New Rules tightening the requirements for attorney trust account record-keeping took effect January 1, 2008. Attorneys must now comply with detailed specifications when handling the record-keeping of their individual clients’ trust accounts. The new Rules create uniformity and add clarity to the specifications of attorney trust account record-keeping. Maryland lawyers need to be aware of, and comply with, these new Rules.
In recent years, the number of complaints issued about Maryland lawyers’ trust accounts, overdrafts and problems involving Rule 1.15 – Safekeeping Property – has escalated. To address this, the Court of Appeals of Maryland and the Attorney Grievance Commission reviewed and clarified the Rule specifications of client trust account record-keeping to help lawyers better understand the requirements. “We hope to reduce the many cases where an attorney was simply found to be ignorant of the trust account requirements,” explains Judge Glenn Harrell, Court of Appeals of Maryland.
In terms of trust accounts, “we found lawyers were either ignorant of the rules, didn’t understand the rules or just didn’t know what was expected of them in handling the accounts,” Harrell continues. However, he points out that these rules and procedures are not covered in law school. “It is not intuitive to know how to handle trust monies and fees, so unless an attorney is in a bigger firm with an accounting department, or has a mentor, he or she may simply not know about the Rules.”
As of January 1, lawyers must comply with record creation and maintenance requirements for their trust accounts, as specified in the Rules in Title 16, Chapter 600, especially new Rule 16-606.1, Attorney Trust Account Record-Keeping. New Rule 16-606.1 establishes “minimum record-keeping requirements for an attorney trust account to help assure that the funds of clients and third parties are being maintained by the lawyer, consistent with the care required of a professional fiduciary.”
Additionally, Rule 1.15, Safekeeping Property, has been amended to require lawyers to comply with the record creation and maintenance requirements for attorney trust accounts in the new Rules. It also mandates “the creation and maintenance of records pertaining to a lawyer’s receipt and distribution of property other than funds, changes the retention period for records of attorney trust account funds and other property to ‘at least five years after the date the record was created’ and conforms the provisions of Rule 1.15 (b) to the anti-commingling provisions of Rule 16-607 b.”
(1) identification of attorney trust accounts
(2) deposits and disbursements
(3) client matter records, and
(4) funds of the lawyer held in an attorney trust account as permitted by Rule 16-607 b.”
“Section (b) requires a monthly reconciliation of the lawyer’s records with the financial institution’s month-end statement and Section (c) requires that whenever the records required by the Rule are created or maintained using electronic means, there must be an ability to print a paper copy of the records. Section (d) requires that records created in accordance with section (a) of the Rule and records pertaining to an attorney trust account that are provided by the financial institution be maintained by the lawyer for a period of at least five years after the date the record was created.”
As amended, Rule 16-609 expands the “prohibition against cash disbursements from an attorney trust account and makes clear that the only means of disbursement from the account is by check or electronic transfer. New section (c) prohibits any disbursement from an attorney trust account that would create a negative balance with respect to all client matters in the aggregate or with respect to any individual client matter.”
Bar Counsel Melvin Hirshman hopes that “with the rules, lawyers who are not in larger law firms where there is a bookkeeping department, but do their own bookkeeping, will now have a fixed set of procedures to follow. These procedures require them to properly set up and maintain trust accounts for the funds of clients and others, which requires: (1) the identification of the funds of each person being placed in the trust account, (2) separate ledgers for all clients and funds being held by others and (3) a monthly reconciliation so that the attorney knows immediately that there has been no misuse of funds.”
Additionally, Bar Counsel reminds lawyers “that those who do not take care of their own books have the responsibility of supervising the procedures to make sure that the Rules are followed and that the people who do take care of their books comply with the Rules.”
With this new Rule, Hirshman hopes to see “fewer overdrafts and fewer attorneys in trouble over improperly handling the funds in their clients’ trust accounts. This is really an aid to lawyers and a reminder to them of their fiduciary responsibilities.”
The Court “clarified these Rules to help the lawyers,” concludes Harrell. “We put the specifics in and spelled them out in the Rule. Now it is all in the new Rules.”