Managing Client Trust Accounts During a Pandemic

Even on a good day, trust accounts can be a source of anxiety for legal professionals. As we contend with this new normal of remote work and social distancing, you may be concerned about how issues stemming from the coronavirus will affect the management of your client trust accounts. This is especially true if you are accustomed to having transactions processed at your office with physical checkbooks and you are not sure how to resolve this when the office is closed or your bookkeeper is unavailable.

As the WSBA’s practice management advisor, here are some of my recommendations for managing trust accounts during uncertain times like these.

Check for Bank Branch Closures

Now that we are operating under guidance and restrictions from our federal and state governments, some financial institutions have implemented changes to limit in-person access or have even temporarily closed local branches.

If you are accustomed to making transactions in person, you should find out whether your local branch is still open or has any plans to scale down services. You may have to make an appointment in advance, or you may be restricted to drive-thru transactions. Find out now whether this is the case and make sure you keep the branch’s contact information in a readily accessible place so you can get quick updates when you need them. You can also ask to sign up for a newsletter and where to find other information for changing developments, such as a webpage dedicated to news about branch closures.

Consider Electronic Transactions

Whether or not your local branch closes, you may be subject to quarantines or government mandates that prevent you or your staff from writing physical checks or conducting transactions in person. (As a matter of professional responsibility, lawyers and Limited License Legal Technicians should maintain oversight over the management of client property, including trust accounts. For more information, refer to the Managing Client Trust Accounts booklet, note on page 20.) In that case, it may be helpful for you to consider moving to electronic transactions for your bookkeeping.

For your trust account, you will first need to determine whether your bank allows electronic transfers from your trust account—not all financial institutions do, although that could change as the coronavirus situation progresses. Contact your financial institution to determine what capabilities exist for electronic trust account disbursements and deposits; you may be able to initiate a wire transfer, ACH transfer, or an electronic check request.

If you have absolutely no way of handling transactions electronically, you need to establish procedures so your clients are still being served during this period. Note that any decision you make, such as whether someone will go into the office to perform those functions, should be consistent with any federal, state, or local orders that are in place for your area.

Be Wary of Phishing Schemes

If you are able to proceed with electronic payments, you need to keep yourself apprised of best practices for verifying payment instructions from clients. This is an area where firms can become victims of fraud or phishing schemes; for example, when a client’s email account is compromised and a third party intercepts the email and transaction details. A third party hacker may be able to change the wire/account details in order to misdirect payment.

Another source of fraud for firms is when a new or prospective client has a deal that seems too good to be true. The “client” may claim that they are expecting a settlement and are willing to pay a fee for help finalizing the transaction. They ask you to receive a settlement on their behalf and deposit it in trust. Sophisticated schemes may even involve other individuals/entities posing as the opposing party. You will be expected to remit the balance of the settlement to the client before the deposit has been fully processed by your bank. Eventually, your bank will reject the deposit as a bad check, but in the meantime, your “client” has made off with the funds you remitted as a refund.

To avoid these types of schemes, make sure you take steps to verify your client’s identity. If your client provides banking instructions by email, require that your client confirm through another means, such as voice call (you should contact the client at the number you have on record). Be vigilant about unusual requests or changes in the instructions you receive. Never rely on a deposit to your trust account until it has actually “cleared” the bank; even if the funds show as “available,” the transaction may not be fully processed. Finally, make sure you have internal protocols in place with your staff, such as how they should verify a request that appears to be coming from you.

For more resources on electronic funds transfer, see “Managing Client Trust Accounts: Rules, Regulations, and Common Sense;” “8 Security Tips to Prevent Fraudulent Wire Transfers,” and “Fraud Update: Compromised Wire Instructions.”

Designate a Caretaker and/or Authorized Signer

We hope that you stay healthy and unaffected by illness during this period. However, you should prepare for any unexpected event that prevents you or your firm from administering essential business functions, such as trust account disbursements. Even a short delay may cause problems for your clients. To avoid potential harm for your clients if something happens to you, identify someone who can be an authorized signer on your accounts.

The authorized signer must be a lawyer or LLLT (see the Managing Client Trust Accounts booklet). The authorized signer is tasked with auditing and approving any deposits or withdrawals to the firm’s trust account in the event you are incapacitated. Your financial institution may place restrictions on such an arrangement, and you should have a written agreement in place that sets out the terms of the relationship. The agreement should address considerations such as, but not limited to, the protection of client confidentiality and client property, preservation of attorney-client privilege, and how your incapacity would be determined. You should also develop written instructions that include the key information they need to perform these tasks, and those instructions should be kept secure.

Finally, you should also notify your clients of this arrangement so they are aware they could be contacted in an emergency, and so they know whom to contact if they cannot reach you.

If you have questions about establishing such a relationship, please contact the WSBA Ethics Line.

Don’t Let Your Record Retention Fall Away

In times of transition and uncertainty like this, it can be easy to overlook some of the basic routines in your business. Be mindful that you are maintaining the proper documentation related to client trust accounts and other client property. Do not wait to follow your normal protocols, such as recording transactions, scanning receipts, or backing up data.