Mary McPadden 0000-00-00 00:00:00
7 Things You Probably Don’t Know About IOLTA, but Should What is a Lawyer Trust Account? Most money held by lawyers on behalf of clients or third parties is held in a trust account. Lawyers commonly hold two types of funds in their trust accounts: 1) Client payments for work the lawyer has not yet performed, and; 2) Money which may be owed to a third party (such as the Clerk of the Court; a medical provider; costs associated with a deposition; etc). Lawyers must safeguard these funds in a trust account at a financial institution. These types of accounts are called IOLTA (Interest On Lawyers Trust Accounts). Understanding all these Trust Account Rules is too confusing. Can’t I just use an Earned Upon Receipt fee agreement and not bother with the IOLTA account? Yes, you could do that but the problem is the Costs Advanced during the course of the matter. The Earned Upon Receipt funds only cover fees. Each time the firm requires payment to a third party, you will need to contact your client, request they issue a separate check for the current cost (Clerk of the Court, process server, medical records request, etc.) then you would need to forward the client’s check to the third party…..whew. That will get tiresome very quickly – and make for a messy audit trail. Better to understand trust account rules and keep the bookkeeping as simple as possible. Recommended Best Practice: Deposit funds to trust, disburse third party advances from the firm’s Operating account, calculate Costs Advanced monthly and reimburse Operating from Trust. What is the best way to make sure there are sufficient funds in Trust to cover the bank’s fees, service charges and credit card processing fees? When initially setting up the firm’s bank accounts, the arrangement should be for all bank fees, service charges and credit card processing fees to be deducted from the Operating account, not the Trust account. If this is not possible, the firm is allowed to maintain a small amount, not to exceed $250, in the bank Trust account as Administrative Funds. The amount is relative to your business. Take a look back for one year or so and determine an average amount that has been charged by your bank for administrative fees and use this amount as a gauge. Recommended Best Practice: The firm’s merchant account should be set up to deduct credit card processing fees from the Operating account, not the Trust account. It is tactically difficult to estimate in advance each month, the amount of credit card fees that would be owed. What manners of disbursements are allowed from my client trust account? The only disbursements allowed from the trust account are those by: 1. Pre-numbered check; 2. Electronic funds transfers (from Trust to Operating for example) 3. Wire transfers. Not allowed are: counter checks, cash-back transactions from deposits, ATM card withdrawals, or debit card transactions. Is there ever a reason to open a separate trust account for an individual client? An individual client’s funds are often not large enough, nor held long enough, to earn any interest in a trust account. The IOLTA program provides a cost-effective way for lawyers to safeguard these funds in a pooled account. The interest from these pooled accounts is then transferred each month to the Arizona Foundation for Legal Services and Education to be used for the public good. Recommended Best Practice: If a client’s funds are a large amount, and will be held for a long time, the lawyer may keep the client’s funds in a separate account and the client may receive the interest earned. Once I have earned my fees on a client’s case, can I write the trust account check for those earned fees to a third party, such as my landlord, instead of to myself? Using a trust account as a lawyer’s general checking account, even when the fees have been earned, may void the fiduciary status of the trust account and subject client funds to claims by other parties, including the lawyer’s creditors. All disbursements from trust on behalf of the attorney should be made by pre-numbered check directly to the attorney or law firm. Deposit the check for fees earned from trust into your operating account and then disburse accounts payable from operating as you wish. What is a Pre-Audit audit? The goal of a pre-audit is to determine potential deficiencies within a firm’s trust accounting process. Recommended Best Practice: It is recommended to have a knowledgeable third-party review current practices and, if necessary, suggest remedial action to bring the firm into compliance. Visit Balanced Billing’s website for more information about a Pre-Audit Audit. http://balancedbilling.com/pre-audit.php
Published by Target Market Media . View All Articles.
This page can be found at http://digitaleditions.walsworthprintgroup.com/article/PRACTICE+MANAGEMENT/959029/98228/article.html.