Trust Accounting Questions and Answers with the Experts

At the CBA’s recent 2 hour CLE program “Everything You Need To Know About Trust Accounting” (now available to watch on demand) we had so many questions for our panelists that they didn’t have time to answer them all. However, our intrepid experts – Dan Cotter, David Holterman and Mary Andreoni – took the time to respond to some of the attendee’s questions below. Please note: The responses expressed here are solely those of the individual panelists. They are provided as only general input and should not be considered advisory opinions regarding any specific factual scenarios.

Q: If you work as a  Guardian Ad Litem & receive money before you perform your duties, does that money need to be in an IOLTA account since you really don’t represent a client?

A: [Mary Andreoni] If the “GAL” does not represent a client,  ILRPC 1.15 is not triggered and the  money in question does not go into an IOLTA  account.

Q: Scenario: – Lawyer/Lawfirm is holding Settlement proceeds in IOLTA account. – Client can’t be located despite reasonable efforts made. – There is a clear, signed, contingent fee agreement setting forth lawyer’s percentage of fee to be earned for services rendered. Question: Can a lawyer/lawfirm take its portion of the proceeds pursuant to the signed fee agreement and leave the remainder of client’s proceeds in the IOLTA account?

A: [Mary Andreoni] No.  The law firm can withdraw its fees if the client specifically authorized the law firm to withdraw its contingent fee from the settlement proceeds before the client disappeared. See, In re Walner, 519 N.E.2d at 908, and ISBA Opinion Nos. 95-11 (Jan. 1996) and 88-4 (Feb. 1989).  Without the client’s authority to the settlement distributions, the law firm must maintain the settlement proceeds in the IOLTA account until authority is obtained from either the client or elsewhere (e.g., court).  See ISBA Op. 02-02 (Nov. 2002).

Q: Do you need to maintain an IOLTA account for ARDC purposes (it’s part of annual registration) if you are not holding client funds?

A: [Mary Andreoni] No.  Supreme Court Rule 756(d) requires all Illinois lawyers to disclose whether they or their law firm maintained a trust account during the preceding year and to disclose whether the trust account was an IOLTA (Interest on Lawyer Trust Account) trust account, as defined in ILRPC 1.15(f) of the Rules of Professional Conduct. If a lawyer did not maintain a trust account, the lawyer is required to disclose why no trust account was maintained.

A: [David Holterman] I agree.  Rule 1.15 and its specific requirements to hold funds in an IOLTA or other client trust account are “triggered” when a lawyer comes to possess funds of a client or third person in connection with a representation. (See paragraph a.)

Q: How would you handle an emergency matter (e.g., an Order of Protection) where the client retains you and asks you to file a case (for which the client must incur costs) on the same day, before the retainer check is able to clear?

A: [Mary Andreoni]  The lawyer may pay the expense on behalf of the client, which is permitted under ILRPC 1.8(e)(1), and deposit the client’s check into the lawyer’s business account as reimbursement for the lawyer’s advance.

A: [David Holterman] If the check is only for court costs and/or a flat fee charged by the lawyer, I agree it can be deposited in the lawyer’s business account. If the client’s check includes any additional amounts – e.g. for a security retainer – then the check should be deposited in the IOLTA account with the appropriate amounts withdrawn by the lawyer for reimbursement.

Q: Is it permissible to state in one’s Client Engagement Letter that the attorney may withdraw funds from the security retainer account as the work is performed, and then send a statement at the end of the month? Must a statement actually be sent each time a withdrawal is to be made to give the client an opportunity to say “NO” even if it’s agreed up front that the lawyer may withdraw funds as and when earned?

 A: [Dan Cotter] Yes, it is permissible.  While a statement is not required by the rules, it is best practices to stay in communications with the client.  One of the biggest reasons for complaints against attorneys is lack of communication.  The invoice or notice of work done for withdrawal is an opportunity to communicate with the client and keep the client informed of where the case or matter is at.

 Q: Can the client advance a retainer for tax benefit (deductability)?

 A: [Mary Andreoni] No. The client’s desire to minimize the client’s tax obligations is not an appropriate use of an advance payment retainer. Advances covered by ILRPC 1.15 are funds received by a lawyer in connection with the payment of legal fees and expenses of the representation.  An advance payment retainer must meet the requirements of ILRCP 1.5(c).  The requirements of Rule 1.15(c) must be read in conjunction with the Dowling case.  As such, an advance payment retainer must be used sparingly and only where it is in the client’s interest as it relates to the client’s responsibility to pay the lawyer’s fees and expenses.

A: [David Holterman] In addition to Dowling, Comments [3A] – [3D] to Rule 1.15 are useful for understanding the requirements of paragraph (c).

 Q: What does a sole practitioner do about succession/access to Iolta funds after incapacity or death?

A: [Catherine Sanders Reach] There is guidance from the IARDC for succession planning and your IOLTA funds in The Basic Steps to Ethically Closing a Law Practice, from the Michigan Bar Association’s guide “Planning Ahead: A Guide to Protecting Your Clients’ Interests in the Event of Your Disability or Death” and in the Chicago Bar Association CLE program “Succession Planning to Cover Bumps in the Road 

Q: If you charge a fixed fee but the fee does not include a government fee and the client pays it separately and provides it to the attorney so that it can be included with the file that the attorney will mail to the government institution, does the government fee have to go in an IOLTA account?

 A: [Dan Cotter] I don’t believe so.  If the check is made payable to the government, then the fees do not appear from this scenario to be entrusted to the attorney as fiduciary.

A: [David Holterman] I agree that a separate check made payable to the government entity can be passed on to the entity. If it is a separate check payable to the attorney, then it should be processed through the IOLTA account.

Q: If I represent a client who resides or works in another state, and I hold funds for him/her in a trust account, am I subject to trust accounting rules of the client’s home state? Do the rules of one state or the other govern in the event of a conflict?

 A: [Mary Andreoni] You should follow the rules of the jurisdictions in which you open the trust account.  To the extent there are any inconsistencies between the rules of one state and the lawyer’s licensing jurisdiction, those inconsistencies should be resolved by reference to ILRPC 8.5(b).

 A: [David Holterman] Under the framework of Rule 1.15, the client trust account requirement follows the lawyer, not the client. Paragraph a states that funds should be deposited in a client trust account “maintained at an eligible financial institution in the state where the lawyer’s office is situated, or elsewhere with the informed consent of the client.” If the client trust account is maintained in the client’s state, the lawyer must follow the trust account/IOLTA requirements of that state.

Thanks to our panelists for being so generous with their time and knowledge!

How To…Integrate the New Timeslips With QuickBooks

Several years ago, Timeslips introduced a direct link between Timeslips and QuickBooks. Clients and consultants found the link less than ideal and were able to work with Sage to re-write the link from the bottom up. Today, firms have a single point of data entry for accounting information when receiving payments, allocating fees and expenses, and tracking client funds. Terry Rosenthal demonstrated the new link and provide instruction for configuration and use.

Watch the archived session, watch the quick demonstration, and see Terry’s response to a few audience questions:

  1. Does this integration link work with Timeslips 2012?

No.  The new link only functions with Timeslips 2014.  The required version of QuickBooks is QuickBooks Pro 2011 or higher.

  1. Is there a mobile app?

Sage Timeslips eCenter is a mobile site that is optimized for tablets and smartphones.  Users can enter their time using the eCenter; all time is then downloaded into Timeslips by the system administrator.  At this point, this is the product to be used for tablet and smartphone time and expense entry.  There is not yet an “app” to manage the entire billing process.

  1. Does Timeslips have any plans for a cloud based system?

Sage Timeslips has not disclosed any plans for rolling out a cloud based ASP model product.

Action Alert for Lawyers Who Accept Credit Card Payments

Do you take credit cards?  If so please read about the changes to IRS verification requirements effective January 2013!

From Lawyer’s Trust Fund of Illinois:

Significant penalties in 2013 if credit account information doesn’t match

If you accept credit card payments, you may be impacted by IRS verification requirements that may impact you and your practice in 2013.

Under federal law, credit card processing companies are required to verify information regarding each merchant accepting credit card payments. For the purposes of this requirement, a lawyer or law firm that accepts credit card payments is considered a “merchant.”

The credit card processors must verify and match each merchant’s federal tax identification number and legal name with those found on file with the Internal Revenue Service.  An EXACT match is required.

There are serious consequences for lawyers if there is NOT an exact match:

  •  Beginning January 2013, the IRS will impose a 28% withholding penalty on all credit card transactions, including those that the lawyer directs to an IOLTA account.
  •  The lawyer may be in violation of the Illinois Rules of Professional Conduct if client funds that should be in the IOLTA account are withheld by the IRS (and not available to the client on demand) due to the lawyer’s failure to act.

Take action now

If you accept credit card payments, take steps now to avoid IRS penalties and potential rule violations:

  •  Contact the credit card processor to determine that a match occurred. (The credit card processor should have information from the IRS if a mismatch occurred and already have notified the lawyer of the problem. However, it is not known if all processors have provided such notice.)
  •  Correct any mismatch if you have been informed of one.

For more information on this issue, see:

Want to learn more about trust accounting rules? Watch the archived program “Trust Accounting: Everything You Need To Know” from the CBA, and check out the New Lawyer Toolkit: Basic Skills and Opening a Law Practice programs (both complimentary for CBA members) which include information about trust accounting, taking credit cards and best practices for billing.

New How to… and CLE Archives Available

New archives available:

Did you know that if you registered for a CBA LPMT CLE program or training class you can go back and watch the recording any time?  Simply log in to the Chicago Bar Association website and look under “Webcasts” and then select “My Seminars” from the drop down menu.  If you missed a session, the links to the recordings will be available on the LPMT site listed in the Program Archives link under “Upcoming Programs”. Just register to watch.

Also, all Chicago Bar Association members have access to previous progam materials, as well as white papers and other information.  Click on the “Articles (CBA Members Only)”  tab in the site header.

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