A lawyer’s trust account is a bank account that is dedicated to holding both clients’ and third parties’ monies. A trust or escrow account is also commonly called an IOLTA account, which stands for Interest on Lawyers’ Trust Accounts. Funds deposited in these types of protected accounts are held separately from lawyers’ personal and business operating accounts and are held for a specified period of time until appropriate for disbursement. Trust accounts are regulated by strict governmental rules to make sure all funds are handled properly.
Settlement funds
Did you settle your case recently? Congratulations! After your legal team has worked hard to negotiate with the at-fault party and their insurance company, reaching a settlement is a major milestone.
Naturally, you’re ready to receive your compensation. In order to receive these funds, there is a step by step process your law firm must go through.
The Process
Settlement checks are deposited in a trust account only once your lawyer’s accounting department has verified the funds are approved to be deposited.
For example, once our firm reaches a settlement agreement with an adverse insurance company, that insurance company might require a release to be signed before any payout. Most insurance companies will not send settlement funds until after releases have been reviewed, approved, and signed. However, some insurance companies will send a check at the same time as the release. It is not good practice to deposit the check before the terms of the release are resolved.
Once settlement funds have been received, a careful review happens before depositing the money. The check, check stub, backside of the check, and any other paperwork (including releases) sent with the check all must be reviewed for accuracy. Once everything looks good, the funds are deposited into the trust account. These funds are assigned to the proper client and noted in the client file, as well as in the trust account’s check registry and accounting software.
A clearing process must then take place, which takes time. Many checks take weeks to clear the other party’s bank account, especially if the funds originate from out of the country. It is very common for law firms to require a month or more between deposit and disbursement of funds to make sure the funds have truly cleared all associated banking institutions. Should money be released too early, complications could arise related to situations with bank errors, stopped payments and insufficient funds. Waiting an appropriate period helps alleviate these concerns.
Benefits of a Trust Account
A trust account has several benefits.
- It ensures your money is safe in a separate account with ethical oversight.
- It provides transparency and accountability of funds.
- It ensures disbursed funds clear properly.
- It helps facilitate payment of experts, vendors and other expenses.
- It facilitates payment of any liens.
Case Related Expenses
Depending on the case, there may be costs which will be paid during the life of the case or at the close of a file. These costs may include expert fees, court costs, deposition fees, mediation fees, investigation or discovery expenses, and other costs incurred by your attorneys and related parties. Funds held in the trust account are often directed from the trust account to the appropriate party. Each payment is carefully recorded to ensure a clear paper trail and accountability.
The Wait is Worth It
Waiting for funds to clear can take a while. However, an attorney’s trust account process is mandated and designed to protect your money’s safety. It is very important that your attorney distribute all funds in an ethical and accurate manner and that no banking issues unexpectedly disrupt your payment. Your attorney’s accounting department should be focused on handling all moneys responsibly and in your best interest.
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