An Update on Trust Account Management, Part Two

by Terri Olson

There were so many responses to my previous column on the changes to the trust accounting rules (you read this! Thank you!) that I thought it would be worthwhile to spend more time covering some of the most frequently occurring questions.

I just ordered 300 (500, 1000) new checks. Do I have to throw them all out if they don't have the proper wording? Most people who called me with that question had left the word "Attorney" off the account title, although some had forgotten to include "trust" as well. According to the Office of the General Counsel, if the account title clearly includes the word "Attorney" somewhere, it is not necessary to have the word "Attorney Trust Account", etc. in sequence. Therefore, it would be acceptable to say "John Q. Jones, Attorney at Law, Trust Account." If you don't have proper wording on the checks, then it seems clear that using the checks as-is would be a violation of the new rules. But don't despair: you can still write in the correct missing words until your new checks are used up.

How do I find out if my bank is an approved institution? There are a variety of ways. I'd suggest starting out by asking the bank. If they don't seem to know, or if you suspect that the response you get can't be relied upon, there are other sources to consult. The February issue of the Georgia Bar Journal contains a list of approved banks. You can also call the Bar at 800-334-6865 ext. 737 and inquire there.

I just found out that my bank ISN'T approved. What do I do? Most of the time, if your bank is not an approved institution, it's not because of a serious policy or philosophy difference they're having with the Bar. It's because the notice from the Bar explaining the rule change got mislaid somewhere along the way. So don't panic. Call the above number at the Bar to get a copy of the form the bank needs to fill out, and submit it to your bank personally, with an explanation of why it's necessary. Most of the time, that's all that is needed. But if for some reason your bank does have a problem with agreeing to notify the Bar in case of checks returned NSF, you will have to change banks unless you can demonstrate that there is no bank in your county that's willing to comply.

One of the checks my client gave me just bounced. Does this mean I'm going to be audited? No. The wheels of the investigative process are set in motion when you bounce a check. No lawyer has any real control over whether the checks that he or she is given are good. It's true that if your bookkeeping procedures are poor -- if you write checks off of uncollected funds -- then getting a bum check from a client may result in your writing bad checks in return. But that's something that you have control over. Don't write checks off of your deposits until you know that they have cleared the bank. That way, there won't be any problems.

OK, I understand about the rules that tighten up trust account procedures. But why does anybody care what my business accounts are called? That doesn't really seem fair! I sympathize, but the proper wording is needed for several reasons. If a lawyer disappeared or was suddenly disabled and others had the task of sorting through the accounts, what would they make of an account titled "Smith & Jones, P.C."? How would they know it wasn't a trust account? Unnecessary interference with business accounts is easily avoided if they are properly labeled. And ambiguous or incomplete account titles invite mistakes by your staff and those of your bank.

I hate accounting and now I'm terrified I'm going to be audited. I'll just close out my trust account and make my clients pay for costs directly. Now, now -- calm down. For one thing, that's not really a practical solution. You'll always get checks -- settlement proceeds, real estate funds, etc. -- that need to pass through your trust account. I personally have seen a number of lawyers get themselves into serious trouble through the financial contortions they went through trying to avoid their trust accounts. But the main reason for calm is that maintaining a trust account is not that hard. Keep one ledger (or list, or book, or whatever term makes you feel comfortable) that has all your trust account transactions with a running balance, so you know what the total in the account is at all times. Keep another that has a separate page, or card, for each client. Record all transactions on behalf of that client, with a running balance. Keep your deposit slips, canceled checks, and bank statements, and reconcile your account monthly to make sure nobody's made an arithmetic error. You would be surprised at what a painless way good trust account record keeping is of maintaining complete track of your financial involvement with a client -- desirable in any business.

If you have questions regarding bookkeeping or any other aspect of managing your practice, please call the Law Practice Management department of the State Bar of Georgia. This dues-supported program can offer you free, confidential advice over the telephone as well as low-cost consultations in your office anywhere in the state. Call 404-527-8773 with your questions or suggestions.