Its Called a Trust Account for a Reason

Have you ever heard of a story that made you shake your head and say:

“Uh, what century are we living in again?!”

The unfortunate truth is that there are ethical lawyers and some not so much. Just like there are good bookkeepers and accountants and not so good ones. Sure, we all know there are stand-up attorneys out there who are morally mature and follow the law. They’re straight as an arrow!

..And you’re probably one them right?

But it bears repeating again, no matter how smart or clever or even well-intentioned one is— crime doesn’t pay and the truth always comes out! Take the John O. Green case from Texas. For whatever reason, Green decided it was a “good idea” to help Selgas, his client/business partner hide money in his IOLTA Trust Account.

Did anybody else just get a chill down their spine?!!!

Apparently, Selgas did not want to pay his outstanding 1.1 million dollar tax bill and refused. Instead, both Green and Selgas worked in tandem, using the IOLTA account as one would a bank account and having Green pay off personal bills and credit cards which had nothing to do with how a true Trust Account between a lawyer and a client should actually work.

Yikes!

Every misdeed toward a Trust Account should be considered a BIG, HUGE NO NO. But, let’s look at some of the top poor decision making traps lawyers all too often fall into…

1.  Attorney commingling Client Money. Do you want another headache with that headache??? Didn’t think so! A Trust Account is client money.  Period. You can apply it to an invoice for work performed. Did you know that in some jurisdictions, non-refundable retainers aren’t even a thing? Do your homework and stay within the legal parameters.
2. Borrowing Money. There will never ever be a good enough reason to do this. Even if you put it back the very next day or even an hour! Your cash flow problems will be the least of your worries when you’re looking at hard time and Big Bubba is across your cell ready to make you a knuckle sandwich. Your billable work needs to be done before you take what’s owed to you.
3. Not properly tracking the client’s funds. Always always always put down the name of the client on those Trust Account checks and don’t forget the file number. You may have the memory of an elephant, but even elephants forget… Remember Colonel Hathi from the Jungle Book?

If you’ve got a Trust Account with questionable history and want a chance at clearing things up before they get worse, there is something you can do. Contact a law practice management advisor. There are also a number of state bar associations who give free advice to members in need of it, and there are private management advisors who will offer their advice for a fee. If the idea of opening up about a disarrayed or unorganized Trust Account to a law practice management consultant makes your skin crawl, know that there are some states who do not permit such reporting to their ethics board. As the saying goes…

“It’s better late than never”.

Of course, cleaning up Trust Accounting is our specialty.  Got a question or need further guidance? Contact Us. Also, we’re up to some pretty amazing things with a new company for Data Migration service – check that page out while you’re here. We’ve been excited in our process, helping firms become future-forward.  To see more details on the three-way bank reconciliation, see this post.