Can you commingle for a day and be safe?

Jonathan Stein suggested that he escaped an ethical problem because he had a few extra dollars in his clients’ trust account. Those few ($100) dollars assured him that his bank wouldn’t invade clients’ funds if they charged an expense item against the account. Jonathan does say to check your State’s rules of professional conduct if you want to consider doing this.

His suggestion brings to mind several experiences I have encountered with coaching clients of mine.

First, some States prohibit, or least frown on, the lawyer keeping his/her funds (even only $100) in a clients’ trust account. Technically, this is commingling (even if only a little bit), which is illegal. Second, the lawyer should negotiate with her/his bank to take any charge or expense from the general account, not the trust account.

If you have a merchant account for retainers (as contrasted with payment for work performed), one of my clients suggests setting up a separate clients’ trust account only for such retainer funds … and again have all charges and fees for the merchant account and the credit card companies be paid from the lawyer’s general account.

Jonathan said something else, however, that "scares" me! He said that the bank charged him $7 processing fee because the insurance company erroneously stopped payment on check. I suspect it was a draft, but that is not material to my point. When I was chief operating officer of a law firm in the beginning of my consulting career, and dealing with many settlements of personal injury matters, I learned quite quickly that, despite urgent client needs and requests, no check should be drawn from the clients’ trust account until AFTER the draft or check is honored and the deposit is confirmed to be valid. Until then, payment to one client of money in accord with a settlement that is either dishonored or rejected, despite delivery of a check or draft, is actually payment (borrowing) from the funds of another client without the second client’s consent. This violates the rules of professional conduct of every State! And it does not matter that the money is repaid, even if quickly. This may be a technical violation, but still a violation nevertheless!

Be careful. Handling the money of others must comply with the very strict trust account rules in each State! This is only one important aspect of running a successful service business, sometimes called a law practice.  For more business competencies rquired for success, see The Attorney & Law Firm Guide to The Business of Law. and other writings on this blog.

Categorized in: Management