New Florida Bar Rule Shifts Focus to Trust Accounts

The Florida Bar now requires all law firms with more than one attorney to have a written trust account plan in place for each of the firm’s trust accounts. Lawyers who don’t comply with the newly amended rules could face stiff penalties.

The major change is the amendment to Bar Rule 5-1.2(c), which went into effect June 1, 2014. Under the revised rule, each lawyer in a law firm will be responsible for his or her own actions regarding trust account funds.

The Florida Supreme Court has disciplined hundreds of attorneys in the past year for violating Florida Bar rules, including dozens who were sanctioned for trust account violations. Recent court orders include several references to trust account improprieties, such as:

• “…failure to maintain trust account records and procedures in compliance with Bar rules”
• “…gross neglect of his trust accounts through his failure to supervise the management of the trust accounts”
• “…misappropriating funds from trust accounts”
• “…commingled trust funds with law firm operating funds”
• “…failed to respond to a request from the Bar to produce his trust account records”

Sanctions for trust accounting violations under Florida Bar Rules may include admonishment or public reprimands, with more severe penalties for gross negligence or patterns of misconduct. 

To be compliant with the amended Bar Rule 5-1.2(c), according to The Florida Bar News, the written trust account plan is required to include the names of all lawyers who:

• Sign trust account checks for the firm and review all trust account checks
• Are responsible for oversight of reconciliation of the firm’s trust accounts (monthly and annually)
• Are responsible for answering questions that firm lawyers may have about the firm’s trust accounts

It is important to note that even if accounting or finance personnel handle these functions, their work must always be overseen by an attorney who is responsible for the trust accounts. 

The amended rule requires that the written trust account plan is disseminated to every lawyer in the firm, including all lawyers who join the firm subsequently. The plan must also be updated whenever there are material changes, and all lawyers in the firm must be notified of any changes to the plan.

For law firms that already have written plans, this revised rule presents an excellent opportunity to revisit those plans to ensure that they are up to date, designed appropriately, are being applied consistently and meet the requirements of the revised rule.

Draft trust account plans for small and large Florida law firms are available on The Florida Bar’s website, but you may not want to go it alone.  An accountant or consultant with specific law firm expertise can assist you in your evaluation of your firm’s current controls over trust accounts to help you stay in compliance with this and other Florida Bar rules.  An assessment of your controls can help you determine whether your firm has appropriate safeguards in place to comply with your fiduciary responsibilities.

Often, violations are a result of unintentional trust account mismanagement rather than malice. Many attorneys don’t have a complete understanding of the numerous rules governing trust account operations and uses.  Some of the most common issues uncovered during trust audits include:

• Failure to properly track client funds – Not keeping separate, detailed trust ledgers for each client makes it difficult to track each client’s account balance.
• Comingling of client funds – Mixing trust account money with either personal funds or law firm operating funds is very problematic. It’s important for attorneys to understand where to draw the line of separation and what trust accounts should and shouldn’t be used for.
• Lack of timeliness in performing trust account reconciliations – Reconciliation of each trust bank account needs to be performed on a timely basis.  Additionally, the sub-ledger balances need to agree to the general ledger balances, and individual trust ledger balances should be reviewed on a regular basis to identify unusual or stale items.
• Improper authorizations for trust disbursements — Not requiring adequate authorization leaves the door open for improper “borrowing” from trust accounts.  This may come in the form of disbursing fees from the trust account before they are earned, borrowing from client funds with the intention of repaying, as well as outright theft.
• Lax approval and review process – Insufficient oversight can lead to many issues, including those mentioned above.

Trust account violations and abuses can be damaging to your firm’s reputation and, in some cases, have caused the ultimate demise of an entire organization. Take the necessary steps now to proactively assess your firm’s controls over trust accounting and make sure your firm is in compliance with this new Florida Bar rule.