Many businesses have trust accounts with banking institutions to hold the client’s funds in, but just how safe are the client’s funds that are deposited into such an account? The general conception may be that a trust account is inviolable in that the clients’ funds or portion of the funds are specifically earmarked for disbursement to that client only and cannot be used by the entity holding the money in any other way. Depending on the type of trust account, the type of entity that has oversight of it and the extent of the oversight, this general conception may be flawed.
Webster’s Dictionary defines trust as “[A]ssured reliance on the character, ability, strength, or truth of someone or something; one in which confidence is placed”. However, what type of “assured reliance” can a client place in a generic trust account? In order to open a company trust account at most banks all that is needed is an entity’s formation documents, a federal employer’s identification number and a human being’s authorization to sign on the account. While there are many types of trust accounts, a simple company trust account is one in name only (e.g.- ABC Company Trust Account). Generally, in such a trust account there is no independent oversight and funds deposited in such an account can be used any way the company deems fit.
Attorney trust accounts may be for the benefit of a single person, entity or specific group, but the vast majority of attorneys will have at least one general trust account to deposit nominal or short term funds for multiple clients. In Florida, such accounts are called IOTA’s standing for Interest On Trust Account and are the most popular type of account in which Florida attorneys deposit client funds and settlement checks for the benefit of clients. Attorney trust accounts require rigorous and highly defined accounting records as well as procedural requirements which are defined by the local Bar Association or state government. While the rest of this article concerns attorney trust accounts in Florida, all states have promulgated rules regulating such trust accounts that are often very similar to the rules in Florida.
The minimal trust accounting records required by the Florida Bar are original legible copies of all bank records, the date and source of all funds received naming the client or matter, a separate journal for all cash transactions, a separate file or ledger with an individual card or page for each client or matter showing all receipts, transfers and unexpended balances, etc.1 The minimal trust accounting procedures required are monthly reconciliations, annual detailed list of unexpended trust money, notifications by the bank directly to The Florida Bar of any overdrawn account or dishonored check, retention of records for six (6) years, etc.2 It is important to note that the bank has an obligation to report any trust account discrepancies to The Florida Bar directly even if the attorney fails to do so.
As additional security for funds held in an attorney’s trust account, The Florida Bar has created the Client’s Security Fund. This fund was established to provide monetary relief to persons who suffer reimbursable losses as a result of misappropriation, embezzlement, or other wrongful taking or conversion of money or other property that comes into the possession or control of a member of The Florida Bar.3
While many professions have rules regarding conduct and accounting, attorneys are held to the strictest rules and professional standards regarding the maintenance of trust funds. The purpose of these rules and procedures is to protect the clients’ funds and truly assure the clients that reliance in an attorney’s trust account is well justified.
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Rule 5-1.2(b), Rules Regulating the Florida Bar
Rule 5-1.2(c), Rules Regulating the Florida Bar
Rule 7-1.1, Rules Regulating the Florida Bar