July 7, 2020 – Receiving a notification of a trust accounting error is a truly unpleasant experience. Common mistakes can be avoided by understanding the practical and ethical requirements of the Supreme Court Rules concerning trust accounting.
In this video, Law Practice Assistance Manager Christopher Shattuck and Office of Lawyer Regulation (OLR) Trust Account Program Administrator Travis Stieren discuss strategies for addressing common violations.
Lack of Fund Availability
A lack of fund availability occurs when there is not enough funds in the trust account to cover the check or fee that is presented. One of the two forms needed to open a trust account requires the financial institution to notify the Office of Lawyer Regulation of any overdrafts.
Lawyers should be aware of their financial institution’s policies regarding fund availability, and avoid presenting checks before funds have cleared. Lawyers should also understand the bank charges associated with maintaining their account, and avoid overdrafts for common expenses, such as check printing fees.
SCR 20:1.15(b)(3) permits lawyers to deposit funds reasonaby sufficient to pay monthly account service charges for which the OLR has provided guidance in their Trust Account Manual to be a balance of up to $100 for the typical firm.
Failure to Keep Contemporaneous Records
Many lawyers assume that their bank or case management solution will keep the necessary records or reconciliations that are required to be produced for an audit.
To assist lawyers in keeping proper records, the OLR has published recordkeeping guidelines and produced sample forms for trust account recordkeeping. It is also recommended that lawyers keep paper copies of records and digital backup copies of files on separate hard drives.
Additional training and helpful examples can be found by reviewing Trust Account Case Studies.
Processing Trust Electronic Transactions Incorrectly
Understanding which funds are required to be placed into the various trust account options can be a difficult task for attorneys, especially attorneys starting their own practice.
A quick overview of the permitted and prohibited transactions into the available trust account types can be found in the Options for Trust Account Management. Pursuant to SCR 20:1.15(f)(3), electronic transactions into a standard IOLTA account are prohibited, except for remote deposits. To accept other electronically transmitted trust funds, lawyers must process the initial electronic payment through either an E-banking IOLTA or All-in-One IOLTA.1
In addition to freely available published resources, the State Bar of Wisconsin2 and the Office of Lawyer Regulation3 produce several CLE programs each year on these topics.
Often, an attorney will receive a combined payment of earned fees and advanced costs. Pursuant to SCR 20:1.15(b)(1), attorneys are required to keep third-party funds separate from the lawyers own funds, except for reasonably sufficient funds to maintain the account.
This means that an attorney who receives a combined payment containing earned fees and advanced costs must first deposit that money into the appropriate trust account, and then properly disburse the earned funds into the firm’s business account.
Lawyers should also understand the requirements of a similar scenario involving the combined payment of earned and unearned fees.
Unearned Advance Flat Fees
Lawyers frequently and mistakenly interpret the definition in SCR 20:1.0(dm), regarding flat fees becoming the property of the lawyer upon receipt, to mean that the flat fees are earned upon receipt.
Until it is earned, a flat fee is an advanced fee.4 Under the fee rule, a flat fee, like any other advanced fee, must be held in trust until the fee has been earned, unless the lawyer complies with the alternative protection for unearned fees as described in SCR 20:1.5g.
Conclusion: Review Your Practices
If you have not reviewed your trust account practices within the last year, consider exploring the resources published by the State Bar and the OLR.
If you have additional questions, complimentary and confidential ethics and practice management consultations are available for State Bar members.
1 See Timothy J. Pierce, E-banking: Modernizing Trust Account Rules, Wis. Law., July 2016.
2 See Lawyer Trust & Fiduciary Account Basics 2020, Fee Agreements, Credit Card Payments, and Trust Account Obligations 2020, & Concrete Answers to Common Trust Account Questions 2021.
3 See Upcoming Trust Account Seminars.
4 See Aviva Meridian Kaiser, Fee Agreements: Answers to Nagging Questions, Wis. Law., Oct. 2019.