Category: Trust Account

Helpful Practice Aid: Trust Account Reconciliation

SBlackford on June 11, 2014

by Sheila Blackford ©2014 What do you do when the bank statement for your Lawyer Trust Account or IOLTA (Interst on Lawyers’ Trust Accounts) arrives? You need to reconcile your bank statement. Your bank statement on the back shows you how to do this or your softwRe program like QuickBooks helps youto do this. But you need to go further. Use this Reconciliation form to reconcile 1. your reconciled trust account bank statement, 2. your trust account checkbook register or the equivalent trust ledger and 3. the sum of each client ledger card or equivalent reports for individual client trust sub accounts. This handy Trust Account Reconciliation form will help you double check that it all adds up!

Trust Account Reconciliation

Trust Account Uncategorized

Helpful Practice Aid: Client Ledger Card and Trust Account Journal

SBlackford on June 11, 2014

by Sheila Blackford ©2014 If you hold money belonging to your clients, you need to keep this money separate from your law firm’s money. You will need to open up a Lawyer Trust Account, or IOLTA (Interest on Lawyers’ Trust Accounts). Although your bank considers that you have one trust account, in actuality you have many: one for each client for whom you hold money. In the old days, law firms used Client Ledger Cards to keep track. These days, you’ll likely use a software program to keep track of each client’s money. Talk with your CPA about how to set up these sub accounts or call one of us PMAs to walk you through the steps. If you haven’t gotten your accounting program set up, you can use the Client Ledger Card. The Trust Journal will enable you to track all deposits into and withdrawals from your Lawyer Trust Account/IOLTA.

Client Ledger Card and Trust Journal

Client relations Ethics Fraud & Embezzlement Law Practice Management Trust Account

Cautionary Tales: Trust Account Woes

SBlackford on June 11, 2014

by Sheila Blackford ©2014 There is nothing worse for a lawyer than finding out there is less money in the trust account than is expected. This is money belonging to clients entrusted into the lawyer’s safekeeping. What happened?!

Assessment:
1. Have you been doing monthly Three-Way Reconciliations? This reconciles the sum of all client trust account balances with the trust account deposits and disbursements journal or check book register with the reconciled trust account bank statement. The PLF has a handy form you can use for this.

2. If you haven’t been doing monthly Three-Way Reconciliations, you will want to begin doing them as they can help you spot something wrong before it becomes a major meltdown.

Scenarios:
1. Lawyer control trust account check book but relies on eyeballing online trust account statement. Amount seems to be right. Lawyer writes $1,000 trust check to take fees earned on both Client A matter and Client B matter. Lawyer writes another $130 client trust account check for Client C’s court filing fees. Assistant brings billing statements to lawyer prior to mailing. Lawyer notices Client A’s billing statement shows that Client A has $370 withdrawal for fees leaving $1,130 balance. Client B’s billing statement show that Client B has been requested to remit $1,130 for $630 fees and $500 trust account replenishment. Assistant asks if lawyer want to send a second retainer agreement to Client C because it has not been returned with retainer. Lawyer writes check refunding Client A $1,130 because matter has been concluded. Today, Tuesday, the lawyer receives notice of overdraft in the trust account of $22,130. Lawyer sees that on Friday, a $15,000 deposit was made to the trust account and a $6,000 $6,000 transfer was made from the trust account to the general account. On Monday, trust account checks for $6,000 and $9,000 were cashed and the $15,000 settlement proceeds amount was reversed from the trust account. Client A was refunded the proper amount $1,130. Client B has not sent the $1,130 but the law firm already took $630 fees owed. Client C has not sent in the requested $1,000 retainer but his filing fee for $130 was paid from the trust account. Lawyer sees that the firm’s portion of Client D’s settlement proceeds $6,000 was taken by transfer and by check. Client D’s portion of the settlement proceeds $9,000 cashed. Client D’s settlement check was refused at the issuing bank because of an endorsement error so trust account bank reversed the deposit of $15,000.

How could you keep that all straight in your head?

2. Lawyer is multitasking at desk, doing banking and calling clients and answering questions from support staff. Lawyer asks bookkeeper how much Client A, Client B, and Client C are being billed in order to transfer money from the trust account to the general account. Bookkeeper says $1,000 for Client A and $1,500 for Client B, $1,550 for Client C and $2,000 for Client D to replenish trust balance and pay accounts receivable of $500. Bookkeeper uses intercom to tell Lawyer she made a mistake and that Client C owes $1,550 but only has $50 available in trust account. Lawyer returns to desk with coffee and picks up ringing phone to talk with opposing counsel. Lawyer doodles over legal pad and reads two numbers $6,050 and $500 so transfers $6,550 from the trust account to the general account. Lawyer picks up client statements to drop into mail on way home. The next month, bookkeeper notices bank says different amount in trust account than is shown in computer program. Lawyer says he doesn’t like how confusing the computer program shows transactions but says to go by what the bank shows. Bookkeeper says not enough money in general to pay payroll and rent. Lawyer asks what Client C owes. Bookkeeper says due to additional hours, Client C now owes $3,500. Lawyer does quick balance transfer of $3,500 which just covers payroll and rent payments and tells bookkeeper to process payroll checks and mail rent payment. Lawyer is shocked to come into office Monday to find that trust account is overdrawn $7,500 and that general account has $0 balance.

Client C had balance in Account Receivable (AR) of $1,500 after applying the $50 balance in Client C’s trust account balance. Lawyer took $1,550 because did not hear message from bookkeeper about this over the intercom while away from desk getting coffee. The next month lawyer misunderstands bookkeeper and assumes Client C owes an additional $3,500 and so transfers that amount. As a result, $5,000 was withdrawn from trust account when Client C only had $50 in trust account. Lawyer misunderstood that Client D was being billed $2,000 and had $500 AR balance. Lawyer misread numbers on legal pad and interprets that $500 is in addition to the $6,050. Lawyer has to quickly replenish $7,500 but doesn’t have that amount in the general account or the lawyer’s personal account. New client coming in with $8,000 retainer paid by credit card should save the day eliminating any overdraft.

How did they goof so badly?

3. Lawyer busy with litigating cases. Had a legal assistant to help with billing and document preparation. After a number of months, let the legal assistant go. Hired a different assistant. This legal assistant said the former legal assistant didn’t update any billing records so didn’t know how much any client had in the trust account. Lawyer looked at trust account balance online and saw there was enough money on hand. Lawyer didn’t understand online banking records for trust account or general account so just relied on whatever the balance was shown. Soon there was a big overdraft of $8,000 in the trust account. When an accountant tried to figure out both accounts, it was discovered that the earlier employee had wrongfully been taking money from both accounts. The complete amount of money embezzled is not known because a client has come forward to complain that her monthly statements haven’t shown three cash payments being made. The lawyer has needed to let go the second legal assistant because cannot afford to pay her now that the shortages are needing to be covered. The police is not hopeful that the prior legal assistant will be found or will be able to make restitution.

How can the mess in these two accounts ever be fixed?

Tips:
1. Account for every penny coming into the trust account and paid out from the trust account. Use a Trust Account Receipts and Disbursement Journal form available on the PLF website in the Practice Aids and Form category titled Trust Accounting or your trust account checkbook register.

2. Print out a report for each client showing amounts received and amounts paid out of the trust account or use a Client Ledger Card form available on the PLF website in the Practice Aids and Form category titled Trust Accounting to fully track money held in trust on a monthly basis.

3. Open your trust account statement or review the statement online every month to catch any irregularities.

4. Promptly review and reconcile your monthly trust account statement to adjust for deposits made but not credited by the statement cut-off date and checks written but not yet cashed by the statement cut-off date.

5. Use the Trust Account Reconciliation form available on the PLF website in the Practice Aids and Form category titled Trust Accounting.

6. Remember that you are ultimately responsible for the trust account even if you have a bookkeeper and accountant. You need to review the accounting carefully– especially if you aren’t “good at math.”

7. If any confusion or concerns exist about your lawyer trust account, contact one of your Practice Management Advisors at the PLF 503-639-6911 or toll free in Oregon 1-800-452-1639, Dee Crocker, Beverly Michaelis or myself, Sheila Blackford. We are confidential and are here to help.

Billing Business Planning Client relations Communication eLawyering

Practice Aids Make Perfect

SBlackford on May 6, 2014

by Sheila Blackford ©2014 Here in Oregon, attorneys and their staff have access to a plethora of practice aids and forms on the Professional Liability Fund website. Free! A few moments ago I saw an email from my colleague Beverly Michaelis, who takes care of ensuring we have up-to-date resources, letting us know we now have five updated adoption practice aids, thanks to Oregon adoptions attorney, Robin Pope. Thanks Robin & Bev! Do you do adoptions? Wondering what practice aids and forms are available? These checklists are valuable loss prevention tools to help you remember all the necessary details.

Adoption
Date is the last update:

Affidavit Verifying Notice of Right to Payment for Counseling (May 2014)
Checklist for Processing Adult Adoptions (May 2014)
Checklist for Processing Agency Adoptions (May 2014)
Checklist for Processing Independent Adoptions (May 2014)
Checklist for Processing Other Country Re-Adoptions (February 2010)
Checklist for Processing Stepparent Adoptions (December 2011)
Notice of Right to Payment for Counseling (May 2014)

The entire list of of practice aids and forms available runs 16 pages. Let me just tell you the number we have in each category:

Adoption: 7

Bankruptcy: 2

Business: 3

Child Abuse Reporting: 1

Client Communication: 5

Client Relations: 9

Closing Your Law Office: 26

Conflicts of Interest: 10

Conservatorships: 3

Construction Liens: 7

Contract Lawyering: 6

Criminal: 3

Departing a Firm: 12

Disaster Recovery: 4

Disclosure of Potential Malpractice: 4

Disengagement Letters: 4

Docketing & Calendaring: 8

Domestic Relations: 27

eCourt: 10

Engagement Letters: 10

Entity Formation: 3

File Management: 12

Financial Management: 11

Guardianships: 2

Immigration: 1

Litigation: 19

Mail Handling: 2

Marketing: 5

Moving a Law Office: 1

Nonengagement Letters: 6

Office Manuals: 4

Office Sharing: 4

Office Systems Audit: 1

Opening a Law Office: 3 – See also A Guide to Setting Up and Running Your Law Office handbook available under Books from the PLF on website

Partnership/Of-Counsel: 4

Planning Ahead to Protect Your Clients: – See also Planning Ahead: A Guide to Protecting Your Clients’ Interests in the Event of Your Disability or Death handbook available under Books from the PLF on website. All forms are included in Closing Your Law Office category

Probate and Estate Planning: 15

Real Property: 9

Retiring from Law Practice: 2

Selling Your Practice: 2

Staff: 12

Technology: 13

Trust Accounting: 13 – See also A Guide to Setting Up and Using Your Lawyer Trust Account handbook available under Books from the PLF on website

Workers Comp: 4

Client relations Ethics Law Practice Management Trust Account

Nothing Lasts Forever: The Importance of Planning Ahead

SBlackford on August 24, 2010

by Sheila Blackford ©2010 When launching a new law practice, take time to plan ahead for when your law practice will end. You may have every intention of running your firm until you are in your 70s or 80s. But what happens to your law firm if you are suddenly gravely ill and in the hospital? What happens if you don’t survive your hospital stay or worse yet, don’t survive to make it to the hospital? These are sad facts that many lawyers know happened to Someone Else. Today, I want you to consider that Someone Else could one day be you.

First things first: find someone, perferably another attorney you trust, to close your practice in the unfortunate event of your incapacity or impairment, disability or death. The business of law is like no other. Another attorney is most apt to understand the various issues of the attorney-client relationship and ethical duties involved.

1. Have a signed written agreement. This agreement should include the following provisions to authorize your Assisting Attorney to:
a.) contact your clients to get instructions on transferring their files to other attorneys;
b.) contact the court and opposing counsel for extentions of time on litigation matters;
c.) contact all relevant people with notice that your law practice is being closed;
d.) arrange for someone to become an Authorized Signer on your lawyer trust account, preferably someone other than your Assisting Attorney to provide checks and balances and check with your bank that your special power of attorney form will be acceptable;
e.) wind down your office financial affairs, collect fees earned and pay expenses owed;
f.) provide your client with a final accounting and statement of money held in your lawyer’s trust account, payments made, and amount to be refunded or transferred to their new attorney’s lawyer trust account; and
g.) liquidate or sell your practice in accordance with your wishes.

To help you with creating an agreement and other forms and letters, the Professional Liability Fund provides a helpful publication, “Planning Ahead: A Guide to Protecting Your Clients’ Interests in the Event of Your Disability or Death” one free to any Oregon lawyer who requests it. Out-of-state lawyers may purchase a copy at $15 per handbook. (503) 639-6911. The useful handbook contains sample forms including this agreement to assist in closing a law practice, a power of attorney that will give specific authority for the limited purpose of handling the lawyer trust account and bank accounts, a form for a specimen signature of attorney-in-fact, and letter of understanding to give a different person the direction to hold the power of attorney until conditions of the lawyer’s impairment require delivering it to person named as the attorney-in-fact. The forms in this publication can be downloaded from the PLF website www.osbplf.org under Loss Prevention, Practice Aids & Forms in the Closing Your Law Office category.

I want to underscore the obvious: you are careful to put money belonging to your client into your lawyer trust account, fulfilling your ethical and fiduciary duty to your client. Therein lies the rub if you are a sole practitioner and the only signer on the lawyer trust account.

How will your client be refunded money held in your trust account in order to go to another lawyer to finish the work? If you become incapacitated, likely there will need to be a court protective proceeding (conservatorship) to appoint someone to have authority to sign a check to refund the client’s money. If the lawyer is dead, likely there will need to be a court probate proceeding to appoint a personal representative to have authority to sign a check to refund the client’s money.

Stop for a moment and imagine what is the client’s reaction to this news. Clients usually go to lawyers in great distress with big problems. Finding out that the retainer that was so hard to come up with is now frozen in a deceased lawyer’s trust account makes a client very distressed and faced with a new big problem. Compound this problem of no access to the lawyer trust account with poorly kept trust account records or excellent trust account records and no means to access them on a password protected computer, and you will see that there is a critical need to plan ahead.

A lawyer’s duty of competent representation includes making advanced arrangements to safeguard the clients’ interests in the unfortunate event of the lawyer’s disability, impairment, incapacity or death. See the ABA Formal Opinion 92-369. In Oregon, the Oregon State Bar Formal Ethic’s Opinion 2005-129 points to the need to plan ahead to protect one’s clients.

Please plan ahead today.

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Category: Trust Account

Helpful Practice Aid: Trust Account Reconciliation

Helpful Practice Aid: Client Ledger Card and Trust Account Journal

Cautionary Tales: Trust Account Woes

Practice Aids Make Perfect

Nothing Lasts Forever: The Importance of Planning Ahead