November 2006
Ask the Auditor
The New RPCs and Your Accounts
by Trina Doty
Now that the new Rules of Professional Conduct have been adopted by our State Supreme Court, attorneys and their staff have many questions about the new trust account rules. In this column, I’ll highlight some items in the new rules. Be sure to read the rules and familiarize yourself with the changes.
RPC 1.15A (formerly RPC 1.14) and 1.15B are the new rules which govern the safeguarding of client property and recordkeeping requirements. While there are some significant changes, RPC 1.15A primarily offers clarification of the old rule. The comments to the new rules are especially helpful in this regard.
Some of the highlights of RPC 1.15A are:
• RPC 1.15A applies not only to client property, but third-person property as well.
• Only attorneys admitted to practice law may be authorized signatories on trust accounts. If you have a nonlawyer as a signer on your trust account, you need to change that immediately.
• A written accounting must be provided to your client after every distribution of property. If you hold property but have made no distribution, you must provide at least an annual accounting to your client.
• If there is a dispute about the ownership of client (or third-person) money, that disputed money must stay in the trust account until the issue is resolved.
• Attorneys may withdraw fees from the trust account only when the client has been given reasonable notice through a bill or something similar. If you bill your client for hourly work, be sure you send an invoice and allow the client time to receive and review the invoice before you pay yourself. It’s not acceptable to send an invoice and pay yourself on the same day without your client’s review.
• Deposits must be made intact. This means no split deposits where one deposit is split into two or more bank accounts at the same time. Many attorneys and law firms used split deposits as a way to handle overpayments. Under the new rules, any check including an overpayment must be deposited in whole to the trust account and the overpayment withdrawn after the check clears.
• Checks cannot be made payable to “cash.” All checks must be written to a named payee.
• Withdrawals can be made only by check or bank transfer. This means no ATM cash withdrawals.
• Funds cannot be disbursed from the trust account until the corresponding deposit has actually cleared the banking system. The only exception to this rule is if an attorney has an agreement in writing with the bank personally guaranteeing all disbursements (formerly called an Opinion 177 agreement).
• You cannot disburse more on behalf of a client than that client has in the trust account. You cannot use client funds on behalf of someone else.
• If accepting credit-card payments for advance fee deposits, the payment must be deposited directly to the trust account. The payment cannot first be made to your general account and then transferred to the trust account.
• You must maintain complete records as defined by RPC 1.15B.
RPC 1.15B is the new recordkeeping rule designed to explain exactly what is meant by “complete records.” While this rule may be new, the records required to maintain your trust account are not. You must keep:
• A check register (or equivalent) with a running balance. The check register must reflect all activity in your trust account. Each transaction must list the payee or payor, the client matter, the date, the amount, and the check number where appropriate.
• Client ledgers with running balances. These ledgers must reflect all activity in your trust account for each individual client. Similar to the check register, all transactions must list the payee or payor, the date, the amount, and the check number where appropriate.
• Copies of each deposit slip and deposit item, bank statements, and cancelled checks (or their equivalent). You must have enough information in the copies you keep to recreate your trust-account records if necessary.
• Copies of any invoices, fee agreements, settlement statements, or similar documents that explain the transactions in the trust account. For example, when you pay an invoice from the trust account, keep a copy of the invoice you’re paying.
One of the most common questions asked concerns record retention. RPC 1.15B requires trust-account records to be kept for at least seven years after the events they record.
While I’ve highlighted a lot of items in this list, it does not contain everything covered by RPC 1.15A and B. You’ll want to review the new rules thoroughly to ensure compliance.
If you have any questions about the new trust account rules, please feel free to call WSBA Audit Manager Trina Doty at 206-727-8242, Auditor Cheryl Heuett at 206-733-5937, or Auditor Jim Roberg at 206-733-5921.
Trina Doty is the WSBA audit manager, a CPA, and a certified fraud examiner. She oversees the random-examination program, conducts for-cause audits, and educates attorneys about trust-account rules and regulations.
