Chapter 9 The Client Funds Trust Account by mBKmZ2h

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									              Chapter 9

    The Client Funds Trust Account




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    Funds in a Client Fund
    Trust Account
       Retainers – fee advances
       Costs and expenses
       Estate proceeds
       Escrow funds
       Settlements
       Judgment payments
       Funds from third parties to pay client


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    Retainers /Fee Advances
     A fee advance is deposited into the trust account.
     The fee may not be withdrawn until it is earned.


       Does not apply to “true” retainers




3
    Escrow Funds
    Reasons a firm will receive escrow funds:
       Real estate transactions
       When a debtor's payments are made to a
        creditor
       If there is a dispute regarding a debt




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    Client’s Property
    Property other than cash must be accounted for
     Securities, stock certificates
     Personal property




5
    Two Types of Client Trust Accounts
     IOLTA Accounts
     Non-IOLTA Account




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    Interest on Lawyers Trust Accounts
    IOLTA Accounts
     Mandatory deposit to IOLTA account:
       “Nominal” funds
       Funds held for “short period of time”
     Compliance is mandatory
     Interest goes to state bar association
       Funds legal service programs for indigent
       Funds client security fund
     Generally, IOLTA accounts or unsegregated accounts
       Different client’s funds are deposited in same account



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    Non-IOLTA Client Trust Accounts
     An interest bearing client trust account where the
      interest is payable to the client
     May be segregated or unsegregated
     POINTER:
       Better practice to establish individual segregated
        accounts for each client
       Difficult to account for and allocate the interest
        between several clients in a segregated account
       Assign client’s SSN or EIN to the account

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    Rules Applicable to All Trust
    Accounts
     The account must be clearly identified as a “Trust
      Account” or “Client Trust Account”
     Signatories on the account should be licensed
      attorneys
     Cannot deposit law firm funds in the account
     Cannot keep law firm funds in the account
     Cannot withdraw trust funds and apply to a
      disputed fee
      (cont.)
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     Rules Applicable to All Trust
     Accounts (cont.)
      If a client asks for trust funds you must deliver
       promptly
      Must account to the client for funds held in trust
      Must account to the State Bar if requested
      Must keep trust account records for five (5) year
       following completion of representation



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     Trust Account Accounting Rules
      Manual vs. Computerized systems
      Minimum Requirements
       1. Client Ledger
       2. Account Journal
       3. Bank Statements and cancelled checks
       4. Reconciliation Report
       5. Journal of Other Non-cash Properties held



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     Client Ledger
      A written ledger for each client that includes:
        Date of transaction
        Source of deposit and amount
        Payee and purpose of payments and amount
        Running balance of client’s account


      Useful where trust account holds several client’s
      funds

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                               •Chk   •Fees                                   •Costs                        •Trust Funds

     •Dat      •Description    •No.   •Charge   •Rec’d    •Balanc    •Adv.    •Rec’d    •Balanc   •Rec’d       •Paid       •Balanc
      e                                                      e                             e                                  e
     •2/25   •Client Deposit   •243                                                               •$2,500                  •2,500.0
                               4                                                                                               0
     •3/1    •Legal Fees              •$475.0             •$475.0                                                          •2500.0
                                         0                   0                                                             0
     •3/1    •Fee Payment      •467             •475.00    •-0-                                               •475.00      •2,025.0
                                                                                                                               0
     •3/10   •Filing fee       •470                                                                           •120.00      •1,905.0
                                                                                                                               0
     •4/1    •Legal fees &            •860.00             •860.00   •145.00             •145.00                            •1905.0
             costs                                                                                                            0
     •4/1    •Fee Payment      •474             •860.00    •-0-               •145.00    •-0-                 •1005.0      •795.00
                                                                                                              0
     •5/1    •Legal fees &            •525.00             •525.00   •27.80              •27.80
             costs
     •5/1    •Fee Payment      •482             •525.00    •-0-                •27.80    •-0-                 •552.80      •242.20

     •5/5    •Client Deposit   •256                                                               •1000.0                  •1242.2
                               4                                                                  0                        0
     •5/15   •Deposition Svc   •491                                                                           •345.00      •897.20

     •6/1    •Fees & costs            •395.00             •395.00   •15.20              •15.20
     •6/1    •Fee Payment      •500             •395.00    •-0-               •15.20     •-0-                 •410.20      •487.00




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     Account Journal
      Similar to the Client Journal
      Records all transactions for the account
        Includes all interest paid and bank charges
        deducted
      Keeps a running balance of the account
      If you have a segregated trust account Client
      Ledger is sufficient


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     Trust Account Abuses
      Misappropriation
        Using trust funds for personal purposes
        Overdrawing trust account
        Using one client’s funds to pay another clients
        obligation – Example:
               Client A           $1,000
               Client B              500
             Firm writes a check for $600 for Client B


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     Trust Account Abuses (cont.)
      Comingling
        Client’s funds are intermingled with attorney’s
        Leaving a buffer or reserve in the trust account
        Depositing a “true retainer” in trust account
        Failure to pay fees when earned
      Failure to promptly disburse funds in trust
        Settlement proceeds
        Client expenses
        Attorney’s fees
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     Trust Account Abuses (cont.)
      Failure to account to client for trust funds
      Failure to notify client of receipt of trust funds
      Use of Trust account to assist client in secreting
       assets
        Creditors
        Other owners – spouse in divorce, partner,
         shareholder



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