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Ten Commandments of Trust

3: Watch Your Withdrawals

Knowing when and how to disburse these funds is as critical as knowing where to deposit them in the first place. Improper disbursements can truly cost you your license.

Beware of the following:

Cash Disbursements - when you do write checks on the trust account, you must properly designate the payee so that a proper paper trail may be preserved. So if you write a check payable "to cash" or "to bearer," you're breaking the law;

ATM Withdrawals - if, by mistake, your bank gave you an ATM card for your trust account, cut it up and inform your bank that no such cash withdrawals or debit-card payments will be permitted on this account;

Borrowing - it's not your money. So borrowing funds on a rainy day, pledging the funds as security for other transactions or using the money for any unauthorized purpose is a misappropriation that will cost you your license;

Overdrafts - if the disbursement would create a negative balance with regard to an individual client matter or all client matters in the aggregate, something has gone drastically wrong with your accounting.

If you overdraw your account, the bank must report the deficiency to disciplinary authorities, prompting an audit of your trust account as a whole. That's why it's absolutely critical that you reconcile your account every single month and that you refrain from disbursing funds deposited into the account until the check has cleared.

Even if other client funds are sufficient to cover the check, you cannot use one client's money on behalf of another. Take an account which holds a total of $100,000 in funds belonging to various clients. If I get a $30,000 check to settle the case of another client, I must wait until that check clears before I may disburse the proceeds. If I disburse too early, I'm using other clients' money to cover disbursements in a totally different case. That may prevent an overdraft, but you have effectively misappropriated someone else's funds.

Rather than wait for checks to clear, many banks will let you draw on an "available balance" which includes the deposit of checks that have yet to clear. But when it comes to trust accounts, an attorney may only disburse funds that have actually been collected by the bank. So no matter how desperate my clients may be to get their money, we will write no check before it's time.

My office staff will tell you that I'm absolutely paranoid when it comes to ensuring that checks clear before disbursing the funds. In that sense, some fear can be healthy.

Too much fear can have the opposite effect. Some lawyers are so afraid of overdrawing their accounts that they intentionally leave more money in the account than they should. Often, I will see an attorney who earned a $10,000 contingency fee on a $30,000 settlement take only a small part of the fee and draw on the remainder "as needed." By leaving earned fees in escrow, lawyers commingle their money with that of their clients. That may prevent overdrafts, but it violates the Rules of Professional Conduct. If later audited, we'd have to explain why we left our own money in the account. Fear of overdrafts won't excuse the violation.

Attorney Grievance defense attorney specializes in defending lawyers in disciplinary proceedings before the Maryland Attorney Grievance Commission and the D.C. Bar's Board on Professional Responsibility involving professional misconduct, legal ethics, disbarment, suspensions of law licenses, petitions for disciplinary action, reprimands and sanctions for unethical conduct. If you receive a letter from Bar Counsel Lydia Lawless, Disciplinary Counsel Hamilton Fox, or from any attorney disciplinary board in Maryland or the District of Columbia, retain experienced attorneys with expertise in lawyer discipline and breach of ethics cases to avoid sanctions for professional misconduct. We help lawyers avoid disbarment, suspension, reprimands, censure and informal admonitions by drafting responses to client grievances and ethical complaints; representing lawyers in peer reviews, evidentiary hearings, and oral arguments before the BPR and the Court of Appeals; filing petitions to reinstate an attorney's license to practice law; conducting law firm ethical compliance audits; and drafting legal ethics opinions to protect lawyers from ethics charges. In many cases, disciplinary proceedings may be dismissed, dismissed with a warning, or result in a conditional diversion agreement with Bar Counsel to rectify misconduct. Lawyers may need help in managing their law firm attorney escrow IOLTA trust account and complying with attorney trust accounting rules to avoid charges of ethical misconduct. Do not represent yourself in responding to an attorney grievance, law firm client complaint, or other allegation of ethical impropriety. Attorney grievance defense counsel may help you comply with legal ethics rules, avoid sanctions like suspension or disbarment, and avoid future attorney grievances.


By The Lawyer's Lawyers | Kramer & Connolly and Irwin R. Kramer who are responsible for the content of this informational website.   This website is designed for lawyers faced with attorney grievances. As cases do differ, past performance does not guarantee future results.