Because It Is Not Your Money!

By D. Scott Pappas

You’ve passed the bar, you’ve hung out your shingle, you’ve accepted your first client and you’ve received your first retainer. Now what? If you haven’t already, you need to open your trust account where you will deposit any unearned retainer monies from any client going forward throughout your career as an attorney.

Rule 1.15 of the Oklahoma Rules of Professional Conduct governs an attorney’s conduct regarding his or her trust account. Simply put, you have a fiduciary duty when it comes to the monies received from your clients that you have not yet earned.  
Funds received from clients must be kept separate from your own operating funds. They must be safeguarded and complete records must be preserved for a period of five years after termination of the representation of that client.1

Your trust account must be established as an interest-bearing demand account in a financial institution approved by the OBA’s Office of the General Counsel, which we call an IOLTA trust account.2 Often, these accounts will be a “NOW” account with an “exempt” status so that you will not be restricted by the number of checks you can write and you will not pay a service charge, which was waived as a courtesy.3  

However, your trust account will be subject to the rest of the financial institution’s rules associated with making deposits and writing checks. For example, if your client gives you a “bad check,” then you will be responsible for the fees associated with that bounced check.

It is important to remember that the form in which a client pays you monies controls how soon that money is actually available for use. Cash is available immediately, if it is not counterfeit. 

For checks deposited into your trust account, the bank makes a separate decision on each check deposited as to when the monies will be deemed fully collected and, therefore, available for your use. The decision whether or not to put a hold on a particular check is usually based on a three-factor test: 1) the risk involved with the particular check; 2) your account history with the bank, including the age of your trust account and the previous activity in it; 3) the total amount of money currently in your trust account. The bank considers its duty to protect itself and you and, by protecting itself, it then protects you. 

When checks are drawn on the same bank as the bank that has your trust account or on a local, neighboring bank, then you can usually expect the funds will be available the next day. If the check is drawn on another bank in Oklahoma, you can expect there could be a two- to- three-day hold before the monies can be used. There is a complex chart that applies in other cases that can result in a seven-or-more-day hold. 

Money orders are treated like checks by a financial institution. In addition, there is a limit on how much money can be put on a money order. A bank would find it unusual for a person to use a lot of money orders to pay one of your legal bills and, therefore, would likely issue some kind of hold on those money orders. 

Be sure to ask your trust account bank what, if any, hold will be placed on a particular check if you have a time-sensitive situation as to when the funds will be needed. If you use the funds before they are available, then you risk, among other things, using funds in your trust account that belong to another client or overdrawing your trust account; both of which are violations of your fiduciary duty.

In addition, be sure to balance your trust account monthly bank statement promptly. You will notice on the back of that bank statement the bank gives you a certain amount of time from the date of the statement to protest any inaccuracies on it. Fictitious checks are more of a concern as people become more clever and sophisticated in their fraudulent schemes. The banks are seeing more tampering with checks that can take the following forms:
    •    Creating a check that may have your correct attorney logo, but has the wrong bank for your account or the wrong routing number; or,
    •    Washing a check that you gave them and then altering the amount of the check. For example, changing $100 to $1000 or more.

You can help catch these issues when you balance your statement.

If you decide to accept credit cards as payment, you need to establish a merchant account. To avoid problems, it should be a separate account from your trust account, as the credit card transaction fees will automatically be deducted from the merchant account either at the time you take your client’s credit card or on a once-a-month basis for all the fees collected in that time period. Since you do not have operating funds in your trust account —only monies owned by your clients — these credit card transaction fees are not available to be withdrawn from your trust account. With a separate account, you simply transfer the credit card payment to your IOLTA trust account once the funds are available to avoid violating your fiduciary duty to the funds in your trust account. 

The trust account bank’s rules govern when the deposited monies are available for your use; you decide when to spend it. You may withdraw monies from your trust account once you have earned it or need to pay an expense on behalf of a particular client.4 For example, so long as you have sufficient funds in that client’s trust account, 1) after you have billed a client for your legal services, then you have “earned” the right to pay yourself that billed amount from that client’s trust account or 2) when you are ready to file a pleading at the court clerk’s office, then you can write a trust account check for that filing fee. Both of these transactions should be recorded on the trust account ledger that you keep for that individual client and noted on the client’s bill from you. Both you and the client should be able to ascertain the balance of his or her trust account at all times as transparency is essential to maintaining trust with your client and staying in compliance with the OBA.

The approved financial institutions have filed a Trust Account Overdraft Reporting Agreement with the Office of the General Counsel and have a duty to report to said office any time your trust account has insufficient funds.5   
Furthermore, any interest earned on the monies in your trust account does not belong to you. Rather, the financial institution that has your trust account must remit the earned interest to the Oklahoma Bar Foundation on at least a quarterly basis.6
Commingling your earned monies from which you operate your office with the un-earned monies in your trust account is forbidden except for two, limited purposes:  when necessary “to comply with the depository institution’s minimum balance requirements for the maintenance of [your trust account] or funds needed to pay applicable fees and service charges.”7
Remember that if a client gives you monies to be used for a certain purpose, such as to pay for an upcoming deposition or for the cost of transcribing a judge’s ruling, those funds cannot be used for any other purpose until “otherwise authorized by the client . . . or prohibited by law.”8

Take your fiduciary duty seriously to avoid any unsavory consequences for your unintentional negligence or, worse yet, intentional disregard of it. The OBA may overlook what can be deemed to be a legitimate mistake. However, you could find yourself in an OBA-sponsored diversion course or with charges formally against you seeking your disbarment for certain infractions. 

When in doubt, contact our OBA ethics counsel and, in the meantime, act as you would if it were someone else’s money . . . because it is!

1. See Rule 1.15(a).
2. See Rule 1.15 (h), (j)-(o).
3. May 16, 2015, telephone interview with Katrina Jarvis, vice president and branch manager, at bankSNB in Stillwater, Oklahoma.
4. See Rule 1.15 (c).
5. See Rule 1.15 (j)-(o).
6. See Rule 1.15(h)(3).
7. See Rule 1.15 (b), (h)(4).
8. See Rule 1.15 (f).

PRACTICAL TIPS:
• Keep a ledger for each client indicating in detail the monies deposited into the trust account and withdrawn from the trust account for that client.
• Keep your trust account at a separate bank from your office account.
• Balance your trust account for each client on a regular basis.
• Order your trust account checks in a different color from your office account checks.
• Have different color checkbook covers for your trust account and your office account.
• Whoever opens the mail should not also
balance the trust account (or office account, for that matter).
• Keep a separate merchant account for accepting credit card payments.
• When a client overpays you in one check, deposit all the money into your trust account and transfer only that portion of the money that you have actually earned into your office account.

ABOUT THE AUTHOR
D. Scott Pappas practices in Stillwater and focuses primarily in the areas of family law, juvenile law and building a collaborative law practice and awareness in Oklahoma. She served on the OBA Board of Governors and on numerous OBA committees and task forces. She graduated from Fordham University Law School in 1991 and practiced in New York before returning to her hometown.

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