LAWYERS' GUIDE TO TRUST ACCOUNTS
Stanley Foodman - Foodman & Associates, P.A.
In more than 35 years of practice, I’ve had the privilege of working with some of the best attorneys in South Florida. They all have two things in common. All of them are responsible for maintaining trust accounts, and not one is an accountant.
Trust accounts are a necessary part of law firm management. This reality has always presented a challenge for attorneys, just as it would for any accountant who was handed ultimate responsibility for legal representation. Within the past several years, I have seen more trust account rule violations than ever before. Changing rules, ignorance, negligence, and in a minority of cases, dishonesty, has led to increases in reported violations.
Exposed violations lead to consequences no attorney wants to experience. The Florida Bar has proven that it is serious about cracking down on trust accounting violations, with investigating complaints, auditing trust accounts, suspensions, and disbarments of lawyers. These cases with their public humiliations are on public view on the Bar’s website.
Adherence to the following ten simple rules can keep you and your firm out of the Bar’s crosshairs.
Fully reconcile trust accounts every month without fail. Monthly account maintenance decreases the risk of error. Investigate and clear all discrepancies now. Don’t wait.
Do not combine the trust account bank account with other assets and liabilities of the law firm. The trust account should never be part of the law firm’s general ledger.
Never ever issue any disbursements from the trust account unless the funds in the account from which you’ve disbursed have been cleared by your bank.
At the first sign of any irregularities you cannot resolve on your own, contact a forensic CPA to resolve the problem. Such irregularities could include negative balances in client trust ledgers and a difference between the reconciled trust account balances and the total of all client trust account ledgers.
Never ever allow anyone to sign on the trust account except you or another responsible partner. No non-lawyers should sign on a trust account. This includes the use of signature stamps. Never use a signature stamp.
Keep a separate trust ledger for all non-monetary assets in your trust. All trust accounts are not bank accounts. Some are just recording devices for non-cash items of trust.
Never place client costs advanced by a law firm in a trust account. Client costs advanced by a law firm are not trust items. Instead, they are a form of accounts receivable of the firm.
Never ever co-mingle non-trust account items with trust accounts.
Trust accounts should never have a negative balance.
Funds held in trust that have been cleared by the bank must be returned to the client at the client’s request immediately (not a week or ten days later).
Finally, if you’re not sure about recent changes to Florida Bar rules for handling trust accounts, take time to review them. If you need guidance in maintaining a trust account, talk to a CPA familiar with Florida Bar rules. These simple steps will help ensure that your reputation and your firm are protected.
By STANLEY I. FOODMAN
Foodman & Associates, PA
1201 Brickell Ave., Suite 610
Miami, FL 33131
South Florida Legal Guide 2011 Edition