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How to Prepare for Changes to Your Trust Account: Part 1

The decision to switch banks requires careful evaluation and planning for any business, but the unique requirements laws firms face makes proper preparation even more important. Trust accounts are a common part of banking for lawyers and the strict rules and regulations surrounding them require special considerations. Planning ahead ensures compliance as well as accuracy during the transition.

Firms change banks for a number of reasons, such as during mergers and acquisitions or when the office moves to a new location. Sometimes firms even leverage the number of assets in their account to get a better deal at a new bank. Once a firm decides to make the switch, careful planning is critical to making sure every item has been accounted for.

Planning for a New Trust Account

While it’s important to handle operating accounts correctly, trust accounts must be monitored even more closely due to their rigorous compliance requirements. Switching from one bank to another is a lot more difficult than simply withdrawing the funds, filling out some paperwork and depositing the funds in the new account.  All books and records must be updated correctly to reflect the change and planning is necessary for how to complete the actual migration.

When managing trust accounts, lawyers are responsible for always knowing the exact amount of a client’s account as well as the transactions attached to it. Pristine bookkeeping and client ledgers will eliminate any suspicion of impropriety during the transition so it’s important to make sure current records and books are complete and accurate before any changes are made. In the event of a trust audit, clean books will provide a clear trail of how the funds were handled.

There is also the concern of migrating faulty data. If the information is incorrect, it will simply become part of the new account. It will take less time to make sure the necessary reports and records are accurate before your migration than to have to go back and try to fix the errors in both the old and new accounts later.

Additional Planning Considerations

Setting a clear cutoff date that will mark the beginning of use for your new account, and communicating this to your entire firm, is also extremely important. This provides a hard deadline for when all necessary task items should be completed and also lets the firm know when the new account should start being used. Using the old account after the cutoff date can result in overdrafts and can be a bookkeeping (and compliance) disaster.

Be sure to plan how your staff will be able to differentiate between the old and new accounts. Consider naming them clearly and accordingly — providing properly titled checks and deposit slips. Using checks in a different color for the new account can also help staff to easily discern what checks they should be using.

The Takeaway

When planning to switch banks, law firms should be aware of the necessary steps required to maintain trust account compliance and migrate accurate information. In addition to understanding the intricacies of moving your trust funds for yourself, the steps and details involved can be complex enough that calling in an expert, either for advice or to oversee the process, can be a significant benefit to many firms that do not have or resources to devote for a project of this scale.

Trust accounts require strict compliance with no room for error, so while migrating accounts can be worthwhile and even necessary, it needs to be handled very carefully. Our next post on this topic will briefly discuss the software considerations you must keep in mind when switching trust accounts. For a full guide on How to Maintain Trust Compliance While Switching Banks, click or visit the Trust Accounting section of the CosmoLex Resource Center.

Rick Kabra

Dr. Rick Kabra is CEO of CosmoLex Cloud, creator of cutting-edge technology solutions to help solo and small law firms law firms. Rick has a Ph.D. in Electrical Engineering from NJIT and has over 10 years of experience in the legal software industry catering to the specialized technology needs of small to mid-sized law firms. Rick has given numerous seminars and published articles on legal technologies such as law practice technology management, cloud computing, and legal billing, business & trust accounting compliance.