While there are many reasons why a person may choose to become a lawyer, great math skills and a love of accounting practices are not typically at the top of the list. In fact, while lawyers often excel at advocating on behalf of clients, analyzing documents, drafting contracts and crafting legal arguments, the same cannot always be said for their ability to balance accounts, books and ledgers. However, nothing can get a lawyer in hot water with the Office of Bar Counsel, the Attorney Grievance Commission of Maryland and the Court of Appeals faster than an attorney’s failure to maintain proper trust account records and follow the required bookkeeping procedures.
Pursuant to Maryland Rule 19-301.15 an attorney has an affirmative duty to safeguard all client and third-party funds in a trust account. While safeguarding client funds may sound easy and usually only requires simple math (adding and subtracting – no geometry or algebra required!), there are numerous pitfalls that can result in an attorney receiving a letter from the Office of Bar Counsel. Set forth below are the top 10 things an attorney can do, in terms of their trust account practices, to avoid the dreaded “unpaid vacation.”
Items 1 Through 5: Read the Rules, Read the Rules, Read the Rues, Read the Rules and Read the Rules!
This may seem simple and obvious, but it is surprising how many attorneys have not read the Maryland Rules governing the maintenance of their trust account since law school, if at all! Those Rules can be found at 19-401, et seq. You would not represent a client at trial having never read the Rules of Evidence or researched the relevant case law, so why would you accept and handle client funds without having read the Rules governing how those funds are required to be maintained and disbursed?
For those who have not yet read the Maryland Rules governing the maintenance of attorney trust accounts, you may be surprised to learn that:
- All funds received from a client, or third party, must be deposited into trust, unless received as a payment for earned fees or previously advanced expenses (such as filing and expert fees).
- Your trust account must be titled as an “Attorney Trust Account,” an “Attorney Escrow Account,” or a “Clients’ Funds Account.” See Maryland Rule 19-406. No deviations are permitted, including the use of the term “IOLTA.”
- Attorneys are required to keep records showing all additions and subtractions from trust, including the amount and date of all deposits and withdrawals, the client or third party for whom the funds are being held, the reason for the deposit or withdraw (such as the transfer of funds to operating for earned legal fees or the payment of a medical provider’s lien), the payee/recipient of the funds and the check or wire number. See Maryland Rule 19-407(a)(1)-(2).
- Attorneys are required to keep individual ledgers for each client. See Maryland Rule 19-407(a)(3). This means that not only does the trust account have to balance as a whole, each client ledger must also accurately reflect all deposits and withdrawals. Thus, simply having enough money in trust to avoid an overdraft is not sufficient, as each client’s funds must be accounted for to the penny.
- You are required to perform MONTHLY reconciliations of your trust account, including a reconciliation of each client ledger. See Maryland Rule 19-407(b).
Bonus fun fact: You CANNOT make any cash withdraws from your trust account, for any reason.
Item 6: You are responsible for your trust account.
Small and solo practitioners are often overwhelmed with the combination of trying to manage their dockets while at the same time running a business (and possibly even having a life outside of their practice). Therefore, attorneys often rely on paralegals and administrative assistants to perform many tasks relating to their practice. However, the management of an attorney’s trust account should not be one of them. Simply put, the attorney is responsible for ensuring that proper trust account records are kept and that all client funds are appropriately safeguarded. If you delegate your trust account management to a non-lawyer and he or she, through either intentional misconduct or an inadvertent error, cause client funds to be lost or unaccounted for, it is the attorney that must make the client whole (out of their own personal funds) and who will be the person subject to discipline from the Attorney Grievance Commission or Court of Appeals. That is, it is the attorney’s money and license that is on the line, given that the non-lawyer does not have a license to lose.
Item 7: Do not listen to your neighbors.
It is amazing how many times we hear from clients that “everyone I know is doing X (insert improper trust account procedure here).” It is important to understand, however, that Bar Counsel, and most importantly the Court of Appeals, do not care what everyone else is doing if it does not comply with the Rules. As an attorney licensed to practice law in the State of Maryland you have an affirmative duty to properly maintain your trust account in conformance with the applicable rules, regardless of what others do. The fact that “Bob Smith” said you could do X or that you have been doing the wrong thing for years is not an excuse, and will certainly not save your from discipline should your transgression come to the attention of Bar Counsel.
Item 8: Having too much money in your trust account is as bad as having too little
While having too little money in trust (meaning that the trust account balance is less than the amount owed to clients and third parties) obviously constitutes a violation of the Rules, the same can be said for having too much money in the account. Specifically, attorneys have an affirmative duty to timely withdraw earned fees from trust, and the failure to do so is a violation of the Maryland Rules of Professional Conduct. In addition, an attorney may only keep a nominal amount of personal funds in his or her trust account to pay for fees and service charges (such as for purchasing new checks) that may be incurred through the bank where the trust account is held. See Maryland Rule 19-408. There can be no “float” or “cushion” in a trust account.
Item 9: Hire an accountant
Attorneys often indicate that they do not have the time or training to manage and reconcile their trust accounts on a regular basis. Despite this reality, attorneys have an affirmative duty to ensure that all clients’ funds are safeguarded and to maintain proper trust account records, regardless of how busy his or her practice may be. The solution to this conundrum is to hire an accountant or bookkeeper to maintain the required trust account records and perform the required monthly reconciliations. While another expense is not what any small business owner wants to hear, the cost of an accountant is a fraction of the amount that will be lost if an attorney has to shut down their practice because they have been suspended. You spent years of your life and tens, if not hundreds, of thousands of dollars earning your law degree and starting your practice. The investment in an accounting professional to ensure your compliance with the Maryland Rules is worth it if it means avoiding problems with your trust account. Just keep in mind that ultimately it is the attorney’s responsibility to ensure that the proper records are kept and that the trust account remains balanced. Therefore, the attorney must properly supervise the accountant to ensure that client funds are properly safeguarded.
Item 10: Now is the time to act! Contact Eccleston & Wolf today
The time to ensure that your trust account is in compliance with the Maryland Rules is now! Do not wait for tomorrow or when a client demands a refund. Please do not wait until after you receive a letter in the mail from the Office of Bar Counsel, as by then it may be too late.
Ultimately, your trust account must, at all times, be in balance and in conformity with the Maryland Rules. Compliance is mandatory, as is an attorney’s obligation to safeguard client funds. While math and accounting are not likely the reasons you became an attorney, they may be the reason you stop being one.
Therefore, if you are looking for advice on bringing your trust account into compliance or if you have a received the dreaded letter from Bar Counsel relating to issues with your trust account, the attorneys at Eccleston & Wolf are available to assist you. Please give us a call.