lawyer bar

my name is bob hawley, and i'm with the statebar of california and i'm here to talk to you about trust accounting standards and therules and regulations that governing the govern trust accounting for lawyers, particularlyfor new lawyers. one of the most important things that you'll do as a new lawyer is opena trust account. if you are working for government as a government lawyer or working in-houseas an in-house counsel you might not have trust funds and in which event you wouldn'thave a trust account, but if you're engaged in private practice, particularly if you'rea solo, learning how to handle trust funds correctly is critical. one of the unfortunatelymore common offenses that we see at the state state bar of california from a disciplinary standpoint,is what we call misappropriation. that's not

necessarily the theft of client money, it'swhere money goes missing, maybe it was stolen or maybe it was just mishandled and you don'twant to be in the circumstance. generally speaking, do find that lawyers are reallydishonest thieves? well, a few, but for the most part with misappropriation, it's notdishonesty, it's not theft, it's negligence, it's unattention, and it's not paying attentionthe way that you should. first and foremost, your best resource on this is to look at thestate bar's website, www.calbar.ca.gov and under the ethics page that's on the left handside of the screen, there's a list of ethics and professional responsibility resources;all of them are valuable, but there's a trust accounting handbook that's an inch thick andtells you everything that you need to know

from how to add and subtract which is somethingthat lawyers sometimes can benefit from in the area of money, to the administration ofthe trust account right on through the banking regulations and everything else; everythingyou could possibly need to know is there, so that's available for free, you can downloadit and burn up your printer because it is lengthy, but it's for free that way or youcan purchase it in a nice bound fashion from the state bar of california as well, but doconsider that as a resource. another resource for information about trust accounts in particularwhat we call iolta accounts interest on lawyers trust accounts which i'll talk about is withyour bank. banks love lawyers because lawyers tend to have a fair amount of money flowingthrough a trust account and banks love money,

so talking to a bank about how to setup atrust account and the various kinds of accounts that you do is another valuable resource.the other resource that you need to have is the bookkeeper or accountant. one of yourvery most important first hires should be instead of a new associate or a receptionistor a paralegal, a bookkeeper. the bookkeeper is going to keep you straight and narrow onan area of where you are probably weak and on that is in accounting for money, billing,tracking the financial side of the business. so, you don't have to hire one fulltime, youcan hire one part-time or you can contract with a bookkeeper or accountant, but do keepthat in mind as well. the first rule in terms of authorities that we're going to talk aboutis the generic rule on safe keeping client

property, it's rule 4-100; that's a rule ofprofessional conduct and it says that you have the duty to safekeep and that's a keyword,safekeep property. money is property and as a result you need to put other people's moneythat's not yours in a trust account and that's how you safekeep it. but it also comes, propertycomes in other forms as well. it can be things, everything from a document to a piece of property,it could be a motorcycle, it could be a van gogh painting, it could be anything that endsup in your hands where the client is expecting you to hold it for them and the duty you havefrom a disciplinary standpoint is to safe keep it, so if per chance you do have a client'smotorcycle you might not want to just park it out in the parking lot and leave it thereuntil the client comes to get it, because

if it disappears then that's your responsibility,same with the van gogh, you may not want to just hang it on the wall, you need to havesome place in the firm that is a place of safekeeping, it has to be fire proof, it hasto be strong enough to protect things reasonably, you know, because not only do you have thecivil duty with respect to your traditionary duties, you know in terms of protecting property,but you have this disciplinary duty where you can get into trouble for losing propertyas much as you can for losing money if it goes awry. there's a few other statutes andauthorities to take note of, one is section 6069 of the business and professions codethat authorizes the state bar to audit your trust account without your knowledge, so thereis a need to make sure that you do keep it

accurate because whether we do so we're not,the truth is that when you have become a lawyer and you take your oath and say "i do" youare statutorily authorizing the state bar to check in your trust account without yourknowledge; 6091.1 of the business and profession code mandates that your bank report to thestate bar should your trust account go below zero, if it becomes, if there's any payments,nonpayments for insufficient funds and the bank has a duty to report to the state bar;to report that to the state bar and then the state bar will follow-up you know with youon that. also, business and professions code section 6149 requires that any insurer reportpayments that are made in the settlement of a claim and that will result, you know, ina notice going to the policy holder that payment

was made, so if the payment is made and themoney goes missing the insurer has a duty to tell the parties involved in the processthat the money's out there, so it's just a cross-referencing checks and balances systemthat makes sure that his money's flowing around in a lawsuit that involves an attorney thatthe state bar is aware of and keeps track of the things that are going on. in termsof fdic insurance, that's something to think about. you put your money in a bank as a trustaccount, the trust account must be what's called a iolta account; iolta stands for intereston lawyers trust account, trust accounts must be maintained in iolta format and the interestis earned and the interest is paid to the state bar. so in addition, and the state barthen uses that interest i should say, so that

you don't think that we're taking it and justspending it on ourselves, but we maintain a grant program that funds legal aid throughthat interest, so the interest that is swept from your iolta account is then used throughthe state bar's trust fund program to find legal aid services for representation of indigentfolks, but fdic insurance you know, the insurance that is there if you have your money in thebank and the bank goes under; the federal government insures it. but the federal governmentwill only insure client money up to 250,000 dollars, but the good news is that it's 250,000dollars per client, so you have one trust account, you know, if you have dozens anddozens or hundreds or thousands of clients you don't have dozens and dozens and hundredsand thousands of trust accounts, you have

one trust account generally, you put everybody'smoney in it and then you have a bookkeeping standard that someone administers to keeptrack of it. but the money is insured up to 250,000 dollars per client, so if you havea million dollars in your trust account, but you have you know hundreds and hundreds ofclients in there and each client only has under 250,000 dollars they are all protected,but you want to keep in mind that is not proven to have your money in an institution thatdoes not provide fdic insurance. in terms of other things, can you take credit cards?i'll just run through a list of things that you may be interested in; yes, you can takecredit cards. you can get paid by credit card, but there are issues there. when you signup as a merchant which you are with a credit

card company to accept credit cards you willenter into an agreement and you need to make sure you look at the small print in that agreementbecause the credit card company may want to have the right to go into your account andpull the money back if there's a dispute, you know, with the credit card holder andto allow a third party to invade your trust account is a violation, so you don't wantto agree to that type of thing. there are services out there that understand lawyersand lawyer trust accounts and you may want to deal with them, some of them are endorsedby local bar associations, so you may want to check with your local bar to see if thereis a credit card process that's lawyer friendly. scamming, let me just mention this becausethis will be the final comment, in today's

world people are getting emails from lotsof people from far away saying "i need a lawyer, i need a lawyer" and i got lots of money andlet's just set up this deal and you respond to it and the next thing you know that theyrespond and say, gee thanks, i told the other side that i have a lawyer and that means thatthey just sent me a check so here it is and so you take the check and you put it in yourtrust account and you take your third out of it as you agreed to with the client andyou disperse the other part of it and then the next thing you know the bank reports toyou that the check bounced because there was never any money there to begin with. not agood a situation to be in, so when you get those emails from folks saying "i need a lawyer,i need a lawyer" and it sounds fishy, it probably

is. get a fee agreement with them, go throughall the processes, document everything, and if you have somebody that's still with youafter that you probably have a decent client, otherwise it's a scammer.