Because a trust account essentially involves a law firm or attorney holding a client’s money for them, the American Bar Association and State Bar Associations have strict rules in place to ensure that the client’s money is treated like—well, the client’s money. And not the firm’s.
One of the regulated areas has to do with who can be an authorized signer on a trust account. Read on to understand the process and what steps to take when using electronic disbursements.
Authorized Signatories: CTA, IOLTA, ABA, and State Differences
Depending on a firm’s practice area, attorneys may work with Client Trust Accounts (CTAs) and Interest on Lawyers Trust Accounts (IOLTAs). The latter effectively pool low-interest-earning client retainers and donate the combined interest to support charitable legal work.
When it comes to CTAs, the American Bar Association is clear in their Model Rules for Client Trust Account Records – Rule 2 that “only a lawyer admitted to practice law in this jurisdiction or a person under the direct supervision of the lawyer shall be an authorized signatory or authorize transfers from a client trust account.”[1]
However, when it comes to IOLTA accounts, regulations differ by state—including whether an IOLTA is mandatory or voluntary. In this instance, it’s important to know your State Bar’s requirements.
What to Do in the Age of Electronic Transfers
But the question of who is allowed to be an authorized signatory on a CTA gets complicated when firms use electronic disbursements, which has been happening more and more, especially since the pandemic started.
Specifically, because a bank doesn’t have a record of the authorized signature, it is the lawyer’s responsibility to create a record of who made the transfer.
In these situations, create an authorization form template that includes the following information:
- The amount being transferred
- The recipient
- The client
- The routing number and bank account number
- A signature from the attorney who is the CTA’s authorized signatory
Keep all authorization forms for your records, in case of a trust audit. At the end of each month, be sure to check the authorization forms against the bank statement.[2]
This process can be streamlined if you use integrated billing and accounting. Better yet, make it part of your monthly three-way reconciliation process.
References
1. American Bar Association: Model Rules for Client Trust Account Records
2. 7 Reasons Law Firms Still Resist Online Payments