Trust Account Basics January 2015 Reba J. Nance Director, Law Practice and Risk Management Colorado Bar Association reban@cobar.org 1 Why Do You Need a Trust Account? You must keep others money separate from yours You must safeguard a client or third party s money Examples Fees or retainers for work not yet done Money for third parties Settlement funds 2 What Is the Authority for Trust Accounts? Colorado Rules of Professional Conduct Rule 1.15A General Duties of Lawyers Regarding Property of Clients and Third Parties Rule 1.15B Account Requirements Rule 1.15C Use of Trust Accounts 3 1
What Is the Authority for Trust Accounts? Colorado Rules of Professional Conduct Rule 1.15D Required Records Rule 1.15E Approved Institutions Formal Ethics Opinion 95 Funds of Missing Clients Ethics Opinion 118 Handling of Funds Disputed After Proper Withdrawal From Trust Account 4 Rule 1.15A General Duties of Lawyers Regarding Property of Clients and Third Parties Must hold property of clients and third parties separate Funds kept in trust accounts in compliance with 1.15B Other property must be safeguarded Records shall be kept comply with 1.15D 5 Rule 1.15A General Duties of Lawyers Regarding Property of Clients and Third Parties If there is a dispute among parties, property shall be kept separate May distribute property not in dispute Ethics Opinion 118 Handling of Funds Disputed After Proper Withdrawal From Trust Account 6 2
Rule 1.15B Account Requirements Business account for legal services All funds received deposit slips and checks must say Business account Office account Operating account Professional account 7 Rule 1.15B Account Requirements A trust account But only if you hold money for third parties Unearned fees, disbursements, settlement proceeds, etc. Two types of trust accounts COLTAF - Colorado Lawyer Trust Account Foundation Regular Trust Account 8 Account Requirements How do you know which one you should use? How long will the funds be held? How much money is being held? Should the client get the interest? 9 3
Account Requirements Regular Interest paid to the client Account, deposit slips and checks shall say Trust Account and can have additional language if it s not misleading 10 Account Requirements COLTAF Pooled interest Nominal amount Held for a short period of time Interest paid to COLTAF Account, deposit slips and checks shall say COLTAF Trust Account 11 Rule 1.15B - Account Requirements COLTAF Maintained in a financial institution approved by Regulation Counsel pursuant to 1.15E If there is no COLTAF in your community - note 1.15B(h) If funds have mistakenly been held in sufficient amount or sufficiently long time- COLTAF will remit the interest 12 4
Rule 1.15C Use of Trust Accounts Can t use debit card or ATM for withdrawals No checks to Cash Withdrawals and transfers only lawyer admitted in Colorado or someone supervised by a lawyer Account must be reconciled at least quarterly 13 Rule 1.15D Required Records Must retain records for seven years Each separate person for whom the firm holds funds showing specific detailed information (outlined in rule) Record of all deposits and withdrawals Date Payor Description of each item and date, payee and purpose of each disbursement 14 Rule 1.15D Required Records Must retain records for seven years (cont.) Copies of written communications setting forth basis or rate of fees, and all writings stating other terms of engagement Statements to clients and third persons showing disbursement of funds or delivery of property 15 5
Rule 1.15D Required Records Must retain records for seven years (cont.) Copies of bills issued to clients Payments to any persons not in attorney s regular employ Paper copies or electronic copies of bank statements and all canceled checks 16 Rule 1.15D Required Records Records maintained by accrual method, cash basis method or income tax method Can be by computer as long as printed copies can be made Shall be located in principal Colorado office of the lawyer 17 Rule 1.15D Required Records When firm is dissolved, must make arrangements for maintenance or disposition of records These records shall be produced in response to subpoena from OARC 18 6
Rule 1.15E Approved Institutions Financial institution must be approved by Regulation Counsel (except as otherwise noted) List of banks at www.coltaf.org Does business in Colorado Prime Partners pay more and waive fees Identify OARC of nonpayment re insufficient funds Will produce records to OARC and cooperate 19 Logistics and Tips Different colored checks for trust and operating Consider different banks Amounts over a certain amount require two signatures Statements sent to your home A second signatory 20 Logistics and Tips Records can be electronic or manual Ledger cards (or their equivalent) One for the account as a whole One for each client Deposit unearned or third-party funds into trust account 21 7
Logistics and Tips You may deposit funds sufficient to pay anticipated service charges or other fees You must identify those in your records Send a bill Give some time for client to review Then transfer the money to your operating account 22 Get Help! OARC Trust Account School Held quarterly $150 You don t have to be invited Ethics Hotline Software RTG Bills - $95 Others, too! http://www.cobar.org/index.cfm/id/422 CBA LPM Dept. Webpage www.cobar.org/lpm 23 8