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Best Practices and Common Pitfalls In Trust Accounting
The proper handling of client funds is a foundational responsibility for lawyers. Trust accounting — specifically, the management and recordkeeping of client trust accounts — is an aspect of legal practice that demands meticulous attention. Whether dealing with escrowed funds, retainers, or settlement proceeds, the failure to comply with trust accounting rules can lead to disciplinary action, financial penalties and the loss of professional reputation. This article identifies best practices for trust accounting and recordkeeping and outlines common pitfalls in an effort to help lawyers maintain compliance and uphold client trust.
The Attorney Trust Account
An attorney trust account is a separate account held by a lawyer or law firm where client funds are deposited. See generally ABA MRPC 1.15. Importantly, these funds do not belong to the lawyer and must be segregated from personal or business funds. Common types of funds held in trust include:
- Client retainers or advance legal fees;
- Real estate escrow deposits;
- Settlement funds; and
- Third-party funds (e.g., medical liens or child support payments).
Attorneys are the fiduciaries of these funds, and trust account mismanagement is one of the most frequent causes of disciplinary action by relevant authorities. See, e.g., In re Dias, 201 N.J. 8 (2010) (an over disbursement from the attorney’s trust account caused the negligent misappropriation of other clients’ funds; the attorney’s deficiencies and trust account mismanagement were responsible for the misappropriation).
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