Trust Accounts IOLTA by esncQK0

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									                       Trust Accounts and IOLTA
                             April 19, 2012

                          Indianapolis Bar Association
                         Applied Professionalism Course
                               Indianapolis Hilton

                       Presented by: Samuel M. Pollom, JD, CPA


                                                       BGBC Partners, PC
                                                   300 N. Meridian Street
                                                  Indianapolis, IN 46204
                                                         (317) 633-4700




Strength in numbers.
                       What is a Trust Account?


       “A bank account held by a professional
           for the purposes of keeping money held
           on behalf of clients separate from the
           funds of the professional or business.”




Strength in numbers.
    How Professionals End Up with Client
          And Third Party Funds

       Funds that MUST go in Trust Accounts
             • Advanced expenses
             • Advanced fees
             • Funds belonging to client
             • Receipt of aggregated Non-Trust and Trust
               Funds
             • Disputed funds




Strength in numbers.
    How Professionals End Up with Client
       And Third Party Funds (cont.)

       Funds that MUST NOT go in Trust Accounts
             • Fund belonging exclusively to the
               professional
             • Withdrawing earned fees from trust account
             • Employee payroll taxes




Strength in numbers.
                       Key Fiduciary Principals


       • Segregate
       • Safeguard
       • Promptly notify of receipt of funds
       • Promptly deliver funds
       • Accounting




Strength in numbers.
          Prohibition Against Commingling


      • Simultaneous presence of funds
        belonging to a professional and a client
        or third party in the same account




Strength in numbers.
                   Pooled Trust Accounts vs.
                    Separate Trust Accounts

      • Accounts that are small and are not
        being held for a substantial period of
        time
      • Accounts that are to be separate and
        that are going to be held for
        substantially long periods




Strength in numbers.
   Indiana Rules of Professional Conduct


      Rule 1.15(a)
        A lawyer shall hold property of clients or third
        persons that is in a lawyer’s possession in
        connection with a representation separate from
        the lawyer’s own property. Funds shall be kept in
        a separate account maintained in the state where
        the lawyer’s office is situated, or elsewhere with
        the consent of the client or third person. Other
        property shall be identified as such and
        appropriately safeguarded. Complete records of
        such account funds and other property shall be
        kept by the lawyer and shall be preserved for a
        period of five years after termination of the
        representation.


Strength in numbers.
                        IOLTA Accounts
          (Interest on Lawyers Trust Accounts)

       • Pooled Accounts with Interest paid to
         Indiana Bar Foundation
       • Funds designated to Public Interest
         Programs
             •   Pro bono programs
             •   Civil justice to persons of limited means
             •   Law-related education for public
             •   Research assistance in legal system
             •   Improve administration of justice, and
             •   Public service programs approved by
                 Indiana Supreme Court

Strength in numbers.
   Where Should Accounts be Maintained


       • Approved in-state Financial Institution
       • Rule of Thumb – Who owns these
         funds? If the answer is a third party, the
         funds belong in a trust.




Strength in numbers.
       Handling Disbursements from Trust


        • Trust account disbursements should
          only be done by way of a fully
          documented transaction
        • A trust check should never be made
          payable to cash or bearer
        • Withdrawals from a trust should
          never be made by way of a cash
          withdrawal from an automated teller
          machine

Strength in numbers.
Handling Disbursements from Trust (cont.)


       • Cash should never be received back
         when making a trust deposit
       • Earned fees should be paid out of trust in
         the form of a trust check and
         documented as being earned fees
       • Similarly, expenses incurred by the
         professional should be paid out of trust
         in the form of a trust check and
         documented as being expenses

Strength in numbers.
        Conversion and Theft of Client and
                Third Party Funds

       • Unauthorized use of client and/or third party
         funds is a crime.
       • Indiana Professional conduct Rule 8.4(b)
         prohibits a lawyer from committing a criminal
         act that reflects adversely on the lawyers
         honesty, trustworthiness or fitness to
         practice law.
       • Funds belonging to a client or third party
         should never be used for attorney’s own
         benefit, for the benefit of another client, or for
         the benefit of anyone else.
Strength in numbers.
            Fundamental Concepts in Trust
                 Account Management

        A. Although client funds are often maintained
           in pooled trust account, they must be treated
           as though each client’s funds are held in a
           separate account
                 • The funds of one client can NEVER be used to
                   cover disbursements on behalf of another client
                 • The tool for maintaining the separate identity of
                   each individual client’s funds is a subsidiary
                   ledger for each client who has funds in the trust
                   account.




Strength in numbers.
            Fundamental Concepts in Trust
              Account Management (cont.)

        B. Funds should never be paid out of trust on
           behalf of a client until the funds on which a
           trust check is written have been collected
           through banking channels.




Strength in numbers.
            Fundamental Concepts in
        Trust Account Management (cont.)
        C. The lawyer should never issue a post-dated
           trust check
        D. Maintain an Audit Trail
                 1. An audit trail consists of source documents that
                    reflect all transactions in and out of the account.
                    Source documents include:
                       •   Copy of deposit ticket, receipt or bank credit
                           memorandum
                       •   Bank statement showing the credit of deposited funds
                       •   Checkbook stub or checkbook register
                       •   Check or bank debit memorandum
                       •   Bank statement showing the debit of disbursed funds

Strength in numbers.
            Fundamental Concepts in
        Trust Account Management (cont.)
               2.      Deposit tickets should be annotated to identify
                       each deposited item (whether cash or
                       instrument), client’s name (or file number) and
                       the source of the funds. (No unidentified
                       deposits should be made.)
               3.      Checks should be annotated to identify the
                       client’s name (or file number) and the purpose of
                       the check.
               4.      The deposit ticket and the check should be
                       annotated well enough to direct the lawyer to the
                       client matter file corresponding to the receipt or
                       disbursement.



Strength in numbers.
Mechanics of Trust Account Maintenance


       The following is an outline of the steps
       that should be taken to maintain client
       trust accounts:
             1. Handling Deposits – Immediately obtain
                endorsements and deposit trust funds;
             2. Handling Disbursements – Immediately
                disburse funds with client and/or third
                party consent in writing
             3. Reconcile balances monthly



Strength in numbers.
              Other Issues in Trust Account
                      Management

        Interest on Trust Accounts
        • Unless an IOLTA, other pooled trust accounts should not
          be interest bearing
        • More cost beneficial for trust funds to be held at interest
          in separate accounts that are long term or have a
          substantial amount of money
        • In no event is any interest earned on trust funds
          considered lawyers’ own funds
        • IOLTA rules issued by the Indiana Supreme Court are
          found at Indiana Rule of Professional Conduct 1.15(f)
          through (k)



Strength in numbers.
              Other Issues in Trust Account
                  Management (cont.)

       Trust account Overdraft Reporting
       • Banks that are approved as depositories will report all
         overdrafts to the Disciplinary Commission
       • It is not the bank’s obligation to guess whether or not an
         account is subject to overdraft reporting – the lawyer
         must provide notice to the bank.
       • Upon receipt of the notice of overdraft, the Disciplinary
         Commission will send notice to the lawyer requesting a
         written and documented explanation within 10 business
         days.




Strength in numbers.
              Other Issues in Trust Account
                  Management (cont.)

       Unclaimed Trust Funds
       • Every effort should be made to promptly forward trust
         funds to their rightful owner. If lawyer loses track of
         client and cannot pay funds to the client, the lawyer
         should proceed pursuant to the terms of IC 32-34-1-1, et
         seq., the Unclaimed Property Act.




Strength in numbers.
                       On-line Resources

     Indiana Supreme Court Website
         www.in.gov/judiciary/discipline/trust.html

     This page includes links to:
           • Indiana Professional Conduct Rules
           • Indiana Rules for Admission to the Bar & the Discipline of
             Attorneys
           • List of Approved Trust Account Depositories
           • Trust Account Management




Strength in numbers.

								
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