How do I avoid commingling trust funds with my business funds?

CosmoLex Team

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Commingling occurs when an attorney or law firm maintains operating or personal funds in a trust account used to hold client or third-party funds.[1][2] Common situations that give rise to commingling are:

  1. Depositing a large sum of personal or firm funds into a client trust account to cover a dispersal from trust
  2. Failing to promptly withdraw earned fees and reimbursements for cost advances from the client’s trust account
  3. Depositing flat fees (refundable or non-refundable) into trust when the fees were earned upon receipt
  4. Failing to keep individual trust ledgers for each client[3]
  5. Disbursing from a client trust account before the source check has cleared. (If the firm’s overdraft protection kicks in or if the firm deposits its own funds in the trust account to cover an uncleared check, it might result in an improper commingling of client and attorney funds.[1])

Attorneys and law firms can avoid commingling trust funds with business funds by doing the following:

  1. Deposit only a “de minimus” amount of operating funds into trust in order to cover bank service fees (check with your state and local bar rules to determine what is a “de minimus” deposit)
  2. Promptly remove earned fees and cost reimbursements from the client’s trust account;
  3. Deposit flat fees earned upon receipt into business the operating account, NOT into trust;
  4. Keep individual trust ledgers for each client; and
  5. Disburse proceeds from a client’s trust account only after the check that was the source of the trust funds clears the bank.

As always check your state and local bar rules to determine if there are any additional steps your firm must take to prevent the commingling of funds.


References

1. Malpractice and the Attorney Client Trust Account
2. IOLTAs and Client Trust Accounts
3. When Attorneys Commingle Funds With Clients