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New Client Account Record Keeping Requirements

Articles from The Massachusetts Focus

Newsletter of Stewart Title Guaranty Company, Massachusetts Offices
Fall 2003, Volume 2, Number 4

New Client Account Record Keeping Requirements
by Pamela Butler O'Brien, Underwriting Counsel

The Supreme Judicial Court has adopted new regulations to take effect January 1, 2004, with respect to lawyer's trustee for clients' accounts. While we are all familiar with IOLTA accounts, the actual day-to-day record keeping of those accounts will change with the new regulations.

The new regulations codify some common sense items. The attorney must maintain a record showing the name and address of the institution he maintains the trust account in. That record should also reflect the account name, account number, open and closing date, as well as whether the account is a pooled account with interest going to IOLTA or an account with interest being paid to the client or other beneficiary of the trust account. A check register in chronological order must be maintained. This register should show the date and amount of all deposits, the date, check number, transaction amount and payee of all disbursements. This register should show every credit or debit, whether by electronic transfer or any other method, the client account to which the action pertains and the balance in the account after the deposit or disbursement. If this register is kept electronically (for example, using Quicken), it must be capable of being reduced to hard copy, and must be backed up regularly. There is a prohibition against ATM withdrawals from trust accounts, the use of checks not prenumbered, and checks made payable to "Cash" or "Bearer."

The new regulations require that, in addition to the above, individual client records must be maintained. In other words, there must be a client account for each sale or refinance you are doing. So when John Johnson purchases his property a client account will need to be established. It will show the deposits and disbursements that pertain to his transaction, as opposed to the deposits and disbursements for the entire IOLTA account. Each client account must zero out at the end and must never contain a negative balance. It goes without saying, therefore, that checks for Municipal Lien Certificates, for example, should not be paid out of the trust account as typically these checks are cut before any deposits are made for that transaction.

A separate ledger must also be maintained to record the funds deposited by the lawyer or law firm to cover reasonably expected bank charges. This ledger must contain the deposits and disbursements as well as a running balance.

The new regulations also dictate that reconciliation be done no less frequently than every 60 days. The reconciliation statements must show not only the familiar check register - adjusted bank statement reconciliation, but must show that the total of all client matter balances equals the total of the account in whole. After reconciliation the attorney is required to retain all bank statements, transaction records returned by the financial institution, and records indicating for whom each deposit is being maintained. Finally, back to common sense, the regulations require that each attorney who handles trust funds maintain at least one bank account for funds received and disbursed other than those held in trust (in other words, a business account for things like payroll, MLCs, rent, and other business expenses).

The new regulations can be found in the Massachusetts Rules of Professional Conduct 1.15.