there's a little bit of fee of a fee to turn it over so to make it worth your while you can bundle them the trust accounts certificate we get a lot of questions about this because I think people when they hear the monthly reconciliation they think they're supposed to be filing something with the borrower every month and that's not the case the trust account certificate is actually on your annual fee statement it's just a section of the fee statement where you are certifying whether you have complied with the trust accounting rules if you don't comply I think there's a box you check and that triggers something else but I think there's three choices but this is this is just something you're gonna find on your annual fee statement and if you're paying online you will not be allowed to pay your fees until you've certified whether or not you're in compliance with the trust accounting rules and remember you can certify that you're in compliance with trust accounting rules if you don't have a trust account because you never accept money from clients or third parties in connection with representation mm-hmm or your estate attorney or a judge you still have to respond to the question even if you don't have interesting one okay so now say your solo your joining that big firm or you're retiring or you know what we talked about before sometimes you're going to trust account down if there's been fraud so there is a process for that we also have a form a lovely formal legal field comm but this is the information that you've got to get to the Florida Bar Foundation you go ahead and you balance the account you know reconcile it shut it after it is closed you are going to let the Florida Bar Foundation know this is the account number the financial institution the name it was held under they need to know the date that you closed it the date and address employer affirm and you send it to the Florida Bar Foundation which is outside the Florida Bar don't send it to us and this is all available on our website and it's you can you can call them I think they're letting you email it better to do the form and have it in writing and if you have questions you can call either the Florida Bar Celtics hotline at 1-888-201-1014 credit