Best Practices for Trust Accounts

Last week we covered some common trust accounting mistakes. This week we’re going to do the opposite. We’ll cover some trust account best practices that will help prevent trouble from arising in the first place. So read on to discover some basic, easy, and simple tips to keep you out of the clutches of your local state bar.

Choosing The Right Financial Institution

Different banks have different abilities with respect to IOLTAs. Some have standardized accounts and processes designed to comply with your state bar’s rules and regulations. Others will, upon request, attempt to jury-rig a solution for you with the tools they have available.

We suggest going with an in-state (this is frequently a requirement of your local bar) financial institution with an off-the-shelf solution for trust accounts. By “off-the-shelf” we mean a standard product they offer to attorneys in your position that doesn’t need to be custom-built. Some features you may want to watch for are:

· Overdraft prohibitions

· Account fees to be charged against an operating account, rather than the trust account

· A prohibition on ATM access

Unlike your operating account, you’re not looking for all the bells and whistles. In fact, the fewer bells and whistles, the better. Since trust accounts are solely for holding funds for clients, you should never need things like overdraft protections or ATM access.

Choosing The Right Signatory

This can frequently be a fraught subject. Some lawyers view an attempt to deny them signatory privileges on trust accounts as an expression of mistrust or disrespect. Nothing could be further from the truth.

Our view is that the number of signatories should be limited to the absolute minimum required to operate the firm. The fewer people who can access the trust accounts, the fewer opportunities there are for things to go wrong. Here we’re not only referring to opportunities for people to behave in a dishonest fashion, but also opportunities for honest mistakes. For example, what if two signatories transfer an identical amount of money to the operating account for the same case on the same day without talking to each other?

The list of possibilities for error is lengthy but can be significantly shortened if the number of signatories is kept to a minimum. Ideally, in a small firm, there will be only one signatory. In the event of illness or absence, an additional person can always be added to the account after the fact.

Hiring a Bookkeeper

This one almost goes without saying. Given the stakes involved in correctly operating your trust accounts, it makes no sense to cut corners and try to do everything yourself. Once you’ve chosen the right bank and signatories, do yourself a favor and choose a competent bookkeeper. Even if you expect to be able to keep your books in immaculate order, you’ll at least have an insurance policy and second set of eyes for when you’re unsure about an entry or transaction, or if work gets on top of you (as it so often does) and you find yourself unable to keep up with the books.

Next week we’ll be covering an entirely unrelated topic. How to choose between paper-based and electronic accounting systems!



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