Hi everybody! It's Andy and welcome to my
office in Modesto, California. I'm an
attorney licensed to practice law in
California as well as New York. In this
video, I'm gonna go over Attorney-Trust
accounting. Now the idea of attorney trust
accounting is not unique to California.
It's not unique to New York. Attorneys in
other states in the US use attorney trust
accounting also. I actually don't know
whether or not attorneys in other countries
use trust accounting. If you are an
attorney in a country other than the
U.S., let me know in the comments below whether
or not, you know, trust accounting is used
in your country or not. Regardless of
what country we're talking about or what
state we're talking about, the idea behind
trust accounting is pretty simple, I think,
but the thing is it's just relatively rare. Like the
average person who hasn't dealt with
attorneys at all really doesn't like, I guess,
really doesn't have the opportunity to
get exposed to trust accounting. So
the thing is because it's not a common
thing, it is kind of difficult to understand
at first glance. So I'll illustrate the idea of
trust accounting by drawing an analogy
to a checking account. So a lot of people
have checking accounts, you know, not everybody
does, but a lot of people do and
the checking account, you know, maybe
you get your paycheck deposited there,
maybe you pay your rent from there, pay
your car payment, for example,
your insurance, your credit card bills, etc.
At the end of each month, maybe you have
some money left over you put into your
savings account and next month the whole
cycle just starts all over again. The idea
then is that there are basic
transactions that, you know,
transactions that come into the bank
account, er, in to your checking account and
transactions that go out
all the money that goes into and
out of that checking account belongs to you.
An attorney-trust account is basically a
checking account that, you know, basically
operates just like a normal
checking account except all the money that comes
in and all the money that goes out either
belongs to the client or is spent on the
client's behalf. So a couple reasons why
you might want to have a trust
account and use it. For example, let's say
that there's a settlement in a lawsuit,
for example. You're the client and your
lawyer has worked on this case. You know, the
case has settled. You know, a bunch of money
has been paid, but the thing is in order for
you to actually get your portion of that,
the attorney has to subtract out
expenses, the attorney's fee, for example.
A trust is very helpful in doing that.
Another reason why a trust account might
be used would be lets say that it's divorce
case and the client has prepaid $5,000
for example. Let's say for argument's sake that
the Attorney works at $250
per hour. So that's 20 hours that
the client has prepaid. Those 20 hours, the
attorneys probably not going to do all 20
hours at one time. So the thing is that 20
hours might be kind of spent over a
month, month and a half, two months,
something like that. The unearned
portion during that time has to sit
in the attorney's trust account because
the money is there. The attorney controls
it,
however, it's not the attorney's money yet. So as a
result he cannot keep it in a bank
account that has, you know, his own
money in it, for example. So in
California, there are the Rules of
Professional Conduct. I have a separate video
actually goes over that so I'll go ahead
and link that right over here in case you
haven't seen it already. The Rules of
Professional Conduct govern things that
lawyers can do, can't do, that basically,
you know, they're bound like lawyers are
bound by that simply because they are
lawyers in California. Trust accounting
and, you know, mixing of the attorney's money and
the client's money -- that's called Commingling. All of that
gone over in
Rule of Professional Conduct 4-100,
which you can go ahead and basically
find by looking at that video. I'm also going
to link rule 4-100 down below in
the description for you.
So, hopefully all that made sense. The
idea behind commingling fines or not
commingling funds, I guess, keeping funds
segregated, it's very easy to keep funds segregated.
It's very, very common, unfortunately, for
lawyers to mix funds improperly. If you
are ever so inclined, I'm sure you could find
you know, news articles,
California State Bar articles and stuff
about how often lawyers get into trouble
because of commingling. So, again, hopefully
all that made sense. The idea behind an
attorney-trust account is that it is basically
a separate checking account that, you
know, the attorney can transact out of,
can receive money, pay money, but all of that money,
you know, is the client's money, it's not
the attorney's. So the attorney has to keep very
good records, you know, a ledger or
Excel spreadsheet or something that details
how that money in the trust
account comes in, what goes out
what it's spent on, etc. So, hopefully
all that made sense. I'm going to
go ahead and answer two kind of common
questions about trust accounts that
probably a lot of people don't answer
for some reason. I'm not quite sure why.
The first question basically pertains
to interest. So if, for example, we
go back to that divorce example that I
mentioned, if the client has prepaid
$5,000 to the attorney and the attorney is not
going to earn all that for a month or two or three, the
$5,000 might accrue some interest. The client
might logically wonder
'Hey, you know, that money is mine. You're
holding on to it, Mr. Lawyer, but that
money's mine. Shouldn't that interest go to
me?' The answer in California is,
unfortunately, no. The reason the answer
is no is because the bank that has the
trust account,
that bank will be in communication with
the California State Bar. Any interest
that accrues on the trust account funds
in a given month goes to the California
State Bar. Now the good news, of course, is
that the California State Bar does not spend that money on
itself. Rent, salaries,
lobbying or anything like that. That
interest money goes to the California
State Bar which then uses it to fund
pro bono programs, legal aid, other types
of services that benefit the people of
California generally. So that's the
first question. You as the client do
not get the interest. The second
question is probably most pertinent for
lawyers. Basically the idea is, you
know, how do I open a trust account?
I know what I have to keep the funds
separate because of rule 4-100.
How do I open a trust
account? Can I just use a regular
checking account and keep it segregated
and keep really good records, is that enough?
The answer that question is also no. When
you open an attorney- trust account, you actually
have to explicitly open an attorney-
trust account. You have to find a bank,
you know, most National
Banks will have this, but the thing is you have to
find a bank, have to go and you have to
explicitly say 'I want you to open an
attorney-trust account please'. And if
your experience is like mine you might have
to go in to the bank a few times. Attorney- trust
accounts are not new things by any means, but
they are, again, sufficiently rare that, I
think, a lot of bankers who work
at bank branches probably don't deal with
them all the time.
You may, you know, like I had to, go to the
bank branch a couple times to find a
banker that actually knows about attorney-
trust accounts, knows, you know, the
process to open them, etc. So
hopefully all that helped. The basic
take away from this video is that an
attorney-trust account is not, like it sounds
intimidating. It's actually not bad at all. It's just
a separate checking account that the
attorney keeps the client's funds in and it's
useful for storing money that the attorney
hasn't earned yet or facilitating
settlement distribution in the event a
lawsuit has settled. So hopefully all that
helped. Go ahead and rewatch this video, if you
want. Comment, share, like, subscribe,
all that stuff and I will talk to you
next time. Thanks.