MANAGING YOUR CLIENT TRUST ACCOUNT MANUAL & WORK BOOK

Transcription

1 MANAGING YOUR CLIENT TRUST ACCOUNT MANUAL & WORK BOOK Office of Lawyer Regulation January 2011

2 MANUAL TABLE OF CONTENTS I. Obligation to Maintain a Trust Account 1 II. Key Elements of a Trust Account 1 III. Purpose of Maintaining Accurate Records 2 IV. Responsibility for Trust Account 2 V. Trust Account Basics 3 A. Funds that MUST or MUST NOT be held in a Trust Account 3 B. Availability of Funds for Disbursement 3 C. Required Records 4 D. Prohibited Transactions 6 E. Bank Service Charges 7 F. Unclaimed Funds 7 G. Holding Property in Trust (Tangible Personal Property and Bearer Securities) 9 H. Obligations to Third Parties 10 VI. Fiduciary Account Basics 12 A. Distinction between Trust Accounts and Fiduciary Accounts 12 B. Required Records 12 C. Prohibited Transactions 13 D. Holding Fiduciary Property (Tangible Personal Property and Bearer Securities) 14 VII. Attorney Fees and Cost Advances 15 A. Definitions: Advanced Fees, Flat Fees and Retainers 15 B Advanced Fees and Costs 16 C. Alternative Protection for Advanced Fees 16 D. Disbursement of Advanced Fees 17 E Alternative Notice to Client 18 F. Fee and Cost Payments by Credit Card and Debit Card 18 G. Electronic Payment of Filing Fees (U.S. Bankruptcy Courts and Wisconsin Circuit Courts) 20 (i)

3 VIII. Overview of SCR 20:1.15 Safekeeping Property; Trust Accounts and 22 Fiduciary Accounts (Effective January 1, 2011) A. SCR 20:1.15(a) Definitions 22 B. SCR 20:1.15(b) Segregation of Trust Property Separate Account Identification of Account Lawyer Funds Unearned Fees and Cost Advances 23 4m. Alternative Protection for Advanced Fees SCR 20:1.15(b)(5) was repealed, effective 7/1/ Trust Property other than Funds Multi-jurisdictional Practice 23 C. SCR 20:1.15(c) Types of Trust Accounts IOLTA Accounts Non-IOLTA Accounts Selection of Account Professional Judgment 24 CM. SCR 20:1.15(cm) Interest on Lawyer Trust Account (IOLTA) Requirements Location Certification by IOLTA Participating Institutions Insurance and Safety Requirements Income Requirements Allowable Reasonable Fees on IOLTA Accounts Remittance and Reporting Requirements 26 D. SCR 20:1.15(d) Prompt Notice and Delivery of Property Notice and Disbursement Accounting Disputes regarding Trust Property 27 E. SCR 20:1.15(e) Operational Requirements for Trust Accounts Location Insurance and Safety Requirements Interest Requirements 29 (ii)

4 4. Prohibited Transactions 29 Exceptions: 29 Collection Trust Accounts 29 Fee and Cost Advances by Credit Card, Debit Card or Other Electronic Deposit Availability of Funds for Disbursement 29 Exceptions: 29 Real Estate Transactions 30 Collection Trust Accounts Record Retention Production of Records Business Account 30 F. SCR 20:1.15(f) Record-keeping Requirements for All Trust Accounts Draft Accounts 30 (a) Transaction Register 30 (b) Individual Client Ledgers 30 (c) Ledger for Account Fees and Charges 30 (d) Deposit Records 31 (e) Disbursement Records 31 (f) Monthly Statement 32 (g) Reconciliation Reports Non-Draft Accounts Tangible Trust Property and Bearer Securities Electronic Record Retention 32 G. SCR 20:1.15(g) Withdrawal of Non-Contingent Fees from Trust Account Notice to Client 33 1m. Alternative Notice to Client Objection to Disbursement 33 H. SCR 20:1.15(h) Dishonored Instrument Notification (Overdraft Notices) Overdraft Reporting Agreement Identification of Accounts subject to this Subsection Overdraft Report 34 (iii)

5 4. Content of Report Timing of Report Confidentiality of Report Withdrawal of Report by Financial Institution Lawyer Compliance Service Charges Immunity of Financial Institution 35 I. SCR 20:1.15(i) Certification of Compliance with Trust Account Rules Annual Requirement Trust Account Record Compliance Certification by Law Firm Suspension for Non-compliance 36 J. SCR 20:1.15(j) Fiduciary Property Separate Account 36 1m. Other Fiduciary Accounts Location Prohibited Transactions Availability of Funds for Disbursement Records Record Retention Production of Records Tangible Fiduciary Property and Bearer Securities Dishonored Instrument Notification or Alternative Protection Certification Requirements 38 K. Exceptions to this Section [SCR 20:1.15] 39 (iv)

6 MANAGING YOUR CLIENT TRUST ACCOUNT A LAWYER MUST HOLD THE PROPERTY OF OTHERS WITH THE CARE REQUIRED OF A PROFESSIONAL FIDUCIARY. (COMMENT SCR 20:1.15) I. OBLIGATION TO MAINTAIN A TRUST ACCOUNT A Trust Account must be maintained to hold the funds of clients and third parties that come into a lawyer s possession in connection with a representation. 1 Funds which must be placed in Trust Accounts include: Personal Injury Settlements Divorce Settlements Real Estate Escrows and Closing Proceeds Advanced Fees for legal services 2 Cost Advances II. KEY ELEMENTS OF A TRUST ACCOUNT Separate: The Trust Account must not be associated with the Lawyer s Personal or Business Accounts. [See, SCR 20:1.15(b) and SCR 20:1.15(e)(8)]. Identifiable: Bank Statements, Checks, and Deposit Slips must be clearly labeled as Trust Account, Client Account or a combination of those terms. The terms IOLTA Client Account and IOLTA Trust Account comply with the rule s requirements; however, IOLTA Account, without further elaboration, is not sufficient identification. [See, SCR 20:1.15(b)(2)]. Accountable: Account Records must be accurate, contemporaneous, and readily accessible at all times. Records must be maintained for at least six (6) years after the termination of a representation. [See, SCR 20:1.15(e)(6)]. 1 Funds may also be invested or placed in trust in other types of accounts at the client s direction. [See, SCR 20:1.15(c)(2) Non-IOLTA Accounts]. 2 Both hourly and flat fee advances must be held in trust unless the requirements of SCR 20:1.15(b)(4m), the Alternative Protection for Advanced Fees, are followed. (See, Section VII-C).

7 III. PURPOSE OF MAINTAINING ACCURATE RECORDS To prevent conversions 3 caused by poor record keeping. To prevent overdrafts in the Trust Account as a whole, as well as overdrafts in individual clients accounts. To protect against allegations of unauthorized use of funds. To prevent the loss of funds via: Garnishment or Seizure Levy by the IRS or Wisconsin Department of Revenue Death or Incapacity IV. RESPONSIBILITY FOR TRUST ACCOUNT A lawyer is ultimately responsible for his/her trust account, even if maintenance duties are delegated to an associate or a non-lawyer staff member. 4 [See, SCR 20:5.1 and SCR 20:5.3]. The lawyer must, therefore, ensure that there are adequate procedures in place, that those procedures are followed, and that the required records are maintained. [See, 20:5.1, SCR 20:5.3 and SCR 20:1.15(f)]. The lawyer must annually certify to the State Bar of Wisconsin that he or she has complied with each of the record-keeping requirements set forth in SCR 20:1.15(f) and SCR 20:1.15(j)(10). [See, SCR 20:1.15(i)]. RECOMMENDATION: Only lawyers should have signatory authority over a Trust Account. 3 A conversion is an unauthorized removal of funds from a Trust Account, regardless of whether the removal was intentional or inadvertent, and further, regardless of whether the funds were disbursed to the lawyer, to another client or to a third person. 4 See, Disciplinary Proceedings against Guenther, 2005 WI 133, 285 Wis.2d 587, 700 N.W.2d 260 (2005) and Disciplinary Proceedings against Brandt, 2009 WI 43, 317 Wis. 2d 266, 766 N.W. 2d 194 (2009). 2

8 V. TRUST ACCOUNT BASICS A. Funds that MUST or MUST NOT be held in a Trust Account SCR 20:1.15(b)(1) provides that all funds or property belonging to a client or a third party that are entrusted to a lawyer in connection with a representation must be held in trust. Such funds include: filing fees; fines and other costs related to the representation; funds in which the lawyer, the client and/or a third party claim an interest, such as settlement proceeds; and fee advances, unless the alternative provided in SCR 20:1.15(b)(4m) is employed. See, Section VII-C Alternative Protection for Advanced Fees. SCR 20:1.15(b)(3) provides that no personal or business funds of a lawyer may be held in a trust account other than a reasonably sufficient amount to cover monthly service charges. RECOMMENDATION: OLR considers a balance of $100 to be reasonably sufficient to cover monthly account service charges. Such funds should be identified as a Maintenance Account in the trust account subsidiary ledgers and other records. If a firm s monthly service charges or its check printing charges typically exceed $100, a somewhat larger Maintenance Account balance may be appropriate. B. Availability of Funds for Disbursement SCR 20:1.15(e)(5) specifies that funds must not be disbursed from a trust account until the related deposit has been credited to the account and is available for disbursement. Making a disbursement prior to, or on the day of a deposit will result in a temporary conversion of funds belonging to another client, an overdraft of the trust account, or both. Consequently, a lawyer should never make simultaneous deposits and disbursements from a trust account. While many financial institutions provide availability of funds by the business day after the deposit, not all deposits may be available that quickly. 3

9 For example, if an out-of-state check is deposited, the funds may well take more than the usual day or two to clear. In addition, financial institutions may begin posting transactions to the next business day as early as 2:00 p.m. As a result, a check deposited at 3:00 p.m. on Monday may not be available until Wednesday; whereas, a check deposited at 10:00 a.m. on Monday may be available for disbursement on Tuesday. Friday evening transactions are routinely posted on the following business day, i.e., Monday. RECOMMENDATION: Lawyers should familiarize themselves with the fund availability policies of their financial institutions. If you are not familiar with those policies, please obtain a copy from the financial institution. In addition, please review the deposit receipt for notice of potential delays in the availability of funds for disbursement. C. Required Records Pursuant to SCR 20:1.15(e)(6), complete trust account records must be maintained for a period of at least six years after the termination of a representation. Complete records include the following: 1. Transaction Register The Transaction Register provides chronological tracking of all deposits and disbursements, along with the balance in the account after each transaction. It is a required record for all trust accounts. SCR 20:1.15(f)(1)a. describes the required content of this record, and a sample of the record can be found at Appendix A. 2. Individual Client Ledgers Client Ledgers provide a chronological record of deposits and disbursements for each client, client matter, or third party for whom funds are received in trust, along with the balance following each transaction. Client Ledgers are required for all pooled trust accounts. SCR 20:1.15(f)(1)b. describes the required content of this record, and examples of the record can be found at Appendix B. 4

10 3. Ledger for Account Fees and Charges The Ledger for Account Fees and Charges, also known as a Maintenance Account Ledger, provides a chronological record of the deposit and disbursement of any funds belonging to the lawyer that are held in a trust account to cover service charges, such as check printing or monthly service fees. SCR 20:1.15(f)(1)c. describes the required content of this record, and a sample of the record can be found at Appendix B, p. 3. RECOMMENDATION: When the balance of law firm funds in the trust account is reduced by the deduction of service charges, the balance should be restored with a check from the firm s business account. This will provide the necessary paper trail for these transactions. 4. Deposit Records A trust account deposit slip 5 must identify not only the date of each deposit and the amount of each deposit item, but also the client or matter connected with each deposit item. SCR 20:1.15(f)(1)d. describes the required content of this record, and a sample of the record can be found on page 6 of the Work Book that follows this Manual. 5. Disbursement Records Disbursement records include checks, canceled and imaged checks, and wire transfer records. Each check that is disbursed from a trust account must identify, on its memo line, the client or matter and the reason for the disbursement. SCR 20:1.15(f)(1)e. describes the required content of each of the disbursement records. A sample trust account check can be found on page 14 of the Work Book that follows this Manual. 5 A deposit slip, not to be confused with a receipt for the deposit, is the form that is completed by the depositor and given to a teller along with the items being deposited, i.e., a check, cash, etc. A deposit receipt is given to the depositor by the teller. 5

11 6. Monthly Statements SCR 20:1.15(f)(1)f. identifies the monthly account statement as one of the required records for a trust account. 7. Reconciliation Reports A reconciliation report must be prepared for a trust account on a monthly basis. SCR 20:1.15(f)(1)g. describes the required content of the monthly reconciliation, a sample of this record can be found on page 13 of the Work Book that follows this Manual. A blank Reconciliation Worksheet is available at Appendix C. D. Prohibited Transactions Various types of transactions are prohibited in connection with trust accounts because they do not generate a sufficient, inalterable, record of the purpose of the transaction and the client or matter to which it relates. 1. Cash Withdrawals and Disbursements SCR 20:1.15(e)(4)a. prohibits the following types of cash transactions in connection with a trust account: 2. Telephone Transfers Cash withdrawals from the account; Cash back from a deposit; and Checks, payable to cash. SCR 20:1.15(e)(4)b. prohibits deposits to and disbursement from a trust account by telephone transfer. However, the rule also specifies that this prohibition is not meant to preclude wire transfers or telephone transfers between non-pooled accounts maintained for a particular client. 3. Internet Transactions SCR 20:1.15(e)(4)c. prohibits deposits and disbursements via internet transactions. 4. Electronic Transfers by Third Parties SCR 20:1.15(e)(4)d. prohibits a lawyer from authorizing a third party to withdraw funds from a trust account. In addition, a lawyer cannot authorize a third party to electronically deposit funds to a trust account if that deposit can be reversed without the lawyer s authorization. 6

12 5. Credit and Debit Card Transactions SCR 20:1.15(e)(4)e. and f. prohibit credit and debit card transactions in connection with a trust account. There is an exception to this prohibition for the payment of legal fees and costs. See Exception, SCR 20:1.15(e)(4)h. Fee and cost advances by credit card, debit card or other electronic deposit. SCR 20:1.15(e)(4)e. further specifies that this prohibition does not prevent a lawyer from accepting a credit card payment for fees that have been earned, since earned fees must be deposited in the lawyer s business account, not the trust account. In addition, effective January 1, 2011, a lawyer may accept credit and debit card payments of both earned and unearned fees and costs, subject to certain conditions. For further information, see page 18 of this Manual. E. Bank Service Charges A lawyer can maintain a nominal amount of law firm funds in the trust account to cover monthly costs associated with the account. A balance of up to $100 is acceptable, and such funds should be identified as a Maintenance Account in the firm s trust account records. A subsidiary ledger must be kept for the Maintenance Account so that the balance of law office funds in the account is clearly identifiable. Please note that the $100 amount is a general figure. If the firm s monthly service charges or the check printing charges exceed that amount, a somewhat larger balance in the Maintenance Account may be appropriate. F. Unclaimed Funds In order to avoid holding funds indefinitely and losing contact with the owner(s), a lawyer should promptly follow up on any trust account check that has not cleared within two to three months of disbursement. If the owner of funds held in trust cannot be located, the funds may have to escheat to the State of Wisconsin, pursuant to Wis. Stats Prior to remitting funds to the Office of State Treasurer (OST), a lawyer should send a due diligence letter to the owner of any unclaimed funds in excess of $50. 6 [See, Wis. Stats (5). See also, Caution regarding Due Diligence Letter Requirement, on p. 8.] (Continued) 6 A sample due diligence letter can be found in the Unclaimed Property Holder Reporting Guide that is available on the State Treasurer s website: or in hard copy by contacting the Unclaimed Property Office at:

13 DUE DILIGENCE LETTER REQUIREMENT: While the statute does not require due diligence letters for amounts of less than $50.00, OLR encourages lawyers to send such letters in all cases in order to document their efforts to locate the property owner and notify the owner of the impending transfer of trust funds to the OST. Abandoned property, which OLR and the State Treasurer s Office interpret to include unclaimed funds held in lawyer trust accounts, is identified by Wis. Stats (1) as follows: Except as otherwise provided in this chapter, all intangible property, including any income or increment derived from it, less any lawful charges, that is held, issued or owing in the ordinary course of a holder's business and that has remained unclaimed by the owner for more than 5 years 7 after it became payable or distributable is presumed abandoned. (Emphasis added). PROHIBITED DEDUCTIONS: OLR takes the position that a lawyer may not deduct charges for efforts to locate the owner(s) of funds held in trust. Such efforts are part of a lawyer s fiduciary obligations. 8 PERMITTED DEDUCTIONS: The OST has an established policy that the only charges that may be deducted from unclaimed funds are the bank service charges and traveler s check/money order fees, authorized under Wis. Stats (3) and (3). The OST has also acknowledged that other statutory liens (Warehouseman's, Self-Storage and Mechanic's Liens) allow for expenses to be deducted prior to reporting to the Unclaimed Property Unit. For further information, contact the Unclaimed Property Program Administrator at the State Treasurer s Office [ ], or, go to: 7 The 5-year period may be shortened to 1 year if the attorney is joining another firm, retiring, or otherwise ceasing the practice of law. (See, Wis. Stats ) 8 See, Disciplinary Proceedings against Tobin, 2007 WI 50; 300 Wis. 2d 250; 730 N.W.2d 896 (2007). 8

14 G. Holding Trust Property (Tangible Personal Property and Bearer Securities) SCR 20:1.15(b)(6) requires that, unless the client directs otherwise, in writing, a lawyer must keep securities in bearer form in a safe deposit box. Such a safe deposit box must be designated as a Client Account or Trust Account. Non-cash property should be labeled as the property of the client/third party and placed in the safe deposit box. Where the property will not fit into a safe deposit box, the lawyer should label the property with the owner s name, keep it separate from the property of the lawyer or other clients, and take whatever safeguards are necessary to preserve that property. SCR 20:1.15(f)(3) requires that the lawyer keep a ledger of tangible personal property or securities in bearer form that are received in trust. The ledger must identify the property, the date of its receipt, the owner, the client or matter, the location of the property and its ultimate disposition. The lawyer must also provide the prior custodian of the property with a receipt, and upon disposition of the property, obtain a signed receipt from the recipient. RECOMMENDATION: A copy of the signed receipt should be placed in the client file. Another copy should be kept with the property ledger that is maintained with the lawyer s other trust account records. In the event that the lawyer is unavailable, due to death or illness, this record keeping will provide invaluable assistance in determining the location and ownership of any trust property in the lawyer s possession. 9

15 H. OBLIGATIONS TO THIRD PARTIES In addition to responsibilities relating to client funds, lawyers also have certain obligations for funds in which third parties have an interest. Those obligations, which are identified in SCR 20:1.15(d), include notification of the receipt of such funds; prompt disbursement of funds to which the party is entitled; provision of a written accounting; and the holding of disputed funds in trust. However, the above-referenced obligations apply only if the lawyer has been notified of the third party s interest and that interest is identified in a lien, court order, judgment or contract. ETHICAL OBLIGATIONS VS. CASE LAW ON ASSIGNMENTS In Disciplinary Proceedings against Barrock (2007 WI 24, 727 N.W.2d 833), the Court found that, under SCR 20:1.15(d), a lawyer who had received notice of a third party s lien against a client s personal injury settlement was obligated to protect that third party s interest in the trust property, even though the lawyer s client had instructed the lawyer to disregard the lien. A lawyer s obligations under SCR 20:1.15(d) are distinct from the law on assignments. See, Riegleman v. Krieg (2004 WI App 85, 679 N.W.2d 857) and Yorgan v. Durkin (2006 WI 60, 715 N.W.2d 160), which discuss lawyers obligations under the law on assignments. Both of these cases involve disputes regarding chiropractor s fees. In Riegleman, the Court of Appeals provided the following guidance to lawyers: We conclude with this instruction: If an attorney and client have signed an assignment in favor of a medical provider and a dispute arises over whether the amount owing is reasonable and necessary, and if the attorney does not want to hold funds indefinitely, he or she should bring an action for declaratory judgment pursuant to WIS. STAT and seek guidance from the court as to who is entitled to the disputed funds. Specifically, the attorney should do the following: 1. Commence a declaratory judgment action under WIS. STAT naming the patient as plaintiff and the medical care provider as defendant. 2. Deposit or file the disputed amount with the Clerk of Courts.... Finally, we offer these words of advice and caution to attorneys faced with similar circumstances: An attorney should not assume that he or she can ignore an assignment that he or she has agreed to honor simply because a client changes his or her mind about the assignment to make such an assumption is contrary to rules of professional conduct, which require that 10

16 disputed funds be held in trust until the dispute is resolved. SCR 20:1.15(d). When dealing with an attorney, another person (whether an attorney or a lay person) has the right to expect that the attorney will be honest and straightforward. See generally Moore, 4 P.3d at 666. If an attorney signs a document intending that the medical provider rely upon it to continue to render care and to postpone collection efforts, while intending not to be obligated to dispense settlement proceeds to the medical provider, a more serious question of misrepresentation and fraud could arise. Id. In a concurring opinion in Yorgan, Wisconsin Supreme Court Justice Jon Wilcox provided further guidance to lawyers: Although I recognize that the Rules of Professional Conduct for Attorneys do not provide the basis for civil liability, see SCR 20, Preamble, I call attention to them because they provide certain ethical guidelines for how an attorney should approach a situation such as this when a preexisting agreement purporting to assign settlement proceeds is discovered by the attorney.... The Rules suggest that when an attorney knows a third party claims an interest in future settlement proceeds which the client has agreed to, the best course of action is to hold the money in trust until the matter can be resolved through a proper procedure. In order to avoid situations such as the one Attorney Durkin found himself in this case, it seems appropriate that attorneys should not remain silent in the face of a written demand for the assurances of payment. The attorney should unambiguously notify the health care provider whether he or she intends to be bound to the agreement. Based upon these decisions, the Office of Lawyer Regulation takes the position that: 1) SCR 20:1.15(d) requires a lawyer to protect third party interests in trust property when the lawyer has received notice of a third party interest that is identified by a lien, court order, judgment, or contract, and 2) a lawyer s assent to protect that third party s interest is not required. See also, State Bar Formal Ethics Opinion E

17 VI. FIDUCIARY ACCOUNT BASICS A. Distinction between Trust Accounts and Fiduciary Accounts SCR 20:1.15(b) provides that all funds or property belonging to a client or a third party that are entrusted to a lawyer in connection with a representation must be held in trust. (Emphasis supplied). Such funds, including, but not limited to, advanced fees, filing fees, fines and other costs related to the representation, as well as funds that both the client and a third party claim an interest in, such as settlement proceeds, must be held in a trust account. SCR 20:1.15(a)(3) specifies that a Fiduciary Account must be maintained to hold fiduciary property, i.e., the funds or property of clients and third parties that comes into a lawyer s possession while acting in a fiduciary capacity that directly arises in the course of, or as a result of, a lawyer-client relationship, or an appointment by a court. See, SCR 20:1.15(a)(4). (Emphasis supplied.) Such funds, including, but not limited to, funds held as an agent, attorney-infact, conservator, guardian, personal representative, special administrator or trustee, must be held in a fiduciary account. For example, a lawyer appointed by a probate court to act as a successor personal representative holds fiduciary property, regardless of whether or not a lawyer-client relationship previously existed in connection with that appointment. RECOMMENDATION: The rules relating to fiduciary property are found in SCR 20:1.15(j). If the fiduciary account rules do not address an issue, a lawyer should refer to the trust account sections of the rule for guidance. B. Required Records Pursuant to SCR 20:1.15(j)(6), complete fiduciary account records must be maintained for the most recent six-year period of the fiduciary relationship. A summary accounting of the fiduciary account may be maintained for 12

18 prior years. Following the termination of a fiduciary relationship, the complete records must be maintained for six years. Complete records include the following: 1. Deposit Records SCR 20:1.15(j)(5)b. requires the maintenance of a duplicate deposit slip, identifying the source of each deposit to a fiduciary account. 2. Disbursement Records SCR 20:1.15(j)(5)b. requires the maintenance of records regarding disbursements from a fiduciary account. Disbursement records for a fiduciary account include canceled and imaged checks, passbooks, records of electronic fund transactions, duplicates of any instrument issued by the financial institution and duplicate withdrawal slips that identify the purpose of any withdrawal. 3. Monthly or Periodic Statements SCR 20:1.15(j)(5)a. requires the maintenance of each monthly or periodic statement for a fiduciary account. RECOMMENDATION: While not explicitly identified as a required record in SCR 20:1.15(j)(5), OLR strongly recommends that fiduciary accounts, like trust accounts, be reconciled on a monthly basis. (See, SCR 20:1.15(f)(1)g. for guidance.) C. Prohibited Transactions Various types of transactions are prohibited in connection with fiduciary accounts because they do not generate an adequate record regarding the purpose of the transaction. However, since fiduciary accounts are held for a particular individual or matter, and are frequently non-draft accounts, fiduciary accounts have fewer prohibited transactions than trust accounts. (Continued) 13

19 The types of transactions that are prohibited are in Fiduciary Accounts as follows: 1. Cash Withdrawals and Disbursements SCR 20:1.15(j)(3)a. prohibits the following types of cash transactions in connection with a fiduciary account: 2. Internet Transactions Cash withdrawals from the account; Cash back from a deposit; and Checks, payable to cash. SCR 20:1.15(j)(3)b. prohibits deposits and disbursements via internet transactions. 3. Credit and Debit Card Transactions SCR 20:1.15(j)(3)c. and d. prohibit credit and debit card transactions in connection with a fiduciary account. D. Holding Fiduciary Property (Tangible Personal Property and Bearer Securities) SCR 20:1.15(j)(8) requires that the lawyer keep a ledger of fiduciary property that is either tangible personal property or securities in bearer form. The ledger must identify the property, the date of its receipt, the owner, and the location of the property. The lawyer must provide the prior custodian of the property with a receipt, and upon disposition of the property, obtain a signed receipt from the recipient. 14

20 VII. ATTORNEY FEES AND COST ADVANCES A. Definitions: Advanced Fees, Flat Fees and Retainers Advanced fees, flat fees and retainers are defined in SCR 20: SCR 20:1.0(ag) defines an Advanced Fee as: an amount paid to a lawyer in contemplation of future services, which will be earned at an agreed-upon basis, whether hourly, flat, or another basis. Any amount paid to a lawyer in contemplation of future services whether on an hourly, flat or other basis, is an advanced fee regardless of whether that fee is characterized as an advanced fee, minimum fee, nonrefundable fee, or any other characterization. Advanced fees are subject to the requirements of SCR 20:1.5, SCR 20:1.15(b)(4) or (4m), SCR 20:1.15(e)(4)h., SCR 20:1.15(g), and SCR 20:1.16(d). 2. SCR 20:1.0(dm) defines a Flat Fee as: a fixed amount paid to a lawyer for specific, agreed-upon services, or for a fixed, agreed-upon stage in a representation, regardless of the time required of the lawyer to perform the service or reach the agreed-upon stage in the representation. A flat fee, sometimes referred to as unit billing, is not an advance against the lawyer s hourly rate and may not be billed against at an hourly rate. Flat fees become the property of the lawyer upon receipt and are subject to the requirements of SCR 20:1.5, SCR 20:1.15(b)(4) or (4m), SCR 20:1.15(e)(4)h., SCR 20:1.15(g), and SCR 20:1.16(d). 3. SCR 20:1.0(mm) defines a Retainer as: an amount paid specifically and solely to secure the availability of a lawyer to perform services on behalf of a client, whether designated a retainer, general retainer, engagement retainer, reservation fee, availability fee, or any other characterization. This amount does not constitute payment for any specific legal services, whether past, present, or future and may not be billed against for fees or costs at any point. A retainer becomes the property of the lawyer upon receipt, but is subject to the requirements of SCR 20:1.5 and SCR 20:1.16(d). 15

21 B. Advanced Fees and Costs Advanced Fees: As of July 1, 2007, lawyers have two alternatives with respect to the handling of advanced fees. Lawyers who elect to follow the requirements of SCR 20:1.15(b)(4) must hold advanced fees in trust until earned, regardless of whether the advances are for hourly fees or flat fees. The alternative to holding unearned fees in trust is outlined below in sub. C. Cost Advances: All advanced payments of costs must be held in trust until the costs are incurred. If a lawyer receives an advanced payment that includes both fees and costs, the lawyer must deposit that payment into the trust account. If the lawyer elects the alternative described below, the advanced fee portion may be disbursed when the funds become available, but the costs must be held in trust until incurred. C. Alternative Protection for Advanced Fees Lawyers who elect the alternative to holding unearned fees in trust must follow the requirements of SCR 20:1.15(b)(4m). See that rule (Appendix D, pp. 2-3) for a full description of the requirements. In brief, the requirements include the following components: Upon receiving an advanced fee, the lawyer must provide written notice to the client of the obligation to refund unearned fees, the availability of fee arbitration, and the availability of reimbursement by the Wisconsin Lawyers Fund for Client Protection 9, as well as other information relating to the rate of the fee and the anticipated expenses. Upon termination of the representation, the lawyer must account for any fees not previously accounted for and promptly refund any unearned fees. The lawyer must also notify the client that, if the client disputes the fee and wants to arbitrate that dispute, the client must provide the lawyer with written notice of such dispute within 30 days of the lawyer s mailing the accounting. (Continued) 9 The Wisconsin Lawyers Fund for Client Protection, formerly known as the Client Security Fund, was established in 1981 to reimburse losses caused by the dishonest conduct of members of the State Bar of Wisconsin. (See, SCR ) Failure to refund an unearned advanced fee is identified as dishonest conduct in SCR (5)(c). 16

22 Upon receipt of timely notice that a client disputes the fee, 10 the lawyer must either resolve the dispute or submit it to binding arbitration within 30 days, provided the client agrees to arbitration. Upon receiving notice of an arbitration award in the client s favor, the lawyer must pay that award within 30 days. It is professional misconduct for a lawyer to fail to hold advanced fees in trust unless the lawyer complies with each of the requirements of SCR 20:1.15(b)(4m). FEE DISPUTES: A client may dispute a fee at any time. The 30-day deadline in SCR 20:1.15(b)(4m) relates solely to the fee arbitration requirement. D. Disbursement of Advanced Fees Advanced fees that are held in trust must be disbursed from the trust account when earned. However, pursuant to SCR 20:1.15(g)(1), prior to disbursing earned fees, the lawyer must provide the client with written notice of the intended disbursement at least five (5) business days prior to disbursement, unless an alternative notice was previously provided, pursuant to SCR 20:1.15(g)(1m). (See, p. 18). The written notice to the client must include the following information: 1) an itemization of the services rendered; 2) the amount owed; 3) the date of anticipated disbursement; and 4) the balance of the client s funds following the disbursement. See, SCR 20:1.15(g) [Codification of the Marine case]. See also, Matter of Disciplinary Proceedings against Marine, 82 Wis. 2d 602, 264 N.W.2d 285 (1978). 10 SCR 20:1.15(g)(2) defines timely notice of an objection to a fee as notice that is provided within 30 days after the funds have been withdrawn from the trust account. 17

23 E. Alternative Notice to Client SCR 20:1.15(g)(1m) provides lawyers with an alternative to the requirements of sub. (g)(1). Pursuant to this rule, lawyers may withdraw fees on the date that a bill is transmitted to the client, provided that the lawyer gives prior written notice of this procedure to the client. If a lawyer plans to employ this alternative, the lawyer will have to provide written notice to the client that the lawyer s fees will be withdrawn on the date that the invoice is transmitted. Such notice should be provided to a client at the time the lawyer is hired; however, if it was not given at that time, it must be provided prior to any such withdrawals. F. Electronic Payment of Fees and Costs, including Credit Card Payments As previously noted, SCR 20:1.15(e)(4)e. explicitly prohibits conducting credit card transactions through a trust account. 11 The primary purpose of this prohibition is to prevent funds that are held in trust from being electronically withdrawn by credit card companies for chargebacks 12 and standard surcharges on each credit card transaction. However, effective July 1, 2007, an exception to the credit card prohibition provided lawyers with a method for accepting advanced fees and costs by credit card, debit card and other electronic payments without placing other clients funds at risk. In order to accept credit and debit card payments as well as other electronic payments for fees and costs, lawyers must comply with the various requirements of SCR 20:1.15(e)(4)h. In addition, effective January 1, 2011, an amendment to this rule enables lawyers to utilize a single bank account to accept electronic payments of earned fees and cost reimbursements as well as fee and cost advances. The requirements of SCR 20:1.15(e)(4)h. include the following: 1) Maintenance of a Credit Card Trust Account, separate from the lawyer s IOLTA trust account, the sole purpose of which is to receive payments of legal fees and costs by credit card, debit card or other electronic deposits. 11 SCR 20:1.15(e)(4)e. does not prohibit lawyers from accepting credit card payments for fees that have been earned, and explicitly states:... earned fees may be deposited by way of credit card to a lawyer's business account. 12 A chargeback occurs when a credit card holder (a client) disputes a transaction and notifies the credit card vendor (the client s bank) of that dispute. The amount of the disputed transaction is withdrawn from the merchant's bank account (the lawyer s trust account), and the merchant can dispute the chargeback with proof of purchase, signature, proof of delivery, etc. In addition to the deduction of the disputed amount from the merchant s account, a chargeback fee is usually assessed to the merchant. 18

24 2) Maintenance of law firm funds in that account to cover fees, surcharges and deductions taken by the credit card vendor from client payments. A subsidiary ledger with a running balance must be kept in order to track the law firm s funds. 3) Transfer of funds, by check, from the Credit Card Trust Account to either the IOLTA account or the business account as soon as the funds are available, including, if necessary, a reimbursement by the lawyer for any credit card-related deductions from the client s payment. (See, Where to Transfer Funds, below) Note 1: Availability is subject to the financial institution s fund availability policy. Note 2: Purpose of Disbursement. The check that transfers funds from the Credit Card Trust Account to the IOLTA or the business account must identify the client matter and reason for disbursement on the memo line. [SCR 20:1.15(f)(1)e.1.] (Continued) WHERE TO TRANSFER FUNDS SCR 20:1.15(e)(4)h.3. identifies the account into which a lawyer must deposit the fees and costs deposited to the Credit Card Trust Account. The rule specifies: a. All advanced costs, and fees advanced pursuant to SCR 20:1.15(b)(4), must be transferred by check to the IOLTA. b. Earned fees, cost reimbursements, and fees advanced pursuant to SCR 20:1.15(b)(4m) must be transferred by check to the Business Account. 4) Replacement by the lawyer of any funds withdrawn due to a chargeback or surcharge within 3 business days of receiving actual notice of the chargeback or surcharge. Further, the rule explicitly states: The lawyer shall not accept new payments to the credit card trust account until the lawyer has reimbursed the credit card trust account for the chargeback or surcharge. OVERDRAFTS: A chargeback will typically result in the reporting of an overdraft to OLR, enabling OLR to monitor the replacement of funds. Most of those overdraft reports can be resolved without a full investigation, provided that the lawyer can show that the overdraft was due to a chargeback and that the funds were replaced within three business days of receiving notice of the overdraft. 19

25 G. Electronic Payment of Filing Fees (U.S. Bankruptcy Courts and Wisconsin Circuit Courts) History: Electronic filing has been authorized in U.S. Bankruptcy Court for a number of years. [See, Rule 5005(a)(2) of the Federal Rules of Bankruptcy]. As of July 1, 2008, the Wisconsin Supreme Court authorized electronic filing in Wisconsin circuit courts. [See, Wis. Stats and SCR ] At this time, electronic filing ( efiling ) is available in a limited number of counties in small claims cases. 13 Some of those counties also offer efiling in civil and/or family law cases. For further information on efiling, go to the Quick links section on the Wisconsin Court System s website at: Trust and Fiduciary Account Ramifications: Electronic case filing has potential ramifications with respect to a lawyer s trust account because electronic filing necessarily involves the electronic payment of filing fees. However, since SCR 20:1.15(e)(4) and SCR 20:1.15(j)(3) prohibit the use of internet transactions, as well as credit or debit card transactions in connection with trust accounts and fiduciary accounts, a lawyer must not initiate or authorize electronic deductions from a trust account to pay filing fees. Those rules, SCRs 20:1.15(e)(4)c., e. and f. and SCR 20:1.15(j)(3)b., c. and d. state as follows: SCR 20:1.15(e)(4)c. Internet transactions. A lawyer shall not make deposits to or disbursements from a trust account by way of an Internet transaction. SCR 20:1.15(e)(4)e. Credit card transactions. A lawyer shall not authorize transactions by way of credit card to or from a trust account. SCR 20:1.15(e)(4)f. Debit card transactions. A lawyer shall not use a debit card to make deposits to or disbursements from a trust account. SCR 20:1.15(j)(4)b. Internet transactions. A lawyer shall not make deposits to or disbursements from a fiduciary account by way of an Internet transaction. SCR 20:1.15(j)(4)c. Credit card transactions. A lawyer shall not authorize transactions by way of credit card to or from a fiduciary account. SCR 20:1.15(j)(3)d. Debit card transactions. A lawyer shall not use a debit card to make deposits to or disbursements from a fiduciary account. (Emphasis added.) 13 As of January 1, 2011, some form of efiling was available in the circuit courts of the following counties: Barron, Burnett, Calumet, Clark, Eau Claire, Kenosha, La Crosse, Outagamie, Ozaukee, Pierce, Racine, Taylor, Trempealeau, Washington, Winnebago and Wood. 20

26 Bankruptcy Court Filing Fees: The U.S. Bankruptcy Court permits bankruptcy filing fees to be paid via credit card by the petitioner s lawyer. Lawyers who represent clients in bankruptcy proceedings should exercise caution in advancing filing fees, i.e., paying a filing fee by credit card before the client s funds relating to that payment have been deposited in the lawyer s trust account, and should review relevant law regarding the discharge of prepetition debts. State Court Filing Fees: The Wisconsin Supreme Court has authorized lawyers to pay filing fees electronically in circuit and appellate court cases. While the efiling program allows such payments to be made by credit card, debit card or e-check, SCR 20:1.15(e)(4) prohibits lawyers from making the payments from a trust account or a fiduciary account. SUGGESTED PROCEDURES While a lawyer may pay filing fees to a court with the lawyer s business or personal credit card, the lawyer must not pay such fees with a debit card that withdraws funds from the trust account. With respect to such payments, procedures need to be in place to assure that trust funds held in connection with those payments are handled properly and that the transactions involved are fully documented. OLR suggests that such procedures include: 1. Segregation of trust account expenses from business and/or personal expenses by maintaining a separate, special purpose credit card to conduct transactions that will have to be paid from the trust account. 2. Careful review of the credit card statement upon receipt and identifying the client to which each filing fee relates. (This should reveal any errors or omissions in the statement, e.g., a double billing.) 3. Payment of the filing fee from the trust account to the credit card institution by check. [See, SCR 20:1.15(b)(4)] Identification of the purpose of the payment on the memo line of the trust account check. 15 [See, SCR 20:1.15(f)(1)e.1.] Retention of the credit card statements with the lawyer s trust account records. 14 SCR 20:1.15(b)(4) Unearned fees and cost advances.... Funds advanced by a client or 3 rd party for payment of costs shall be held in trust until the costs are incurred. 21

27 VIII. OVERVIEW OF SCR 20:1.15 SAFEKEEPING PROPERTY; TRUST ACCOUNTS AND FIDUCIARY ACCOUNTS. (Effective January 1, 2011)) SCR 20:1.15(a) SCR 20:1.15(b) SCR 20:1.15(c) SCR 20:1.15(d) SCR 20:1.15(e) SCR 20:1.15(f) Definitions. 17 Segregation of trust property. SCR 20:1.15(g) Withdrawal of fees from trust account. Types of trust accounts. SCR 20:1.15(h) Dishonored instrument notification; Prompt notice and delivery of (Overdraft notices). property. SCR 20:1.15(i) Certification of compliance with trust Operational requirements for account rules. trust accounts. SCR 20:1.15(j) Fiduciary property. Record keeping requirements SCR 20:1.15(k) Exceptions to SCR 20:1.15. for trust accounts. A. SCR 20:1.15(a) DEFINITIONS This subsection contains 12 definitions of the various terms that are used in the rule. These definitions are applicable only with respect to SCR 20:1.15 and do not supersede statutory definitions. Among the terms defined are the following: draft account, 18 fiduciary account, immediate family member, Interest on Lawyer Trust Account or IOLTA account, IOLTA participating institution; properly payable instrument, and trust property. Note: The definitions of Advanced fee, Flat fee and Retainer are found in SCR 20:1.0 Terminology. (See, page 15 of this Manual). B. SCR 20:1.15(b) SEGREGATION OF TRUST PROPERTY 1. Separate Account. Funds belonging to clients and third parties, which a lawyer receives in connection with a representation, must be held in a trust account. 15 The payment of a single filing fee could be documented on the memo line as follows: Smith Ch. 7 Filing Fee. However, if a payment includes numerous filings, the lawyer should identify those filings in a manner that will be verifiable though other records, such as those maintained by the court. For example, the memo line might reflect that the payment relates to: 12 Fees (Ch. 7) & 6 Fees (Ch. 13) (1/7/06-1/28/06). 16 SCR 20:1.15(f)(1)e.1. Checks.... Each check disbursed from the trust account shall identify the client matter and the reason for the disbursement on the memo line. 17 This Index is not part of the rule. It is provided by OLR as a guide to the subsections of the rule. 18 Draft accounts, formerly referred to as demand accounts, are accounts on which checks can be written. 22

28 2. Identification of Account. A Trust Account must be specifically identified in all account records as a Client Account, a Trust Account or words of similar import. The acronyms: IOLTA, IOTA, or LTAB, without further elaboration, are insufficient to properly identify the account. 3. Lawyer Funds. No funds belonging to the lawyer or law firm, other than a nominal amount to cover monthly service charges, may be held in the Trust Account. 4. Unearned Fees and Cost Advances. Unearned fees and cost advances must be held in the Trust Account. 4m. Alternative Protection for Advanced Fees. Allows unearned fees to be deposited to a lawyer s business account subject to the following conditions: 5. [Repealed.] availability of review of the fee by the court in the proceeding to which the fee relates; 19 or the lawyer s compliance with each of the alternative protection requirements in SCR 20:1.15(b)(4m) a. - d. 6. Trust Property other than Funds. Securities in bearer form must be held in a safe deposit box with the box identified as a Client Account or Trust Account. Other property of clients or third parties must be properly identified as such and appropriately safeguarded. 7. Multi-jurisdictional Practice. Funds held in connection with an out-of-state representation are subject to the trust account rules of the other state. C. SCR 20:1.15(c) TYPES OF TRUST ACCOUNTS 1. IOLTA Accounts. Client and third party funds in nominal amounts, as well as funds that will be held for a short period of time, are to be deposited into a pooled, interest-bearing or dividend paying draft trust account (an IOLTA account) that is located at an IOLTA participating institution. 19 The Comment to this subsection provides further guidance, stating, in part, as follows: The provision regarding court review applies to lawyers fees in proceedings in which the lawyer s fee is subject to review at the request of the parties or the court, such as bankruptcy, formal probate, and proceedings in which a guardian ad litem s fee may be subject to judicial review. In any proceeding in which the lawyer s fee must be challenged in a separate action, the lawyer must either deposit advanced fees in trust or use the alternative protections for advanced fees in SCR 20:1.15 (b)(4m). 23

29 2. Non-IOLTA Accounts. Client and third party funds may also be held in trust in the following types of accounts: a. a separate, income-generating account, the interest or dividends on which are paid to the client or third party; b. a pooled, income-generating account, with the interest or dividends paid to the clients or third parties; c. an income-generating investment vehicle selected by the client; d. an income-generating investment vehicle, selected by the lawyer and approved by the bankruptcy trustee and by order of the bankruptcy court; or e. a non-income-generating account, if specifically requested in writing by the client or third party, provided that the funds are ineligible for deposit to an IOLTA. 3. Selection of Account. The following factors must be considered in determining the type of account in which to hold trust funds: a. Amount of interest, dividends or other income that could be generated; b. Cost of setting up and managing a non-iolta account, including attorney fees for record-keeping and tax preparation; c. Ability of the financial institution or law firm to calculate and pay interest, dividends or other income to the clients and/or third parties; and d. Any other circumstance that affects the generation of income on the funds. 4. Professional Judgment. Lawyer has discretion to establish a non- IOLTA Trust Account when there would be a financial benefit to the client in doing so, i.e., when the costs of setting up and accounting for the funds will be less than the amount of income generated. See, Matter of Disciplinary Proceedings against Britton, 180 Wis. 2d 109; 508 N.W.2d 412 (1993). (Discipline imposed for failing to deposit a client s $12,000 settlement into an interest-bearing account for client s benefit. Funds were held for over a year in an IOLTA trust account.) 24

30 CM. SCR 20:1.15(cm) INTEREST ON LAWYER TRUST ACCOUNT (IOLTA) REQUIREMENTS 1. Location. IOLTA accounts must be held at an IOLTA participating institution 20 that is authorized to do business in Wisconsin and has at least one branch in Wisconsin. 2. Certification by IOLTA participating institutions. a. IOLTA participating institutions are subject to annual certification requirements that are overseen by the Wisconsin Trust Account Foundation ( WisTAF ). b. WisTAF must annually confirm the accuracy of the certifications made by IOLTA participating institutions. c. WisTAF must annually publish a list of IOLTA participating institutions. [The list is available throughout the year on WisTAF s website: d. If an IOLTA participating institution is removed from WisTAF s list of participating institutions, OLR is required to notify the affected lawyers and law firms and provide them with a reasonable amount of time to transfer their IOLTA accounts to participating institutions. e. For purposes of complying with SCR 20:1.15(c)(1), lawyers and law firms are entitled to rely on the most recently published list of IOLTA participating institutions that appears on WisTAF s website, unless notified otherwise by OLR. 3. Insurance and safety requirements. a. IOLTA participating institutions must be insured by the FDIC, the NCUSIF, the SIPC or another type of investment institution financial guaranty insurance. b. IOLTA accounts utilizing a repurchase agreement may only be established at IOLTA participating institutions that meet certain capitalization requirements. 20 SCR 20:1.15(a)(7m) defines an IOLTA participating institution as: a financial institution that voluntarily offers IOLTA accounts and certifies to WisTAF annually that it meets the IOLTA account requirements of SCR 20:1.15 (cm) (3) to (6) and that it reports overdrafts on draft trust accounts and draft fiduciary accounts of lawyers and law firms to the office of lawyer regulation, pursuant to the financial institution's agreements with those lawyers and law firms. WisTAF shall confirm the accuracy of the certifications and publish, at least annually, a list of IOLTA participating institutions. 25

31 c. IOLTA accounts utilizing an open end money market fund may only be established at IOLTA participating institutions whose money market funds meet certain minimum asset requirements. 4. Income requirements. a. Beneficial owner. Interest and dividends on IOLTAs, less any allowable fees, is to be paid to WisTAF. b. Interest and dividend requirements. IOLTAs must generate the highest non-promotional interest rate or dividend available to non-iolta customers when the IOLTA meets or exceeds the eligibility requirements of the non-iolta account, including any minimum balance requirements c. IOLTA account. IOLTA participating institutions may establish IOLTAs or convert existing IOLTAs to any of the types of accounts described in this section. d. Options for compliance. IOLTA participating institutions may establish IOLTAs in whatever type of account qualifies under the IOLTA program or, in the alternative, simply pay the interest rate or dividend for that type of account without actually converting the IOLTA to the new account type. e. Paying rates above comparable rates. IOLTA participating institutions may elect to pay higher rates than the comparable rates required under this rule. 5. Allowable reasonable fees on IOLTA accounts. a. IOLTA participating institutions may impose various types of fees on IOLTA accounts, including: per check charges; per deposit charges; fees in lieu of a minimum balance; sweep fees; administrative fees that have been approved by WisTAF; and federal deposit insurance fees. b. The allowed charges are subject to a number of requirements that are identified in this subsection. 6. Remittance and reporting requirements. Lawyers and law firms are required to direct the financial institution at which their IOLTA account is located to comply with the various remitting and reporting requirements described in this subsection. 26

32 D. SCR 20:1.15(d) PROMPT NOTICE AND DELIVERY OF PROPERTY 1. Notice and Disbursement. Lawyer s responsibility upon receipt of property: a. Notify client or third party in writing; and b. Except as otherwise stated or agreed, promptly deliver to client or third party the funds to which they are entitled. NOTE: Any third party who has informed the lawyer of an interest that is identified by a lien, a court order, a judgment or a contract is entitled to written notice of the lawyer s receipt of the property. 2. Accounting. Lawyer must render a full accounting for funds to client or third party, when asked to do so. Pursuant to SCR 20:1.5(c) - Fees, settlement breakdowns must be provided to the client, regardless of whether a specific request is made Disputes regarding Trust Property. Whenever the lawyer and another person or the client and another person claim an ownership interest in funds held in trust, and that interest is identified by a lien, a court order, a judgment or a contract, the lawyer must hold the disputed portion in the trust account until there has been an accounting and severance of the interests, and the dispute has been resolved. (Continued) 21 SCR 20:1.5(c) states, in pertinent part, as follows: A fee may be contingent on the outcome of the matter for which the service is rendered... Upon conclusion of a contingent fee matter, the lawyer shall provide the client with a written statement stating the outcome of the matter and if there is a recovery, showing the remittance to the client and the method of its determination. 27

33 For guidance on handling disputes regarding funds held in trust, see: Formal Ethics Opinion E Lawyer s Responsibilities when a Client gives a Third Party a Lien on Settlement Proceeds Riegelman v. Krieg and Warshafsky, Rotter, et al., 2004 WI App 85; 271 Wis. 2d 798; 679 N.W.2d 857 (2004) Yorgan v. Durkin, 2006 WI 60; 290 Wis. 2d 671; 715 N.W.2d 160 (2006) Disciplinary Proceedings against Barrock, 2007 WI 24; 299 Wis. 2d 207; 727 N.W.2d 833 (2007) NOTE: Fee Disputes: Disputes between a lawyer and a client regarding fees are subject to SCR 20:1.15(g)(2) - Objection to Disbursement. E. SCR 20:1.15 (e) OPERATIONAL REQUIREMENTS FOR TRUST ACCOUNTS 1. Location. Each Trust Account must be in a financial institution that is authorized to do business in Wisconsin, has at least one branch office in Wisconsin and will agree to report overdrafts to the Office of Lawyer Regulation. IOLTA Accounts, in addition to meeting the above-referenced requirements, must be held at an IOLTA participating institution. 2. Insurance and Safety Requirements. Trust Accounts must be located at a financial institution that is insured by the FDIC, the NCUSIF or the SIPC, and with very limited exceptions, 22 trust property must be held in an account in which each owner s funds are eligible for the insurance. (See, Caution on page 29 of this Manual). IOLTA Accounts are also subject to the safety requirements of SCR 20:1.15(cm)(3). (See, pages of this Manual.) (Continued) 22 The exceptions to this requirement include trust property held in any of the following: 1) a safe deposit box, pursuant to SCR 20:1.15(b)(6); 2) an IOLTA account that utilizes a repurchase agreement, pursuant to SCR 20:1.15(cm)(3)b.; and 3) an IOLTA account that utilizes an open-end money market fund, pursuant to SCR 20:1.15(cm)(3)c. 28

34 INSURANCE ELIGIBILITY: Credit unions, which are insured by the NCUSIF (National Credit Union Share Insurance Fund), generally provide insurance eligibility for owners of funds in trust only when those owners are members of the credit union. However, credit unions designated as Low Income Credit Unions provide eligibility for such owners without requiring that they be members. When placing funds in a trust account at a credit union, lawyers must be sure that each owner of funds is a member of that credit union, or that the credit union is designated by the NCUA (National Credit Union Administration) as a Low Income Credit Union. 3. Interest Requirements. Non-IOLTA accounts must bear the same rate of interest as accounts of the same type, size and duration. IOLTA Accounts are also subject to the interest requirements of SCR 20:1.15(cm)(4)b. (See, page 26 of this Manual.) 4. Prohibited Transactions. a. Cash disbursements, including checks payable to Cash ; b. Telephone transfers; c. Internet transactions; d. Electronic transfers by third parties; e. Credit card transactions; and f. Debit card transactions. Exceptions: Collection trust accounts. Allows high volume collection lawyers to petition OLR for authorization to engage in certain prohibited transactions, provided the lawyer can demonstrate that the prohibited transaction constitutes an integral part of the lawyer s practice. The lawyer must comply with other requirements to provide adequate security for the collection trust account. Fee and cost advances by credit card, debit card or other electronic deposit. Allows lawyers to deposit earned and unearned legal fees, advanced costs and cost reimbursements that are paid by credit card, debit card and other electronic transactions to a credit card trust account, separate from the IOLTA account, provided that the lawyer complies with each of the requirements of SCR 20:1.15(e)(4)h. 29

35 5. Availability of Funds for Disbursement. Funds cannot be disbursed unless the deposit from which the funds will be disbursed has cleared. Exceptions: Real Estate Transactions. Due to the manner in which real estate transactions are conducted in Wisconsin, it is not possible to hold closing proceeds in trust until the funds have cleared. Consequently, certain types of funds that are received during the course of a real estate transaction will be deemed as available for disbursement, for purposes of the trust account rules, even though the funds may not have actually cleared. The types of funds covered by this exception are specified in SCR 20:1.15(e)(5)b. Collection Trust Accounts. Funds collected on behalf of a client, which have been deposited into a separate trust account for that client, may be disbursed pursuant to the client s demands, even though the funds may not have cleared, pursuant to SCR 20:1.15(e)(5)c. 6. Record Retention. Trust account records must be preserved for at least six (6) years after a representation has terminated. 7. Production of Records. Trust account records must be produced for inspection/audit whenever requested by the Office of Lawyer Regulation or the Supreme Court. Failure to provide such records constitutes misconduct. 8. Business Account. Any lawyer who has a trust account must also have a separate checking account for business purposes. F. SCR 20:1.15(f) RECORD-KEEPING REQUIREMENTS FOR ALL TRUST ACCOUNTS 1. Draft Accounts. The following records must be maintained for all trust accounts that are draft (i.e., checking) accounts: a. Transaction Register. Chronological record of all deposits and disbursements. b. Individual Client Ledgers. Subsidiary ledger for each client or matter for which lawyer receives trust funds. c. Ledger for Account Fees and Charges. Subsidiary ledger for tracking law office funds in the trust account, which are used to cover unexpected service charges. Also called a Maintenance Account. 30 (Continued)

36 d. Deposit Records. Deposit slips must identify the account as a trust account. At time of deposit, the client or matter for which the deposit is made must be identified on the deposit slip, along with the date and amount of the deposit. NOTE: SCR 20:1.15(f)(1)d. specifically requires that deposits be made intact, i.e., no cash or other deductions can be made from a deposit to a trust account. e. Disbursement Records. (1) Checks. Checks must be pre-printed and numbered, and must include, in the upper left-hand corner, the name of the lawyer or firm, the firm s address and the name of the account. At the time of disbursement, the identity of the client or matter and the reason for the disbursement must be specified in the memo line. (2) Canceled Checks. Canceled checks must be obtained from the financial institution, unless imaged checks are substituted. (3) Imaged Checks. Imaged checks may be substituted for canceled checks, but both the front and reverse of the check must be provided and the image should be large enough to read without magnification. NOTE: Return of Canceled/Imaged Checks: A lawyer may need to ask the financial institution to provide the canceled or imaged checks with the monthly statement if the checks are not routinely provided. (4) Wire Transfers. Wire transfers must be documented in a written withdrawal authorization or the monthly statement. 31

37 f. Monthly Statement. The statement must identify the name and address of the firm and the name of the account. g. Reconciliation Reports. Report of the account that is performed every thirty (30) days, reflecting that the following balances are identical: (1) Transaction Register balance; (2) Total of all client balances; and (3) Adjusted balance in the monthly statement. 2. Non-Draft Accounts. The following records must be maintained for all trust accounts that are not checking accounts: a. Monthly or periodic statements. b. All transaction records, including passbooks, records of electronic fund transactions, duplicates of any instrument issued by a financial institution, and duplicate deposit and withdrawal slips. 3. Tangible Trust Property and Bearer Securities. The following records must be maintained for all trust property other than funds: a. Property Ledger. A ledger identifying the property, the owner, client or matter, the location of the property, and the dates of receipt and disbursement. b. Receipt upon Taking Custody. The lawyer must provide the previous custodian of the property with a signed receipt describing the property and identifying the date of receipt. The lawyer should retain a copy of this receipt. c. Dispositional Receipt. When the property is distributed, the lawyer must obtain a signed receipt from the recipient, describing the property and identifying the date of distribution. 4. Electronic Record Retention. The following records must be maintained for all trust property other than funds: a. Back-up of Records. Lawyers who use computer software to maintain the transaction register and client ledgers and to perform the monthly reconciliation reports, must be able to produce a print-out of those records and must regularly back up the computer records using a reliable storage device. (Continued) 32

38 b. IOLTA Account Records. In addition to backing up records for the IOLTA account, the lawyer must print out the transaction register, the client ledgers and the reconciliation report every thirty (30) days and maintain those printed records for at least six (6) years. G. SCR 20:1.15 (g) WITHDRAWAL OF NON-CONTINGENT FEES FROM TRUST ACCOUNT 1. Notice to Client. At least five (5) business days before withdrawing fees from a trust account, with the exception of contingent fees, a lawyer must provide the following information to the client in writing: a. an itemized bill or other accounting showing the services rendered; b. notice of the amount owed and the anticipated date of the withdrawal; and c. a statement of the balance of the client s funds in the trust account after the withdrawal. 1m. Alternative Notice to Client. Earned fees may be withdrawn from the trust account on the date that the invoice is transmitted to the client, provided that: the lawyer has given prior written notice of this procedure to the client, and the invoice complies with the requirements of sub. (g)(1). 2. Objection to Disbursement. If a client makes a particularized and reasonable objection to the disbursement under sub. (g)(1), the disputed portion must remain in the trust account until the dispute is resolved. If a client makes a particularized and reasonable objection to a disbursement within thirty (30) days after the funds have been withdrawn from the trust account under sub. (g)(1) or (1m), the disputed portion must be returned to the trust account until the dispute is resolved unless the lawyer reasonably believes that the client s objections do not present a basis to hold funds in trust or return funds to the trust account. The lawyer must promptly advise the client, in writing, of the lawyer s position regarding the fee and make reasonable efforts to clarify and address the client s objections. (Continued) 33

39 NOTE: SCR 20:1.15(g)(2) also provides the following guidance: The lawyer will be presumed to have a reasonable basis for declining to return funds to trust if the disbursement was made with the client's informed consent, in writing. H. SCR 20:1.15 (h) DISHONORED INSTRUMENT NOTIFICATION (OVERDRAFT NOTICES) 1. Overdraft Reporting Agreement. All trust accounts that are draft accounts (i.e., accounts on which checks can be written by the lawyer/law firm) must be maintained in a financial/investment institution that agrees to provide overdraft notification to the OLR. 2. Identification of Accounts subject to this Subsection. The lawyer must notify the financial institution of all of the accounts that are subject to overdraft reporting requirements and obtain an executed overdraft notification agreement from the institution covering all such accounts. 3. Overdraft Report. Upon presentation of a properly payable instrument against a trust account containing insufficient funds, regardless of whether instrument is honored, the financial institution is to provide notice of the overdraft to OLR. 4. Content of Report. The overdraft notice provided to OLR regarding a dishonored instrument shall be identical to the notice sent to the account holder. If the instrument is honored, the notice should identify the amount of the overdraft caused by the payment. 5. Timing of Report. Notice of overdraft must be sent to OLR at same time that the account holder s notice is sent. 6. Confidentiality of Report. Reports made by financial institutions pursuant to the overdraft reporting requirements are confidential, pursuant to SCR (Continued) 23 SCR states: Prior to the filing of a misconduct complaint, medical incapacity petition, or petition for temporary license suspension, all papers, files, transcripts, and communications in any matter involving the office of lawyer regulation are to be held in confidence by the director and staff of the office of lawyer regulation, the members of the district committees, special investigators, the members of the special preliminary review panel, and the members of the preliminary review committee. Following the filing of a complaint or petition, the proceeding and all papers filed in it are public, except where expressly provided otherwise in this chapter or by law. 34

40 7. Withdrawal of Report by Financial Institution. The OLR will hold an overdraft notice ten (10) days to allow the financial institution to withdraw a report filed inadvertently or by mistake. Covering the Overdraft: Depositing additional funds to rectify the overdraft will not result in the withdrawal of the overdraft report. 8. Lawyer Compliance. Every lawyer, practicing or admitted to practice in Wisconsin, must comply with the reporting and production requirements of SCR 20:1.15(h), including the requirement to file an overdraft agreement with the Office of Lawyer Regulation. 9. Service Charges. The financial institution may charge for the costs incurred in producing the reports and records required by SCR 20:1.15(h). 10. Immunity of Financial Institution. No claims can be brought against the financial institution for failing to provide OLR with an overdraft notice or for failure to comply with any other provision of SCR 20:1.15(h). I. SCR 20:1.15 (i) CERTIFICATION OF COMPLIANCE WITH TRUST ACCOUNT RULES 1. Annual Requirement. Each year, in conjunction with filing the annual dues statement, members of the State Bar of Wisconsin must provide the Bar with a list of their trust accounts, identifying those accounts by location and account number. 2. Trust Account Record Compliance. The dues statement also includes a trust account certificate relating to the record keeping requirements of SCR 20:1.15(f) and SCR 20:1.15(j)(5). By checking the box relating to record-keeping and signing the certificate, the member certifies full compliance with recordkeeping requirements of those rules. NOTE: Since Fiscal Year 2000, lawyers have also been asked to certify that a trust account notification agreement is on file with BAPR/OLR for each trust account and fiduciary account. In addition, beginning in Fiscal Year 2010, lawyers have been asked to certify that their IOLTA accounts are located at IOLTA participating institutions, as required by SCR 20:1.15(c)(1). 35

41 3. Certification by Law Firm. Law firms can make the required certification on behalf of firm members and provide a copy of the Law Firm Certificate to each member. 4. Suspension for Non-compliance. Failing to file the required certification is grounds for the State Bar to administratively suspend a member s license. In addition, filing a false certification is grounds for disciplinary action. J. SCR 20:1.15 (j) FIDUCIARY PROPERTY 1. Separate Account. Funds belonging to clients and third parties that a lawyer receives when acting in a fiduciary capacity, arising as a result of a lawyer-client relationship or a court appointment, must be held in a separate account that is subject to the requirements of SCR 20:1.15(j). 1m. Other Fiduciary Accounts Funds received in a fiduciary capacity may also be deposited in the following types of accounts: a. a pooled, interest bearing account, with interest or dividends paid to each fiduciary entity, less any costs; b. an income-generating investment vehicle on which interest or dividends are paid to the fiduciary entity, or its beneficiary, less any costs; c. an income-generating investment vehicle, approved by the court in a guardianship proceeding; or d. an income-generating investment vehicle, approved by the trustee and by the court in a bankruptcy proceeding; or e. a non-interest bearing account, when placement in such an account is, in the lawyer s professional judgment, consistent with the needs and purposes of the fiduciary entity or its beneficiary. 2. Location. A fiduciary account must be maintained in a financial institution that is authorized in writing by the client, the governing trust instrument, organizational by-laws, or a court order. Absent such direction, a lawyer must place the funds in a financial institution that, in the lawyer s professional judgment, will best serve the needs or purposes of the client or third party for whom the lawyer serves as a fiduciary. 36 (Continued)

42 NOTE: With respect to Overdraft Notification requirements, this subsection further specifies as follows: When fiduciary property is held in an account from which the lawyer can disburse funds by check, and the account is located at a financial institution outside the state of Wisconsin, the lawyer must comply with the requirements of sub. (j)(9)b. or c. (See, page 38 of this Manual.) 3. Prohibited Transactions. a. Cash disbursements, including cash withdrawals from deposits and checks payable to Cash; b. Internet transactions; c. Credit card transactions; and d. Debit card transactions. 4. Availability of Funds for Disbursement. Funds cannot be disbursed from a fiduciary account unless the deposit from which the funds will be disbursed has cleared. However, the exception for real estate transactions applies to fiduciary accounts. 5. Records. The following records must be maintained for all fiduciary accounts: a. Monthly or periodic statements; and b. All transaction records, including canceled or imaged checks, passbooks, records of electronic fund transactions, deposit slips and any other records necessary to document receipts and disbursements. 6. Record Retention. Fiduciary account records must be preserved during the course of the fiduciary relationship and for at least six (6) years after that relationship has terminated. Note: Long-Term Fiduciary Relationships: Complete records of the most recent six (6) year period must be maintained, and a summary accounting of the prior years is acceptable. 37

43 7. Production of Records. Fiduciary account records must be produced for inspection/audit whenever requested by the Office of Lawyer Regulation or the Supreme Court. Failure to provide such records constitutes misconduct. 8. Tangible Fiduciary Property and Bearer Securities. The following records must be maintained for tangible personal property and securities in bearer form that are received by a lawyer in a fiduciary capacity: a. Property Ledger. A ledger identifying the property, the owner, the location of the property, and the dates of receipt and disbursement. b. Receipt upon Taking Custody. The lawyer must provide the previous custodian of the property with a signed receipt describing the property and identifying the date of receipt. The lawyer should retain a copy of this receipt. c. Dispositional Receipt. When the property is distributed, the lawyer must obtain a signed receipt from the recipient, describing the property and identifying the date of receipt. 9. Dishonored Instrument Notification or Alternative Protection. A lawyer holding fiduciary property in a draft account must take one of the following steps: a. Comply with the overdraft notification requirements of SCR 20:1.15(h); or b. Have the account independently audited by a CPA on at least an annual basis; or c. Hold the funds in a draft account that requires the approving signature of a co-trustee, co-agent, co-guardian, or co-personal for all disbursements. 10. Certification Requirements. A lawyer holding fiduciary property must comply with the certification requirements of SCR 20:1.15(i). 38

44 K. SCR 20:1.15 (k) EXCEPTIONS TO THIS SECTION [SCR 20:1.15] The provisions of SCR 20:1.15 do not apply to the following circumstances in which a lawyer acts as a fiduciary: 1. The lawyer serves as a bankruptcy trustee, subject to the oversight of the bankruptcy court; or 2. The lawyer serves in a fiduciary capacity for the benefit of an immediate family member; or 3. The lawyer serves in a fiduciary capacity for a civic, fraternal, or non-profit organization, which is not a client and has other officers participating in the governance of the organization. 4. The lawyer is employed by an employer that is not itself engaged in the practice of law, provided that the employment is not ancillary to the lawyer s practice of law. TA Mgmt Manual 01/01/11 39

45 MANAGING YOUR CLIENT TRUST ACCOUNT WORK BOOK Office of Lawyer Regulation January 2011

46 WORK BOOK TABLE OF CONTENTS I. How Does the IOLTA Trust Account Compare to a Standard Checking Account? 1 II. What Does the Rule Require? 2 Trust Account Flow Chart 3 III. Individual Client Ledgers 4 IV. Trust Account Case Studies 6 Case Study No. 1: Innocent Personal Injury Matter 7 Case Study No. 2: Fight Divorce Matter 10 Case Study No. 3: Tenant Real Estate Matter 15 V. Using Computer Software for Record Keeping 18 (i)

47 TRUST ACCOUNT WORK BOOK The examples and exercises in this Work Book are designed to give the practitioner a basic understanding of the records that are required by SCR 20:1.15(f), along with some experience in dealing with the mechanics of maintaining those records. The type of account that will be used for the exercises that follow is a pooled, interest-bearing, IOLTA trust account. I. HOW DOES THE IOLTA TRUST ACCOUNT COMPARE TO A STANDARD CHECKING ACCOUNT? The pooled, interest-bearing, IOLTA trust account (hereinafter referred to as the trust account ) operates similarly to a standard checking account, but requires some additional features that are not typical of a personal checking account. Like a standard checking account, the trust account will have a transaction register (more commonly referred to as a check register), checks, deposit slips, monthly statements, service charges, interest income, and potentially, although more problematically than in a personal account, overdraft notices. Unlike the standard checking account, the trust account requires the maintenance of canceled or imaged checks, duplicate deposit slips, and client ledgers (one for each client and/or each matter of a client). It also requires the disbursement of interest income to the Wisconsin Trust Account Foundation, Inc. (WisTAF). The trust account requires a monthly reconciliation that is far more detailed than that of a standard checking account. That is because, in addition to the usual practice of reconciling the checkbook balance with the balance in the bank statement, there must also be a reconciliation of the client ledger (the individual client balances) with the bank s balance.

48 II. WHAT DOES THE RULE REQUIRE? SCR 20:1.15(f)(1) requires the maintenance of a number of records that are generally unnecessary to the maintenance of a standard checking account. Pursuant to that rule, trust account records for a draft (i.e., checking) account, must include the following: a. A Transaction Register, containing a chronological record of all deposits and disbursements, along with the balance in the account after each transaction; b. Individual Client Ledgers, containing a record of deposits and disbursements for each client, client matter, or third person for whom the lawyer receives funds in trust, along with the balance following each transaction; c. A Ledger for Account Fees and Charges, or Maintenance Account, containing a record of deposits and disbursements of any funds belonging to the lawyer that are held in the trust account to cover monthly service charges; d. Deposit Records that identify the client or matter associated with each deposit, along with the date and amount of the deposit; e. Disbursement Records, including checks that identify the client and/or the matter as well as the reason for the disbursement on the memo line; canceled or imaged checks that document the payment of each such disbursement, and wire transfer records; f. Monthly Statements provided by the financial institution; and g. Reconciliation Reports, which document, on a monthly basis, that the account is in balance, i.e., that the balance in the transaction register is identical to the total of the client ledger balances, and that those balances are further identical to the adjusted balance in the monthly statement. TERMINOLOGY As the standard accounting terminology of debits and credits may become confusing to those who do not have an accounting background, it will not be used here. For purposes of handling a trust account, the terms deposit and disbursement will suffice. Those concepts are fairly straightforward: 1. A deposit increases the balance in the trust account; and 2. A disbursement decreases the balance. 2

49 TRUST ACCOUNT FLOW CHART DEPOSITS DISBURSEMENTS TRANSACTION REGISTER CLIENT LEDGERS Client #1 Ledger Client #2 Ledger Client #3 Ledger Client #4 Ledger Client #5 Ledger Maintenance Account Ledger 3

50 III. INDIVIDUAL CLIENT LEDGERS Definition: A subsidiary ledger for each client or matter, containing the following information: 1) the date, source, and amount of each deposit relating to that client or matter; 2) the date, payee, and amount of each disbursement relating to that client or matter; and 3) the running balance in the account for that client or matter. It is recommended that the check number for each disbursement also be included in this ledger. This record is, in essence, a transaction register for each client or matter. NOTE: If multiple matters are handled for a client, a separate ledger should be established for each matter. For example, if a client sells three separate properties, each of the real estate transactions constitutes a separate representation, even though there is only one client. Consequently, a separate ledger should be established for each of those transactions. EXAMPLES: CLIENT LEDGERS Client: Matter: Fight, Marvin Divorce Date Ck No. Transaction Deposits Disbursemts Balance 02/12/08 DEP Advanced Fees $2, $2, /17/ Clerk of Court $ , /17/ Register of Deeds , Client: Matter: Fight, Marvin and Bea Divorce - Homestead Date Ck No. Transaction Deposits Disbursemts Balance 03/18/08 DEP Real Estate Proceeds $78, $78,

51 Client: Matter: Innocent, James Personal Injury Date Ck No. Transaction Deposits Disbursemts Balance 02/02/08 DEP IOU Insurance $15, $15, /08/ James Innocent $7, , /08/ Wm. B. Accurate 5, , Client: Matter: None Maintenance Account Date Ck No. Transaction Deposits Disbursemts Balance 02/01/08 DEP Deposit $ $ /07/08 DM Check Printing Charge $

52 IV. TRUST ACCOUNT CASE STUDIES This section of the Work Book is designed to provide some practical experience in managing a trust account. It includes a variety of trust account transactions, and includes step-by-step guidelines for keeping the required records in a personal injury matter, a family law matter and a real estate transaction. The opening transaction that appears below identifies a way to safeguard client funds by preventing those funds from being used to cover bank charges. This requires the lawyer to establish a Maintenance Account. For further information, please refer to Section E Bank Service Charges, on page 7 of the Trust Account Manual. OPENING TRANSACTION First: Prepare a Deposit Slip and deposit $ into the trust account on February 1, 2008 to open the account and cover account service charges. Be sure to identify the source of the funds as the law office. EXAMPLE: Currency Deposit Ticket Checks Accurate Law (Maintenance) ACCURATE LAW OFFICES IOLTA TRUST ACCOUNT 1234 Main Street, Suite 100 Anytown, WI Date: February 1, : We-Got Money Bank Total from Other Side: Sub Total: Less Cash Received: Total: Next: Set up a Ledger entitled: Maintenance Account, to track bank service charges. This Ledger should be maintained with the Client Ledgers. 6

53 Step 1: Step 2: Record the Deposit in the Transaction Register. Record the Deposit in the Maintenance Account Ledger (See, App. A) (See, App. B, Page 3) CASE STUDY NO. 1: JAMES INNOCENT - PERSONAL INJURY MATTER James Innocent retained Atty. William B. Accurate regarding an automobile accident. Innocent was injured when the vehicle he was driving was struck by another vehicle that failed to yield the right of way. Atty. Accurate negotiated with the other driver s insurer, IOU Insurance Company, and ultimately received a $15, settlement offer. After discussing the offer with Atty. Accurate, Innocent agreed to accept it. The settlement check is deposited in Atty. Accurate s trust account on February 2, Atty. Accurate has a one-third contingent fee agreement, and had previously agreed to protect the fees of Innocent s chiropractor, Dr. Chiopsu. Chiopsu s bill totaled $2, The following settlement breakdown is prepared: ACCURATE LAW OFFICES 1234 Main Street, Suite 100 Anytown, WI SETTLEMENT STATEMENT February 2, 2008 James Innocent Personal Injury Settlement from IOU Insurance: $15, Wm B. Accurate (Fee): $5, Costs: Dr. Chiopsu: 2, Total Deductions: - 7, Settlement to Client: $ 7,

54 Transaction # 1: Deposit the $15, settlement check from the IOU Insurance Co. relating to James Innocent s personal injury case on February 2, In addition, set up a Client Ledger entitled: Innocent, James. Step 1: Step 2: Record the Deposit in the Transaction Register. Record the Deposit in the Innocent Client Ledger. (See, App. A) (See, App. B, Page 2) Transaction # 2: Disburse Check No. 1000, in the amount of $7,262.50, to James Innocent on February 8, 2008, constituting his portion of the personal injury settlement. ACCURATE LAW OFFICE 1000 IOLTA TRUST ACCOUNT 1234 MAIN STREET, SUITE 100 ANYTOWN, WI Date: February 8, 2008 Pay to the Order of: James Innocent $ 7, Seven Thousand, Two Hundred Sixty-two & 50/ Dollars We-Got Money Bank Memo: Personal Injury Settlement WilliamB Accurate " " " : " Step 1: Step 2: Record the Disbursement in the Transaction Register. Record the Disbursement in the Innocent Client Ledger. (See, App. A) (See, App. B, Page 2) 8

55 Transaction # 3: Disburse a $5, check (No. 1001) to Atty. Accurate or his firm on February 8, 2008 for his 1/3 contingent fee and the reimbursement of costs. ACCURATE LAW OFFICE 1001 IOLTA TRUST ACCOUNT 1234 MAIN STREET, SUITE 100 ANYTOWN, WI Date February 8, 2008 Pay to the Order of: Accurate Law Office $ 5, Five Thousand, One Hundred Thirty-seven & 50/ Dollars We-Got Money Bank Memo: Innocent PI - Fees & Costs WilliamB Accurate " " " : " Step 1: Step 2: Record the Disbursement in the Transaction Register. Record the Disbursement in the Innocent Client Ledger. (See, App. A) (See, App. B, Page 2) Some attorneys maintain a Cost Advance Account. If such an account is maintained, separate checks may be issued for fees and costs. In this case, a $5, check would be issued to Atty. Accurate for fees, and a $ check would be issued to the Cost Advance Account to reimburse that account for funds advanced on the client s behalf. Transaction # 4: Disburse a $2, check (No. 1002) to Dr. Chiopsu on February 8, 2008, in payment of his lien against the settlement. Step 1: Step 2: Record the Disbursement in the Transaction Register. Record the Disbursement in the Innocent Client Ledger. (See, App. A) (See, App. B, Page 2) 9

56 CASE STUDY NO. 2: MARVIN FIGHT - DIVORCE Marvin Fight retained Atty. Accurate to represent him in a divorce. Fight paid an advanced fee of $2,000.00, which Atty. Accurate will bill against at an hourly rate. Shortly after the petition was filed, the parties agreed to a marital property settlement. The settlement requires that the proceeds of the sale of the couple s homestead, totaling $78,367.12, are to be held in trust by Atty. Accurate, pending an evaluation of Fight s pension plan. It is estimated that the evaluation won t be completed for at least six months. Atty. Accurate s first invoice to Fight reflects the following: Law Offices of William B. Accurate To: Mr. Marvin Fight 1023 Lois Lane Rome, WI Date: March 18, 2008 STATEMENT 02/12/08 Advanced Fees/Costs: $ 2, /17/08 Filing fees/service $ /17/08 Lis Pendens: /27/08 Copies of Orders: /27/08 Legal Fees (earned): /18/08 Real Estate Proceeds: $78, Balance in Trust Account: Fees/Costs: $ 1, Real Estate Proceeds: $78,

57 Transaction # 5: Deposit a $2, check from Marvin Fight on February 12, 2008, constituting an advance of fees for divorce representation. In addition, set up a Client Ledger entitled: Fight, Marvin. Step 1: Step 2: Record the Deposit in the Transaction Register. Record the Deposit in the Fight Client Ledger. (See, App. A) (See, App. B, Page 1) Transaction # 6 (Series of Transactions): Make the following disbursements regarding the Fight Divorce: A $ check on February 17, 2008 to the Clerk of Courts for the filing fee; A $5.00 check on February 17, 2008 to the Register of Deeds for a Lis Pendens; and A $4.00 check on February 27, 2008 to the Clerk of Courts for photocopies. A $ check on February 27, 2008 to Atty. Accurate for fees. Step 1: Step 2: Record each of the Disbursements in the Transaction Register. Record each of the Disbursements in the Fight Client Ledger. (See, App. A) (See, App. B, Page 1) 11

58 TIME TO RECONCILE Receive, Review, and Reconcile the Monthly Bank Statement on March 8: WE-GOT MONEY BANK Account: Accurate Law Office Statement Date: March 4, 2008 IOLTA Trust Account Account No Beginning Balance: $ 0.00 Deposits: 17, Interest: 1.58 Checks: $ 15, Other Deductions: Ending Balance: $ 1, Deposits: Checks: 1000 $ 7, /01/08 $ , /04/08 15, , /13/08 2, Other Deductions: 02/07/08 Check Printing $ /28/08 Service Charge $ /28/08 Interest to WisTAF $

59 Step 1: Step 2: Step 3: Record the Check Printing and Service Charges in the Transaction Register. Record the Check Printing Charge in the Maintenance Account Ledger. Reconcile the Account. (See, App. A) (See, App. B) TRUST ACCOUNT RECONCILIATION SHEET Date of Statement : March 4, 2008 Date of Reconciliation: March 8, Bank Statement Ending Balance: $1, Subtract: Outstanding Checks Check No. Amount 1005 $ Total of Outstanding Checks: $ Add: In Transit Deposits: Amount 0 5. Total of In-Transit Deposits: 0 6. Reconciled Bank Statement Balance: (Subtract Line 3 from Line 1, and Add Line 5) $ 1, Transaction Register Balance: $ 1, Client Ledger Balances Client Name: Client Balance Fight, Marvin: $ 1, Maintenance: Client Ledger Balance: (Total of Client Balances and Maintenance Account Balance) $ 1, TO COMPLETE THE MONTHLY RECONCILIATION, THE FOLLOWING BALANCES MUST BE EQUAL: Line 6 Reconciled Bank Statement Balance: $ 1, Line 7 Transaction Register Balance: $ 1, Line 10 Client Ledger Balance: $ 1,

60 Transaction # 7 (Two Transactions): On March 18, 2008, deposit a $78, check from the Johnson Closing Service. This check constitutes the proceeds from the sale of the Marvin and Bea Fight s home and relates to the Fight divorce. Enter the amount in the Transaction Register and set up a new Client Ledger for Marvin and Bea Fight. Record the amount in that new ledger. NOTE: At minimum, a separate sub-account record should be created in the IOLTA Trust Account to track the sale proceeds since both the client, Marvin, and his wife, Bea, have an interest in those funds. Both Marvin and opposing counsel should be consulted about whether to establish a separate trust account for Marvin and Bea for those funds. A separate trust account, possibly an investment-type account, would allow any interest income to be paid to the client and his wife rather than WisTAF. On March 22, 2008, prepare a check (No. 1007) in the amount of $78,367.12, payable to We-Got Money Bank Investments to establish a separate investment account. Be sure to identify Marvin and Bea Fight Home Proceeds in the check s Memo Line. Enter that check in both the Transaction Register and the Client Ledger for Marvin and Bea and calculate the new balances. ACCURATE LAW OFFICE 1007 IOLTA TRUST ACCOUNT 1234 MAIN STREET, SUITE 100 ANYTOWN, WI Date Pay to the Order of: $ Dollars Memo: We-Got Money Bank " " " : " Later that day, before the investment account has been opened, opposing counsel calls to advise that the parties are again arguing about where to invest the funds. VOID CHECK No in both the Transaction Register and Client Ledger. Destroy the check, or write VOID on the face of the check and maintain it with your trust account records. A new check may be issued after an agreement is reached. 14

61 CASE STUDY NO. 3: ROBERT TENANT REAL ESTATE TRANSACTION Robert Tenant has decided to buy the building he has been renting for his business from Samantha Landlord. They have agreed upon a sale price of $123, The closing takes place on March 23, The closing statement is below: CLOSING STATEMENT MARCH 23, 2008 Seller: Buyer: Property: Samantha Landlord Robert Tenant 1313 Mockingbird Lane Royal Oaks, WI Purchase Price: $123, Due from Buyer at Closing: Amalgamated Mortgage: $120, Tenant Cashier s Check: $ 3, Total Due from Buyer: $123, Disbursements: American Title Company $ Register of Deeds: $ Village of Royal Oaks: $ 2, (Property Assessment) I.B. Rich Mortgage Co.: $ 98, Wm. B. Accurate: $ 1, Samantha Landlord: $ 20, Total Disbursements: $123,

62 Transaction # 8 (Series of Transactions): Atty. Accurate is responsible for depositing and disbursing funds relating to the real estate transaction involving Robert Tenant and Samantha Landlord. In connection with this matter, set up a Client Ledger entitled: Tenant, Robert. Step 1: Record each of the following transactions in the Transaction Register on March 23, (See, App. A, Page 2) 1) A $120, Wire Transfer from Amalgamated Mortgage; 2) A $3, Cashier s Check from Robert Tenant; 3) A Disbursement of $ to American Title Co. (Check 1008); 4) A Disbursement of $ to the Register of Deeds (Check 1009); 5) A Voided Check due to error in amount owed to Village (Check #1010); 6) A Disbursement of $2, to the Village of Royal Oaks (Check 1011); 7) A Disbursement of $98, to the I.B. Rich Mortgage Co. (Check 1012); 8) A Disbursement of $1, to Atty. Accurate (Check 1013); and 9) A Disbursement of $20, to Samantha Landlord (Check 1014). (See, Closing Statement, Page 15) Step 2: Record each of the above-referenced transactions in the Tenant Client Ledger on March 23, (See, App. B, Page 4) Transaction # 9 On April 6, 2008, deposit a $32.10 check from the law firm into the trust account to restore the balance in the Maintenance Account to $ Step 1: Step 2: Record the Deposit in the Transaction Register. Record the Deposit in the Maintenance Account Ledger (See, App. A, Page 2) (See, App. B, Page 3) 16

63 TIME TO RECONCILE Receive, Review and Reconcile the Monthly Bank Statement on April 8: WE-GOT MONEY BANK Account: Accurate Law Office Statement Date: April 5, 2008 IOLTA Trust Account Account No Beginning Balance: $ 1, Deposits: 201, Interest: 5.99 Checks: $ 122, Other Deductions: 5.99 Ending Balance: $ 80, Deposits: Checks: 1005 $ 4.00 **** 03/18/08 $ 78, $ 2, /23/08 120, **** , /23/08 3, **** **** , Other Deductions: 03/31/08 Interest to WisTAF $

64 V. USING COMPUTER SOFTWARE FOR RECORD KEEPING There are a variety of accounting programs on the market that can assist in maintaining trust account records. However, some of those accounting programs need to be adapted to meet the record-keeping requirements established by the Wisconsin Supreme Court. ONE OF THE KEY ADAPTATIONS relates to the assignment of a category for each transaction. The standard categories that are part of the software program should not be used. Instead, the category for each transaction should be the client s name, or the client matter to which the transaction relates. This is very important because the category information is used to create the Client Ledgers required by SCR 20:1.15(f)(1)b. NOTE: In order to facilitate the production of Client Ledgers in alphabetical order, each category should be created by using the client s name in the following format: Last Name, First Name(s) or First Initial(s). If the client is a business, the name of the business will suffice as the category. Regardless of whether the client is an individual or a business, the client s name must be consistent in all records. For example, Jones, John should always be entered as Jones, John, not sometimes that way, and other times as Jones, Jack. Depending upon the nature of an attorney s practice, he or she may simultaneously handle more than one matter for any given client. If so, most programs allow for the creation of a subcategory to track activity relating to two or more matters. For example, assume that Atty. Accurate handles real estate closings for various mortgage companies, including ABC Mortgage. ABC Mortgage would be the category assigned to each closing conducted for ABC, and the subcategory could be the buyer s name and the closing date. The subcategories for ABC Mortgage could include: Jones-10/5/08 and Smith-10/5/08. This will enable Attorney Accurate to create a category report that identifies the deposits and disbursements relating to each closing that he handles for ABC Mortgage. A SECOND KEY ADAPTATION is to designate each category (client) as either an income item or an expense item. Most software programs require each category to be designated as income or as an expense. While this is a helpful feature for some businesses or individuals, it can cause a tremendous amount of confusion in trust account record keeping. If some clients are designated as income, and other clients are designated as expenses, you will produce an alphabetical list of clients who were identified as income items, and a second alphabetical list of clients who were identified as expense items. The goal of the category report in trust accounting is to create one alphabetical listing of trust account activity, broken down by client. Consequently, it is essential to designate each client as income, or each client as expense. NOTE: If a client is mistakenly designated as an income item when all other clients have been designated as expense items, or vice versa, it is possible to correct that error by editing the information relating to that category. 18

65 A THIRD KEY ADAPTATION relates to the information contained in the Memo Line of the checks and/or the register. The Memo should include the name of the client, possibly in an abbreviated version to conserve space, and some indication as to the purpose of the check. For example, a check payable to Samantha Landlord relating to the real estate matter described in these materials could include the following information in the memo line: Tenant Closing-Seller s Proceeds. A FOURTH KEY ADAPTATION relates to the information recorded in the Transaction Register regarding deposits. The first line of the entry, which is normally used to identify the Payee of a check, should identify the Source of the Deposit, rather than simply the word, Deposit. For example, the deposit of James Innocent s personal injury settlement could be identified in the Transaction Register as: Ck from IOU Insurance Co. The Memo Line is also important in recording deposits. It should include the name of the client and the reason for the deposit. In the Innocent case, the Memo Line could include the following information: Innocent-PI Settlement. SPLIT TRANSACTIONS: Another noteworthy device that many software programs include is called the Split Transaction. A split transaction allows you to break down a deposit that includes two or more checks into individual deposits entries. For example, if a real estate closing includes the deposit of a $175, certified check from a mortgage company and a $1, cashier s check from the buyer, those two checks would most likely be included on one deposit slip. The source and amount of each deposit item should also be recorded in the Transaction Register. Computer software programs often allow you to create a split transaction in the Transaction Register, wherein you record the amount, source, and category of each of those deposit items. Quicken can be modified to maintain Client Ledgers by identifying each client or client matter as a category. However, Quicken will not provide a running balance for the individual client ledgers. Consequently, those computations would have to be done manually. Quickbooks does provide a running balance in the Client Ledgers. A set of computergenerated trust account records regarding the case studies in this Work Book has been generated using Quickbooks, and is included in your materials. TAMgmtWkBk-01/11 19

66 APPENDICES A. Transaction Register B. Client Ledgers Fight, Marvin Page 1 Innocent, James Page 2 Maintenance Account Page 3 Tenant, Robert Page 4 C. Reconciliation Work Sheet D. SCR 20:1.15 (Effective January 1, 2011)

67 William B. Accurate, Esq. Client Trust Account TRANSACTION REGISTER TRANSACTION DATE CK. NO. DEPOSITS PAYMENTS BALANCE CLIENT MATTER & PURPOSE 02/01/08 DEP Ck from Law Office Maintenance Account 02/02/08 DEP Ck from IOU Insurance Co. 15, , Innocent PI Settlement 02/08/ James Innocent 7, , P.I. Settlement 02/08/ Wm. B. Accurate 5, , Innocent (Fees & Costs) 02/08/ Dr. Ben Chiopsu 2, Innocent 02/12/08 DEP Ck from Marvin Fight 2, , Fight (Advance) 02/17/ Clerk of Court , Fight Filing Fee 02/17/ Register of Deeds , Fight Lis Pendens 02/27/ Clerk of Court , Fight Copies 02/27/ Wm. B. Accurate , Fight Atty Fees 02/07/08 DM Check Print Fees , Maintenance Account 02/28/08 DM Bank Service Charge , Maintenance Account APPENDIX A Page 1

68 TRANSACTION DATE CK. NO. DEPOSITS PAYMENTS BALANCE CLIENT MATTER & PURPOSE Balance from Previous Page , /18/08 DEP Ck from Johnson Closing Service 78, , Fight, Marvin & Bea 03/22/ We-Got Money Bk Investments VOID Fight, Marvin & Bea 03/23/08 DEP Wire from Amalgamated 120, , Tenant 03/23/08 DEP Cashier s Ck from Tenant 3, , Tenant 03/23/ American Title Co , Tenant 03/23/ Register of Deeds , Tenant 03/23/ Village of Royal Oaks - VOIDED /23/ Village of Royal Oaks 2, , Tenant Property Tax 03/23/ I.B. Rich Mortgage Co. 98, , Tenant 03/23/ Wm. B. Accurate 1, , Tenant Atty Fees 03/23/ Samantha Landlord 20, , Tenant 04/06/08 DEP Ck from Law Office , Maintenance Account APPENDIX A Page 2

69 INDIVIDUAL CLIENT LEDGERS Client: Matter: Fight, Marvin Divorce Date Ck No. Transaction Deposits Disbursemts Balance 02/12/08 DEP Advanced Fees 2, , /17/ Clerk of Court (Filing Fees) , /17/ Reg. of Deeds (Lis Pendens) , /27/ Clerk of Ct. (Copies) , /27/ Wm. B. Accurate (Fees) , Client: Matter: Fight, Marvin and Fight, Bea Real Estate Proceeds Date Ck No. Transaction Deposits Disbursemts Balance 03/18/08 DEP Real Estate Proceeds 78, , /20/ We-Got Money-Invstmts VOID 78, APPENDIX B Page 1

70 INDIVIDUAL CLIENT LEDGERS Client: Matter: Innocent, James Personal Injury Date Ck No. Transaction Deposits Disbursemts Balance 02/02/08 DEP IOU Insurance Co. 15, , /08/ James Innocent 7, , /08/ Wm. B. Accurate 5, , /08/ Dr. Ben Chiopsu 2, APPENDIX B Page 2

71 INDIVIDUAL CLIENT LEDGERS Client: Matter: Law Office Funds Maintenance Account Date Ck No. Transaction Deposits Disbursemts Balance 02/01/08 DEP DEPOSIT /28/08 DM Check Printing Charge /28/08 DM Service Charges /06/08 DEP DEPOSIT APPENDIX B Page 3

72 INDIVIDUAL CLIENT LEDGER Client: Matter: Tenant, Robert Real Estate Transaction Date Ck No. Transaction Deposits Disbursemts Balance 03/23/08 WIRE f/amalgamated Mortgage $120, $120, /23/08 DEP Cashier s Check f/tenant 3, , /23/ American Title (Title Fees) $ , /23/ Register of Deeds (Trans. Fee) , Village of Royal Oaks VOID /23/ Village of Royal Oaks (Assessment) 2, , /23/ I.B. Rich Mortgage (Mortgage) 98, , /23/ Wm B. Accurate (Fee) 1, , /23/ Samantha Landlord 20, APPENDIX B Page 4

73 TRUST ACCOUNT RECONCILIATION Date of Statement: Date Reconciled: 1. Bank Statement Ending Balance: $ 2. Subtract: Outstanding Checks Check No. 3. Total of Outstanding Checks: $ $ $ $ $ $ $ $ $ $ $ $ Amount 4. Add: In-Transit Deposits: 5. Total of In-Transit Deposits: $ $ $ $ $ Amount 6. Reconciled Bank Statement Balance: (Subtract Line 3 from Line 1, and Add Line 5) $ Before inserting the Register Balance below, be sure to make any necessary adjustments to the balance in your Transaction Register due to service charges and/or other deductions or credits to the account that are identified in the Bank Statement. 7. Transaction Register Balance: $ APPENDIX C Page 1

74 RECONCILIATION SHEET Page Two 8. Client Ledger Balance: Client Name: Client Balance $ $ $ $ $ $ $ $ $ $ 9. Maintenance Account $ 10. Client Ledger Balance: (Total of Client Balances and Maintenance Account Balance) $ TO COMPLETE THE MONTHLY RECONCILIATION, THE FOLLOWING BALANCES MUST BE EQUAL: Line 6 Reconciled Bank Statement Balance: $ Line 7 Transaction Register Balance: $ Line 10 Client Ledger Balance: $ APPENDIX C Page 2

75 SCR 20:1.15 Safekeeping property; trust accounts and fiduciary accounts. (Effective, 1/1/11) SCR 20:1.15(a) SCR 20:1.15(b) SCR 20:1.15(c) SCR 20:1.15(cm) SCR 20:1.15(d) SCR 20:1.15(e) Definitions. 1 Segregation of trust property. SCR 20:1.15(f) Record-keeping requirements for trust accounts. Types of trust accounts. SCR 20:1.15(g) Withdrawal of fees from trust Interest on Lawyer Trust Account account. (IOLTA) requirements. SCR 20:1.15(h) Dishonored instrument notification; Prompt notice and delivery of (Overdraft notices). property. SCR 20:1.15(i) Certification of compliance with Operational requirements for trust account rules. trust accounts. SCR 20:1.15(j) Fiduciary property. SCR 20:1.15(k) Exceptions to SCR 20:1.15. (a) Definitions. In this section: (1m) "Draft account" means an account upon which funds are disbursed through a properly payable instrument. (2) "Fiduciary" means an agent, attorney-in-fact, conservator, guardian, personal representative, special administrator, trustee, or other position requiring the lawyer to safeguard the property of a 3rd party. (3) "Fiduciary account" means an account in which the lawyer deposits fiduciary property. (4) "Fiduciary property" means funds or property of a client or 3rd party that is in the lawyer's possession in a fiduciary capacity that directly arises in the course of, or as a result of, a lawyer-client relationship or an appointment by a court. Fiduciary property includes, but is not limited to, property held as agent, attorney-in-fact, conservator, guardian, personal representative, special administrator, or trustee, subject to the exceptions identified in sub. (k). (5) "Financial institution" means a bank, savings bank, trust company, credit union, savings and loan association, or investment institution, including a brokerage house. (6) "Immediate family member" means the lawyer's spouse, child, stepchild, grandchild, sibling, parent, grandparent, aunt, uncle, niece, or nephew. (7) "Interest on Lawyer Trust Account or "IOLTA account"" means a pooled interest-bearing or dividend-paying draft trust account, separate from the lawyer's business and personal accounts. An IOLTA account must be established in an IOLTA participating institution pursuant to SCR 20:1.15 (cm) (1) and (2), and may contain only funds that cannot earn income for the benefit of the client or 3rd party in excess of the costs to secure that income. Typical funds that would be placed in an IOLTA account include earnest monies, loan proceeds, settlement proceeds, collection proceeds, cost advances, and advance payments for fees that have not yet been earned. An IOLTA account is subject to the provisions of SCR Chapter 13 and the trust account provisions of subs. (a) to (i), including the IOLTA account provisions of sub. (cm). 1 This Index is not part of the rule. It is provided by OLR as a guide to the subsections of the rule. APPENDIX D - Page 1

76 (7m) IOLTA participating institution means a financial institution that voluntarily offers IOLTA accounts and certifies to WisTAF annually that it meets the IOLTA account requirements of SCR 20:1.15 (cm) (3) to (6) and that it reports overdrafts on draft trust accounts and draft fiduciary accounts of lawyers and law firms to the office of lawyer regulation, pursuant to the financial institution's agreements with those lawyers and law firms. WisTAF shall confirm the accuracy of the certifications and publish, at least annually, a list of IOLTA participating institutions. (8) "Properly payable instrument" means an instrument that, if presented in the normal course of business, is in a form requiring payment pursuant to the laws of this state. (9) "Trust account" means an account in which the lawyer deposits trust property. (10) "Trust property" means funds or property of clients or 3rd parties that is in the lawyer's possession in connection with a representation, which is not fiduciary property. (11) WisTAF means the Wisconsin Trust Account Foundation, Inc. (b) Segregation of trust property. (1) Separate account. A lawyer shall hold in trust, separate from the lawyer's own property, that property of clients and 3rd parties that is in the lawyer's possession in connection with a representation. All funds of clients and 3rd parties paid to a lawyer or law firm in connection with a representation shall be deposited in one or more identifiable trust accounts. (2) Identification of account. Each trust account shall be clearly designated as a "Client Account," a "Trust Account," or words of similar import. The account shall be identified as such on all account records, including signature cards, monthly statements, checks, and deposit slips. An acronym, such as "IOLTA," "IOTA," or "LTAB," without further elaboration, does not clearly designate the account as a client account or trust account. (3) Lawyer funds. No funds belonging to the lawyer or law firm, except funds reasonably sufficient to pay monthly account service charges, may be deposited or retained in a trust account. (4) Unearned fees and cost advances. Except as provided in par. (4m), unearned fees and advanced payments of fees shall be held in trust until earned by the lawyer, and withdrawn pursuant to sub. (g). Funds advanced by a client or 3rd party for payment of costs shall be held in trust until the costs are incurred. (4m) Alternative protection for advanced fees. A lawyer who accepts advanced payments of fees may deposit the funds in the lawyer's business account, provided that review of the lawyer s fee by a court of competent jurisdiction is available in the proceeding to which the fee relates, or provided that the lawyer complies with each of the following requirements: a. Upon accepting any advanced payment of fees pursuant to this subsection, the lawyer shall deliver to the client a notice in writing containing all of the following information: 1. the amount of the advanced payment; APPENDIX D - Page 2

77 2. the basis or rate of the lawyer's fee; 3. any expenses for which the client will be responsible; 4. that the lawyer has an obligation to refund any unearned advanced fee, along with an accounting, at the termination of the representation; 5. that the lawyer is required to submit any unresolved dispute about the fee to binding arbitration within 30 days of receiving written notice of such a dispute; and 6. the ability of the client to file a claim with the Wisconsin lawyers' fund for client protection if the lawyer fails to provide a refund of unearned advanced fees. b. Upon termination of the representation, the lawyer shall deliver to the client in writing all of the following: 1. a final accounting, or an accounting from the date of the lawyer's most recent statement to the end of the representation, regarding the client's advanced fee payment with a refund of any unearned advanced fees; 2. notice that, if the client disputes the amount of the fee and wants that dispute to be submitted to binding arbitration, the client must provide written notice of the dispute to the lawyer within 30 days of the mailing of the accounting; and 3. notice that, if the lawyer is unable to resolve the dispute to the satisfaction of the client within 30 days after receiving notice of the dispute from the client, the lawyer shall submit the dispute to binding arbitration. c. Upon timely receipt of written notice of a dispute from the client, the lawyer shall attempt to resolve that dispute with the client, and if the dispute is not resolved, the lawyer shall submit the dispute to binding arbitration with the State Bar Fee Arbitration Program or a similar local bar association program within 30 days of the lawyer's receipt of the written notice of dispute from the client. d. Upon receipt of an arbitration award requiring the lawyer to make a payment to the client, the lawyer shall pay the arbitration award within 30 days, unless the client fails to agree to be bound by the award of the arbitrator. (6) Trust property other than funds. Unless the client otherwise directs in writing, a lawyer shall keep securities in bearer form in a safe deposit box at a financial institution authorized to do business in Wisconsin. The safe deposit box shall be clearly designated as a "Client Account" or "Trust Account." The lawyer shall clearly identify and appropriately safeguard other property of a client or 3rd party. (7) Multi-jurisdictional practice. If a lawyer also licensed in another state is entrusted with funds or property in connection with a representation in the other state, the provisions of this rule shall not supersede the applicable rules of the other state. APPENDIX D - Page 3

78 (c) Types of trust accounts. (1) IOLTA accounts. A lawyer or law firm who receives client or 3rd-party funds that the lawyer or law firm determines to be nominal in amount or that are expected to be held for a short period of time such that the funds cannot earn income for the benefit of the client or 3rd party in excess of the costs to secure that income, shall maintain a pooled interest-bearing or dividend-paying draft trust account in an IOLTA participating institution. (2) Non-IOLTA accounts. A lawyer or law firm who receives client or 3rdparty funds that the lawyer or law firm determines to be capable of earning income for the benefit of the client or 3rd party shall maintain an interest-bearing or dividend-paying non- IOLTA trust account. A non-iolta trust account shall be established as any of the following: a. a separate interest-bearing or dividend-paying trust account maintained for the particular client or 3rd party, the interest or dividends on which shall be paid to the client or 3rd party, less any transaction costs; b. a pooled interest-bearing or dividend-paying trust account with subaccounting by the financial institution, the lawyer, or the law firm that will provide for computation of interest or dividends earned by each client's or 3rd party s funds and the payment of the interest or dividends to the client or 3rd party, less any transaction costs; c. an income-generating investment vehicle selected by the client and designated in specific written instructions from the client or authorized by a court or other tribunal, on which income shall be paid to the client or 3rd party or as directed by the court or other tribunal, less any transaction costs; d. an income generating investment vehicle selected by the lawyer to protect and maximize the return of funds in a bankruptcy estate, which investment vehicle is approved by the trustee in bankruptcy and by a bankruptcy court order, consistent with 11 U.S.C. 345; or e. a draft account or other account that does not bear interest or pay dividends because it holds funds the lawyer has determined are not eligible for deposit in an IOLTA account because they are neither nominal in amount nor expected to be held for a short term such that the funds cannot earn income for the client or 3rd party in excess of the costs to secure the income, provided that such account has been designated in specific written instructions from the client or 3rd party. (3) Selection of account. In deciding whether to use the account specified in par. (1) or an account or investment vehicle specified in par. (2), a lawyer shall determine, at the time of the deposit, whether the client or 3rd party funds could be utilized to provide a positive net return to the client or 3rd party by taking into consideration all of the following: a. the amount of interest, dividends, or other income that the funds would earn or pay during the period the funds are expected to be on deposit; b. the cost of establishing and administering a non-iolta trust account, including the cost of the lawyer's services and the cost of preparing any tax reports required for income accruing to a client's or 3rd party s benefit; APPENDIX D - Page 4

79 c. the capability of the financial institution, lawyer, or law firm to calculate and pay interest, dividends, or other income to individual clients or 3rd parties; and d. any other circumstance that affects the ability of the client s or 3rd party s funds to earn income in excess of the costs to secure such income for the client or 3rd party. (4) Professional judgment. The determination whether funds to be invested could be utilized to provide a positive net return to the client or 3rd party rests in the sound judgment of the lawyer or law firm. If a lawyer acts in good faith in making this determination, the lawyer is not subject to any charge of ethical impropriety or other breach of the Rules of Professional Conduct. (cm) Interest on Lawyer Trust Account (IOLTA) requirements. An IOLTA account must meet the following requirements: (1) Location. An IOLTA account shall be held in an IOLTA participating institution that shall comply with location requirements of sub. (e) (1). (2) Certification by IOLTA participating institutions. a. Each IOLTA participating institution shall certify to WisTAF annually that the financial institution meets the requirements of sub. (cm) (3) to (6) for IOLTA accounts and that it reports overdrafts on draft trust accounts and draft fiduciary accounts of lawyers and law firms to the office of lawyer regulation, pursuant to the institution s agreements with those lawyers and law firms. WisTAF shall by rule adopted under SCR (1) establish the date by which IOLTA participating institutions shall certify their compliance. b. WisTAF shall confirm annually, by a date established by WisTAF by rule adopted under SCR (1), the accuracy of a financial institution s certification under sub. (cm) (2) a. by reviewing one or more of the following: 1. the IOLTA comparability rate information form submitted by the financial institution to WisTAF; 2. rate and product information published by the financial institution; and 3. other publicly or commercially available information regarding products and interest rates available at the financial institution. c. WisTAF shall publish annually, no later than the date on which the state bar mails annual dues statements to members of the bar, a list of all financial institutions that have certified, and have been confirmed by WisTAF as IOLTA participating institutions. WisTAF shall update the published list located on its website to add newly confirmed IOLTA participating institutions and to remove financial institutions that WisTAF cannot confirm as IOLTA participating institutions. APPENDIX D - Page 5

80 d. Prior to removing any financial institution from the list of IOLTA participating institutions or failing to include any financial institution on the list of IOLTA participating institutions, WisTAF shall first provide the financial institution with notice and sufficient time to respond. In the event a financial institution is removed from the list of IOLTA participating institutions, WisTAF shall notify the office of lawyer regulation and provide that office with a list of the lawyers and law firms maintaining IOLTA accounts at that financial institution. The office of lawyer regulation shall notify those lawyers and law firms of the removal of the financial institution from the list, and provide time for those lawyers and law firms to move their IOLTA accounts to an IOLTA participating institution. e. Lawyers and law firms shall be entitled to rely on the most recently published list of IOLTA participating institutions for purposes of compliance with sub. (c) (1), except when the office of lawyer regulation notifies the lawyer or law firm of removal, in accordance with sub. (cm) (2) d. (3) Insurance and safety requirements. a. An IOLTA participating institution shall comply with the insurance and safety requirements of sub. (e) (2). b. A repurchase agreement utilized for an IOLTA account may be established only at an IOLTA participating institution deemed to be wellcapitalized or adequately capitalized as defined by applicable federal statutes and regulations. c. An open-end money market fund utilized for an IOLTA account may be established only at an IOLTA participating institution in a fund that holds itself out as a money market fund as defined under the Investment Act of 1940 and, at the time of investment, has total assets of at least $250,000,000. (4) Income requirements. a. Beneficial owner. The interest or dividends accruing on an IOLTA account, less any allowable reasonable fees, as allowed under par. (5), shall be paid to WisTAF, which shall be considered the beneficial owner of the earned interest or dividends, pursuant to SCR Chapter 13. b. Interest and dividend requirements. An IOLTA account shall bear the highest non-promotional interest rate or dividend that is generally available to non-iolta customers at the same branch or main office location when the IOLTA account meets or exceeds the same eligibility qualifications, if any, including a minimum balance, required at that same branch or main office location. In determining the highest rate or dividend available, the IOLTA participating institution may consider factors in addition to the IOLTA account balance that are customarily considered by the institution at that branch or main office location when setting interest rates or dividends for its customers, provided the institution does not discriminate between IOLTA accounts and accounts of non-iolta customers and that these factors do not include that the account is an IOLTA account. However, IOLTA participating institutions may voluntarily choose to pay higher rates. APPENDIX D - Page 6

81 c. IOLTA account. An IOLTA participating institution may establish an IOLTA account as, or convert an IOLTA account to, any of the following types of accounts, assuming the particular financial institution at that branch or main office location offers these account types to its non-iolta customers, and the particular IOLTA account meets the eligibility qualifications to be established as this type of account at the particular branch or main office location: 1. a business checking account with an automated or other automatic investment sweep feature into a daily financial institution repurchase agreement or open-end money market fund. A daily financial institution repurchase agreement must be invested in United States government securities. An open-end money market fund must consist solely of United States government securities or repurchase agreements fully collateralized by United States government securities, or both. In this subd. c. 1., "United States government securities" include securities of government- sponsored entities, such as, but not limited to, securities of, or backed by, the federal national mortgage association, the government national mortgage association, and the federal home loan mortgage corporation; 2. a checking account paying preferred interest rates, such as money market or indexed rates; 3. an interest-bearing checking account such as a negotiable order of withdrawal (NOW) account or business checking account with interest; and 4. any other suitable interest-bearing or dividend-paying account offered by the institution to its non-iolta customers. d. Options for compliance. 1. An IOLTA participating institution may establish the comparable product for qualifying IOLTA accounts, subject to the direction of the lawyer or law firm; or, 2. an IOLTA participating institution may pay the highest nonpromotional interest rate or dividend, as defined in sub. (cm) (4) b., less any allowable reasonable fees charged in connection with the comparable highest interest rate or dividend product, on the IOLTA checking account in lieu of actually establishing the comparable highest interest rate or dividend product. e. Paying rates above comparable rates. An IOLTA participating institution may pay a set rate above its comparable rates on the IOLTA checking account negotiated with WisTAF that is fixed over a period of time set by WisTAF, such as 12 months. (5) Allowable reasonable fees on IOLTA accounts. a. Allowable reasonable fees on an IOLTA account shall be as follows: 1. per check charges; APPENDIX D - Page 7

82 2. per deposit charges; 3. fees in lieu of minimum balance; 4. sweep fees; 5. an IOLTA administrative fee approved by WisTAF; and 6. federal deposit insurance fees. b. Allowable reasonable fees may be deducted from interest earned or dividends paid on an IOLTA account, provided that such charges shall be calculated in accordance with an IOLTA participating institution s standard practice for non- IOLTA customers. Fees in excess of the interest earned or dividends paid on the IOLTA account for any month or quarter shall not be taken from interest or dividends of any other IOLTA accounts. No fees that are authorized under this subsection shall be assessed against or deducted from the principal of any IOLTA account. All other fees are the responsibility of, and may be charged to, the lawyer or law firm maintaining the IOLTA account. IOLTA participating institutions may elect to waive any or all fees on IOLTA accounts. (6) Remittance and reporting requirements. A lawyer or law firm shall direct the IOLTA participating institution at which the lawyer or law firm s IOLTA account is located to do all of the following, on at least a quarterly basis: a. Remit to WisTAF the interest or dividends, less allowable reasonable fees as allowed under par. (5), if any, on the average monthly balance in the account or as otherwise computed in accordance with the IOLTA participating institution s standard accounting practice. b. Provide to WisTAF a remittance report showing for each IOLTA account the name of the lawyer or law firm for whose IOLTA account the remittance is sent, the rate and type of interest or dividend applied, the amount of allowable reasonable fees deducted, if any, the average account balance for the period for which the report is made, and the amount of remittance attributable to each IOLTA account. c. Provide to the depositing lawyer or law firm a remittance report in accordance with the participating institution s normal procedures for reporting account activity to depositors. d. Respond to reasonable requests from WisTAF for information needed for purposes of confirming the accuracy of an IOLTA participating institution s certification. (d) Prompt notice and delivery of property. (1) Notice and disbursement. Upon receiving funds or other property in which a client has an interest, or in which the lawyer has received notice that a 3rd party has an interest identified by a lien, court order, judgment, or contract, the lawyer shall promptly notify the client or 3rd party in writing. Except as stated in this rule or otherwise permitted by law or by agreement with the client, the lawyer shall promptly deliver to the client or 3rd party any funds or other property that the client or 3rd party is entitled to receive. APPENDIX D - Page 8

83 (2) Accounting. Upon final distribution of any trust property or upon request by the client or a 3rd party having an ownership interest in the property, the lawyer shall promptly render a full written accounting regarding the property. (3) Disputes regarding trust property. When the lawyer and another person or the client and another person claim ownership interest in trust property identified by a lien, court order, judgment, or contract, the lawyer shall hold that property in trust until there is an accounting and severance of the interests. If a dispute arises regarding the division of the property, the lawyer shall hold the disputed portion in trust until the dispute is resolved. Disputes between the lawyer and a client are subject to the provisions of sub. (g)(2). (e) Operational requirements for trust accounts. (1) Location. a. Each trust account shall be maintained in a financial institution that is authorized by federal or state law to do business in Wisconsin and that is located in Wisconsin or has a branch office located in Wisconsin, and which agrees to comply with the overdraft notice requirements of sub. (h). b. In addition to the requirement of subd. a., IOLTA accounts shall be maintained only at IOLTA participating institutions that meet the IOLTA account requirements under sub. (cm). (2) Insurance and safety requirements. a. Each trust account shall be maintained at a financial institution that is insured by the federal deposit insurance corporation, the national credit union share insurance fund, the securities investor protection corporation, or any other investment institution financial guaranty insurance. Except as provided in subs. (b)(6) and (cm)(3)b. and c., trust property shall be held in an account in which each individual owner s funds are eligible for insurance. b. IOLTA accounts shall also comply with the requirements of sub. (cm) (3). (3) Interest requirements. a. Non-IOLTA accounts shall bear interest at a rate not less than that applicable to individual interest-bearing accounts of the same type, size, and duration. All trust accounts shall allow withdrawals or transfers to be made without delay when funds are required, subject only to any notice period that the depository institution is required to observe by law. b. b. IOLTA accounts shall comply with the requirements of sub. (cm) (4) (4) Prohibited transactions. a. Cash. No disbursement of cash shall be made from a trust account or from a deposit to a trust account, and no check shall be made payable to "Cash." APPENDIX D - Page 9

84 b. Telephone transfers. No deposits or disbursements shall be made to or from a pooled trust account by a telephone transfer of funds. This section does not prohibit any of the following: 1. wire transfers. 2. telephone transfers between non-pooled draft and non-pooled non-draft trust accounts that a lawyer maintains for a particular client. c. Internet transactions. A lawyer shall not make deposits to or disbursements from a trust account by way of an Internet transaction. d. Electronic transfers by 3rd parties. A lawyer shall not authorize a 3rd party to electronically withdraw funds from a trust account. A lawyer shall not authorize a 3rd party to deposit funds into the lawyer's trust account through a form of electronic deposit that allows the 3rd party making the deposit to withdraw the funds without the permission of the lawyer. e. Credit card transactions. A lawyer shall not authorize transactions by way of credit card to or from a trust account. However, earned fees may be deposited by way of credit card to a lawyer's business account. f. Debit card transactions. A lawyer shall not use a debit card to make deposits to or disbursements from a trust account. g. Exception: Collection trust accounts. Upon demonstrating to the office of lawyer regulation that a transaction prohibited by sub. (e)(4)c., e., or f., constitutes an integral part of the lawyer's practice, a lawyer may petition that office for a separate, written agreement, permitting the lawyer to continue to engage in the prohibited transaction, provided the lawyer identifies the excepted account, provides adequate account security, and complies with specific record-keeping and production requirements. h. Exception: Fee and cost advances by credit card, debit card or other electronic deposit. A lawyer may establish a trust account, separate from the lawyer's IOLTA account for the purpose of receiving legal fees and costs by credit card, debit card or other electronic deposit, provided that the lawyer complies with all of the following: 1. the separate trust account shall be entitled: "Credit Card Trust Account"; 2. lawyer or law firm funds, reasonably sufficient to cover all monthly account fees and charges and, if necessary, any deductions by the financial institution or card issuer from a client's payment by credit card, debit card, or other electronic deposit, shall be maintained in the credit card trust account, and a ledger for account fees and charges shall be maintained; 3. each payment of legal fees or costs by credit card, debit card or other electronic deposit, including, if necessary, a reimbursement by the lawyer or law firm for any deduction by the financial institution or card APPENDIX D - Page 10

85 issuer from the gross amount of each payment, shall be transferred from the credit card trust account to the IOLTA account immediately upon becoming available for disbursement subject to the following requirements: a. All advanced costs and advanced fees held in trust under sub. (b)(4) shall be transferred by check to the IOLTA account. b. Earned fees, cost reimbursements, and advanced fees that are subject to the requirements of sub. (b)(4m) shall be transferred by check to the business account. 4. within 3 business days of receiving actual notice that a chargeback or surcharge has been made against the credit card trust account, the lawyer shall replace any and all funds that have been withdrawn from the credit card trust account by the financial institution or card issuer; and shall reimburse the account for any shortfall or negative balance caused by a chargeback or surcharge. The lawyer shall not accept new payments to the credit card trust account until the lawyer has reimbursed the credit card trust account for the chargeback or surcharge. (5) Availability of funds for disbursement. a. Standard for trust account transactions. A lawyer shall not disburse funds from any trust account unless the deposit from which those funds will be disbursed has cleared, and the funds are available for disbursement. b. Exception: Real estate transactions. In closing a real estate transaction, a lawyer's disbursement of closing proceeds from funds that are received on the date of the closing, but that have not yet cleared, shall not violate sub. (e)(5)a. if those proceeds are deposited no later than the first business day following the closing and are comprised of the following types of funds: 1. a certified check; 2. a cashier's check, teller's check, bank money order, official bank check or electronic transfer of funds, issued or transferred by a financial institution insured by the federal deposit insurance corporation or a comparable agency of the federal or state government; 3. a check drawn on the trust account of any lawyer or real estate broker licensed under the laws of any state; 4. a check issued by the state of Wisconsin, the United States, or a political subdivision of the state of Wisconsin or the United States; 5. a check drawn on the account of or issued by a lender approved by the federal department of housing and urban development as either a supervised or a nonsupervised mortgagee as defined in 24 C.F.R. s ; 6. a check from a title insurance company licensed in Wisconsin, or from a title insurance agent of the title insurance company, if the title insurance company has guaranteed the funds of that title insurance agent; APPENDIX D - Page 11

86 7. a non-profit organization check in an amount not exceeding $5000 per closing if the lawyer has reasonable and prudent grounds to believe that the deposit will be irrevocably credited to the trust account; and 8. a personal check or checks in an aggregate amount not exceeding $5000 per closing if the lawyer has reasonable and prudent grounds to believe that the deposit will be irrevocably credited to the trust account. bm. Without limiting the rights of the lawyer against any person, it shall be the responsibility of the disbursing lawyer to reimburse the trust account for any funds described in sub. (e)(5)b. that are not collected and for any fees, charges, and interest assessed by the financial institution on account of the funds being disbursed before the related deposit has cleared and the funds are available for disbursement. The lawyer shall maintain a subsidiary ledger for funds of the lawyer that are deposited in the trust account to reimburse the account for uncollected funds and to accommodate any fees, charges, and interest. c. Exception: Collection trust accounts. When handling collection work for a client and maintaining a separate trust account to hold funds collected on behalf of that client, a lawyer's disbursement to the client of collection proceeds that have not yet cleared, does not violate sub. (e)(5)a. so long as those collection proceeds have been deposited prior to the disbursement. (6) Record retention. A lawyer shall maintain complete records of trust account funds and other trust property and shall preserve those records for at least 6 years after the date of termination of the representation. (7) Production of records. All trust account records have public aspects related to a lawyer's fitness to practice. Upon request of the office of lawyer regulation, or upon direction of the supreme court, the records shall be submitted to the office of lawyer regulation for its inspection, audit, use, and evidence under any conditions to protect the privilege of clients that the court may provide. The records, or an audit of the records, shall be produced at any disciplinary proceeding involving the lawyer, whenever material. Failure to produce the records constitutes unprofessional conduct and grounds for disciplinary action. (8) Business account. Each lawyer who receives trust funds shall maintain at least one draft account, other than the trust account, for funds received and disbursed other than in the lawyer's trust capacity, which shall be entitled "Business Account," "Office Account," "Operating Account," or words of similar import. (f) Record-keeping requirements for all trust accounts. (1) Draft accounts. Complete records of a trust account that is a draft account shall include a transaction register; individual client ledgers for IOLTA accounts and other pooled trust accounts; a ledger for account fees and charges, if law firm funds are held in the account pursuant to sub. (b)(3); deposit records; disbursement records; monthly statements; and reconciliation reports, subject to all of the following: APPENDIX D - Page 12

87 a. Transaction register. The transaction register shall contain a chronological record of all account transactions, and shall include all of the following: 1. the date, source, and amount of all deposits; 2. the date, check or transaction number, payee and amount of all disbursements, whether by check, wire transfer, or other means; 3. the date and amount of every other deposit or deduction of whatever nature; 4. the identity of the client for whom funds were deposited or disbursed; and 5. the balance in the account after each transaction. b. Individual client ledgers. A subsidiary ledger shall be maintained for each client or 3rd party for whom the lawyer receives trust funds that are deposited in an IOLTA account or any other pooled trust account. The lawyer shall record each receipt and disbursement of a client's or 3rd party's funds and the balance following each transaction. A lawyer shall not disburse funds from an IOLTA account or any pooled trust account that would create a negative balance with respect to any individual client or matter. c. Ledger for account fees and charges. A subsidiary ledger shall be maintained for funds of the lawyer deposited in the trust account to accommodate monthly service charges. Each deposit and expenditure of the lawyer's funds in the account and the balance following each transaction shall be identified in the ledger. d. Deposit records. Deposit slips shall identify the name of the lawyer or law firm, and the name of the account. The deposit slip shall identify the amount of each deposit item, the client or matter associated with each deposit item, and the date of the deposit. The lawyer shall maintain a copy or duplicate of each deposit slip. All deposits shall be made intact. No cash, or other form of disbursement, shall be deducted from a deposit. Deposits of wired funds shall be documented in the account's monthly statement. e. Disbursement records. 1. Checks. Checks shall be pre-printed and pre-numbered. The name and address of the lawyer or law firm, and the name of the account shall be printed in the upper left corner of the check. Trust account checks shall include the words "Client Account," or "Trust Account," or words of similar import in the account name. Each check disbursed from the trust account shall identify the client matter and the reason for the disbursement on the memo line. 2. Canceled checks. Canceled checks shall be obtained from the financial institution. Imaged checks may be substituted for canceled checks. APPENDIX D - Page 13

88 3. Imaged checks. Imaged checks shall be acceptable if they provide both the front and reverse of the check and comply with the requirements of this paragraph. The information contained on the reverse side of the imaged checks shall include any endorsement signatures or stamps, account numbers, and transaction dates that appear on the original. Imaged checks shall be of sufficient size to be readable without magnification and as close as possible to the size of the original check. 4. Wire transfers. Wire transfers shall be documented by a written withdrawal authorization or other documentation, such as a monthly statement of the account that indicates the date of the transfer, the payee, and the amount. f. Monthly statement. The monthly statement provided to the lawyer or law firm by the financial institution shall identify the name and address of the lawyer or law firm and the name of the account. g. Reconciliation reports. For each trust account, the lawyer shall prepare and retain a printed reconciliation report on a regular and periodic basis not less frequently than every 30 days. Each reconciliation report shall show all of the following balances and verify that they are identical: 1. the balance that appears in the transaction register as of the reporting date; 2. the total of all subsidiary ledger balances for IOLTA accounts and other pooled trust accounts, determined by listing and totaling the balances in the individual client ledgers and the ledger for account fees and charges, as of the reporting date; and 3. the adjusted balance, determined by adding outstanding deposits and other credits to the balance in the financial institution's monthly statement and subtracting outstanding checks and other deductions from the balance in the monthly statement. (2) Non-draft accounts. Complete records of a trust account that is a non-draft account shall include all of the following: a. all monthly or other periodic statements provided by the financial institution to the lawyer or law firm; and b. all transaction records, including passbooks, records of electronic fund transactions, duplicates of any instrument issued by the financial institution from funds held in the account, duplicate deposit slips identifying the source of any deposit, and duplicate withdrawal slips identifying the purpose of any withdrawal. (3) Tangible trust property and bearer securities. a. Property ledger. A lawyer who receives, in trust, tangible personal property or securities in bearer form shall maintain a property ledger that identifies the property, date of receipt, owner, client or matter, and location of the property. The ledger shall also identify the disposition of all of the trust property received by the lawyer. APPENDIX D - Page 14

89 (g) b. Receipt upon taking custody. Upon taking custody, in trust, of any tangible personal property or securities in bearer form, the lawyer shall provide to the previous custodian a signed receipt, with a description of the property and the date of receipt. c. Dispositional receipt. Upon disposition of any tangible personal property or securities in bearer form held in trust, the lawyer shall obtain a signed receipt, with a description of the property and the date of disposition, from the recipient. (4) Electronic record retention. a. Back-up of records. A lawyer who maintains trust account records by computer shall maintain the transaction register, client ledgers, and reconciliation reports in a form that can be reproduced to printed hard copy. Electronic records must be regularly backed up by an appropriate storage device. b. IOLTA account records. In addition to the requirements of sub. (f)(4)a., the transaction register, the subsidiary ledger, and the reconciliation report shall be printed every 30 days for the IOLTA account. The printed copy shall be retained for at least 6 years, as required under sub. (e) (6). Withdrawal of non-contingent fees from trust account. (1) Notice to client. At least 5 business days before the date on which a disbursement is made from a trust account for the purpose of paying fees, with the exception of contingent fees or fees paid pursuant to court order, the lawyer shall transmit to the client in writing all of the following: a. an itemized bill or other accounting showing the services rendered; b. notice of the amount owed and the anticipated date of the withdrawal; and c. a statement of the balance of the client's funds in the lawyer trust account after the withdrawal. (1m) Alternative notice to client. The lawyer may withdraw earned fees on the date that the invoice is transmitted to the client, provided that the lawyer has given prior notice to the client in writing that earned fees will be withdrawn on the date that the invoice is transmitted. The invoice shall include each of the elements required by sub. (g) (1) a., b., and c. (2) Objection to disbursement. If a client makes a particularized and reasonable objection to the disbursement described in sub. (g)(1), the disputed portion shall remain in the trust account until the dispute is resolved. If the client makes a particularized and reasonable objection to a disbursement described in sub. (g)(1) or (1m) within 30 days after the funds have been withdrawn, the disputed portion shall be returned to the trust account until the dispute is resolved, unless the lawyer reasonably believes that the client's objections do not present a basis to hold funds in trust or return funds to the trust account under this subsection. The lawyer will be presumed to have a reasonable basis for declining to return funds to trust if the disbursement was made with the client's informed consent, in APPENDIX D - Page 15

90 writing. The lawyer shall promptly advise the client in writing of the lawyer's position regarding the fee and make reasonable efforts to clarify and address the client's objections. (h) Dishonored instrument notification (Overdraft notices). All draft trust accounts and draft fiduciary accounts are subject to the following provisions on dishonored instrument notification: (1) Overdraft reporting agreement. A lawyer shall maintain draft trust accounts only in a financial institution that has agreed to provide an overdraft report to the office of lawyer regulation under par. (3). (2) Identification of accounts subject to this subsection. A lawyer or law firm shall notify the financial institution at the time a trust account or fiduciary account is established that the account is subject to this sub. (h) and shall provide the financial institution with a list of all existing accounts at that institution that are subject to this subsection. (3) Overdraft report. In the event any properly payable instrument is presented against a lawyer trust account containing insufficient funds, whether or not the instrument is honored, the financial institution shall report the overdraft to the office of lawyer regulation. (4) Content of report. All reports made by a financial institution under this subsection shall be substantially in the following form: a. In the case of a dishonored instrument, the report shall be identical to an overdraft notice customarily forwarded to the depositor or investor, accompanied by the dishonored instrument, if a copy is normally provided to the depositor or investor. b. In the case of instruments that are presented against insufficient funds and are honored, the report shall identify the financial institution involved, the lawyer or law firm, the account number, the date on which the instrument is paid, and the amount of overdraft created by the payment. (5) Timing of report. A report made under this subsection shall be made simultaneously with the overdraft notice given to the depositor or investor. (6) Confidentiality of report. A report made by a financial institution under this subsection shall be subject to SCR 22.40, Confidentiality. (7) Withdrawal of report by financial institution. The office of lawyer regulation shall hold each overdraft report for 10 business days to enable the financial institution to withdraw a report provided by inadvertence or mistake. The deposit of additional funds by the lawyer or law firm shall not constitute reason for withdrawing an overdraft report. (8) Lawyer compliance. Every lawyer practicing or admitted to practice in Wisconsin shall comply with the reporting and production requirements of this subsection, including filing of an overdraft notification agreement for each IOLTA account, each drafttype trust account and each draft-type fiduciary account that is not subject to an alternative protection under sub. (j) (9). APPENDIX D - Page 16

91 (9) Service charges. A financial institution may charge a lawyer or law firm for the reasonable costs of producing the reports and records required by this rule. (10) Immunity of financial institution. This subsection does not create a claim against a financial institution or its officers, directors, employees, or agents for failure to provide a trust account overdraft report or for compliance with this subsection. (i) Certification of compliance with trust account rules. (1) Annual requirement. A member of the state bar of Wisconsin shall file with the state bar of Wisconsin annually, with payment of the member's state bar dues or upon any other date approved by the supreme court, a certificate stating whether the member is engaged in the practice of law in Wisconsin. If the member is practicing law, the member shall state the account number of any trust account, and the name of each financial institution in which the member maintains a trust account, a safe deposit box, or both, as required by this section. The state bar shall supply to each member, with the annual dues statement, or at any other time directed by the supreme court, a form on which the certification must be made. (2) Trust account record compliance. Each state bar member shall explicitly certify on the state bar certificate described in par. (1) that the member has complied with each of the record-keeping requirements set forth in subs. (f) and (j)(5). (3) Certification by law firm. A law firm shall file one certificate on behalf of the lawyers in the firm who are required to file a certificate under par. (1). The law firm shall give a copy of the certificate to each lawyer in the firm. (4) Suspension for non-compliance. The failure of a state bar member to file the certificate is grounds for automatic suspension of the member's membership in the state bar in the same manner provided in SCR 10.03(6) for nonpayment of dues. The filing of a false certificate is unprofessional conduct and is grounds for disciplinary action. (j) Fiduciary property. (1) Separate account. A lawyer shall hold in trust, separate from the lawyer's own funds or property, those funds or that property of clients or 3rd parties that are in the lawyer's possession when acting in a fiduciary capacity that directly arises in the course of, or as a result of, a lawyer-client relationship or by appointment of a court. (1m) Other fiduciary accounts. A lawyer shall deposit all fiduciary funds specified in par. (1) in any of the following: a. a pooled interest-bearing or dividend-paying fiduciary account with sub-accounting by the financial institution, the lawyer, or the law firm that will provide for computation of interest or dividends earned by each fiduciary entity's funds and the proportionate allocation of the interest or dividends to each of the fiduciary entities, less any transaction costs; b. an income-generating investment vehicle, on which income shall be paid to the fiduciary entity or its beneficiary or beneficiaries, less any transaction costs; APPENDIX D - Page 17

92 c. an income-generating investment vehicle selected by the lawyer and approved by a court for guardianship funds if the lawyer serves as guardian for a ward under chs. 54 and 881, stats.; d. an income-generating investment vehicle selected by the lawyer to protect and maximize the return on funds in a bankruptcy estate, which investment vehicle is approved by the trustee in bankruptcy and by a bankruptcy court order, consistent with 11 U.S.C. s. 345; or e. a draft account or other account that does not bear interest or pay dividends when, in the sound professional judgment of the lawyer, placement in such an account is consistent with the needs and purposes of the fiduciary entity or its beneficiary or beneficiaries. (2) Location. Each fiduciary account shall be maintained in a financial institution as provided by the written authorization of the client, the governing trust instrument, organizational by-laws, an order of a court or, absent such direction, in a financial institution that, in the lawyer's professional judgment, will best serve the needs and purposes of the client or 3rd party for whom the lawyer serves as fiduciary. If a lawyer acts in good faith in making this determination, the lawyer is not subject to any charge of ethical impropriety or other breach of the Rules of Professional Conduct. When the fiduciary property is held in a draft account from which funds are disbursed through a properly payable instrument issued directly by the lawyer or a member or employee of the lawyer's firm and the account is at a financial institution that is not located in Wisconsin or authorized by state or federal law to do business in Wisconsin, the lawyer shall comply with the requirements of sub. (j)(9)b. or c. (3) Prohibited transactions. a. Cash. No disbursement of cash shall be made from a fiduciary account or from a deposit to a fiduciary account, and no check shall be made payable to "Cash." b. Internet transactions. A lawyer shall not make deposits to or disbursements from a fiduciary account by way of an Internet transaction. c. Credit card transactions. A lawyer shall not authorize transactions by way of credit card to or from a fiduciary account. d. Debit card transactions. A lawyer shall not use a debit card to make deposits to or disbursements from a fiduciary account. (4) Availability of funds for disbursement. A lawyer shall not disburse funds from a fiduciary account unless the deposit from which those funds will be disbursed has cleared, and the funds are available for disbursement. However, the exception for real estate transactions under sub. (e)(5)b. shall apply to fiduciary accounts. (5) Records. For each fiduciary account, the lawyer shall retain records of receipts and disbursements as necessary to document the transactions. The lawyer shall maintain all of the following: a. all monthly or other periodic statements provided by the financial institution to the lawyer or law firm; and APPENDIX D - Page 18

93 b. all transaction records, including canceled or imaged checks, passbooks, records of electronic fund transactions, duplicates of any instrument issued by the financial institution from funds held in the account, duplicate deposit slips identifying the source of any deposit, and duplicate withdrawal slips identifying the purpose of any withdrawal. (6) Record retention. A lawyer shall maintain complete records of fiduciary accounts and other fiduciary property during the course of the fiduciary relationship. A lawyer shall maintain a complete record of the fiduciary account for the 6 most recent years of the account's existence and shall maintain, at a minimum, a summary accounting of the fiduciary account for prior years of the account's existence. After the termination of the fiduciary relationship, the lawyer shall preserve complete records for at least 6 years. (7) Production of records. All fiduciary account records have public aspects related to a lawyer's fitness to practice. Upon request of the office of lawyer regulation, or upon direction of the supreme court, the records shall be submitted to the office of lawyer regulation for its inspection, audit, use, and evidence under any conditions to protect the privilege of clients that the court may provide. The records, or an audit of the records, shall be produced at any disciplinary proceeding involving the lawyer, whenever material. Failure to produce the records constitutes unprofessional conduct and grounds for disciplinary action. (8) Tangible fiduciary property and bearer securities. a. Property ledger. A lawyer who, as a fiduciary, receives tangible personal property or securities in bearer form shall maintain a property ledger that identifies the property, date of receipt, owner, and location of the property. The ledger shall also identify the disposition of all such fiduciary property received by the lawyer. b. Receipt upon taking custody. Upon taking custody, as a fiduciary, of any tangible personal property or securities in bearer form, the lawyer shall provide to the previous custodian a signed receipt, with a description of the property, and the date of receipt. c. Dispositional receipt. Upon disposition of any tangible personal property or securities in bearer form held by the lawyer as a fiduciary, the lawyer shall obtain a signed receipt, with a description of the property and the date of disposition, from the recipient. (9) Dishonored instrument notification or alternative protection. A lawyer who holds fiduciary property in a draft account from which funds are disbursed through a properly payable instrument issued directly by the lawyer or a member or employee of the lawyer's firm shall take one of the following actions: a. comply with the requirements of sub. (h) dishonored instrument notification (overdraft notices); or b. have the account independently audited by a certified public accountant on at least an annual basis; or APPENDIX D - Page 19

94 c. hold the funds in a draft account, which requires the approving signature of a co-trustee, co-agent, co-guardian, or co-personal representative before funds may be disbursed from the account. (10) Certification requirements. Funds held by a lawyer in a fiduciary account shall comply with the certification requirements of sub. (i). (k) Exceptions to this section. This rule does not apply in any of the following instances in which a lawyer is acting in a fiduciary capacity: (1) the lawyer is serving as a bankruptcy trustee, subject to the oversight and accounting requirements of the bankruptcy court; (2) the property held by the lawyer when acting in a fiduciary capacity is property held for the benefit of an "immediate family member" of the lawyer; (3) the lawyer is serving in a fiduciary capacity for a civic, fraternal, or nonprofit organization that is not a client and has other officers or directors participating in the governance of the organization; or (4) the lawyer is acting in the course of the lawyer's employment by an employer not itself engaged in the practice of law, provided that the lawyer's employment is not ancillary to the lawyer's practice of law. WISCONSIN COMMENT A lawyer must hold the property of others with the care required of a professional fiduciary. All property that is the property of clients or 3rd parties must be kept separate from the lawyer's business and personal property and, if monies, in one or more trust or fiduciary accounts. SCR 20:1.15(b)(1) Separate accounts. With respect to probate matters, a lawyer's role may be to represent the estate's personal representative, to serve as the personal representative, or to act as both personal representative and attorney for an estate. SCR 20:1.15(b) identifies the rules that apply when a lawyer holds trust property as the attorney for a client/personal representative. Those rules, SCR 20:1.15(b)-(i), also apply when the lawyer serves as both the attorney and personal representative for an estate. However, if the lawyer serves solely as an estate's personal representative, the lawyer acts as a fiduciary and is subject to the requirements of SCR 20:1.15(j). SCR 20:1.15(b)(4) Advances for fees and costs. Lawyers often receive funds from 3rd parties from which the lawyer's fee will be paid. If there is risk that the client may divert the funds without paying the fee, the lawyer is not required to remit the portion from which the fee is to be paid. However, a lawyer may not hold funds to coerce a client into accepting the lawyer's contention. The disputed portion of the funds should be kept in trust, and the lawyer should suggest means for prompt resolution of the dispute, such as arbitration. The undisputed portion of the funds shall be promptly distributed. Lawyers also receive cost advances from clients or 3rd parties. Since January 1, 1987, the supreme court has required cost advances to be held in trust. Prior to that date, the applicable trust account rule, SCR 20.50(1), specifically excluded such advances from the funds that the supreme court required lawyers to hold in trust accounts. However, by order, dated March 21, 1986, the supreme court amended SCR 20.50(1) as follows: APPENDIX D - Page 20

95 All funds of clients paid to a lawyer or law firm, other than advances for costs and expenses, shall be deposited in one or more identifiable trust accounts as provided in sub. (3) maintained in the state in which the law office is situated and no funds belonging to the lawyer or law firm may be deposited in such an account except as follows.... This requirement is specifically addressed in SCR 20:1.15(b)(4). SCR 20:1.15(b)(4m) Alternative protection for advanced fees. This section allows lawyers to deposit advanced fees into the lawyer's business account, as an alternative to SCR 20:1.15(b)(4). The provision regarding court review applies to lawyers fees in proceedings in which the lawyer s fee is subject to review at the request of the parties or the court, such as bankruptcy, formal probate, and proceedings in which a guardian ad litem s fee may be subject to judicial review. In any proceeding in which the lawyer s fee must be challenged in a separate action, the lawyer must either deposit advanced fees in trust or use the alternative protections for advanced fees in SCR 20:1.15 (b)(4m). The lawyer's fee remains subject to the requirement of reasonableness (SCR 20:1.5) as well as the requirement that unearned fees be refunded upon termination of the representation [SCR 20:1.16(d)]. A lawyer must comply either with SCR 20:1.15(b)(4), or with SCR 20:1.15(b)(4m), and a lawyer's failure to do so shall be professional misconduct and grounds for discipline. The writing required by SCR 20:1.15(b)(4m)a. must contain language informing the client that the lawyer is obligated to refund any unearned advanced fee at the end of the representation, that the lawyer will submit any dispute regarding a refund to binding arbitration, such as the programs run by the State Bar of Wisconsin and Milwaukee Bar Association, within 30 days of receiving a request for refund, and that the lawyer is obligated to comply with an arbitration award within 30 days of the award. The client is not obligated to arbitrate the fee dispute and may elect another forum in which to resolve the dispute. The writing must also inform the client of the opportunity to file a claim in the event an unearned advanced fee is not refunded, and should provide the address of the Wisconsin lawyers' fund for client protection. If the client's fees have been paid by one other than the client, then the lawyer's responsibilities are governed by SCR 20:1.8(f). If there is a dispute as to the ownership of any refund of unearned advanced fees paid by one other than the client, the unearned fees should be treated as trust property pursuant to SCR 20:1.15(d)(3). This alternative applies only to advanced fees for legal services. Cost advances must be deposited into the lawyer's trust account. Advanced fees deposited into the lawyer's business account pursuant to this subsection may be paid by credit card, debit card, or an electronic transfer of funds. A cost advance cannot be paid by credit card, debit card, or an electronic transfer of funds under this section. Such payments are subject to SCR 20:1.15(b)(1) or SCR 20:1.15(e)(4)h. SCR 20:1.15(cm)(3) Insurance and safety requirements. Pursuant to SCR 20:1.15 (cm) (3), IOLTA accounts are required to be held in IOLTA participating institutions that are insured by the federal deposit insurance corporation (FDIC), the national credit union share insurance fund (NCUSIF), the securities investor protection corporation (SIPC) or any other investment institution financial guaranty insurance. However, since federal law dictates the amount of insurance coverage available from the FDIC, the NCUSIF and the SIPC, funds in excess of those limits are not insured. Federal law also limits the types of losses that are covered by SIPC insurance. Consequently, the purpose of the insurance and safety requirements is not to guarantee that all funds are adequately insured. Rather, it is to assure that trust funds are held in reputable IOLTA participating institutions and, as specified in subsection (e)(2)a., that the funds are eligible for the insurance that is available. SCR 20:1.15(e)(2)a. requires a lawyer to hold funds in an account where each owner s funds are eligible for the financial institution s insurance coverage. Practitioners should exercise care when placing trust funds in an IOLTA or any other type of lawyer trust account at a credit union, because an individual owner of funds held in any type of lawyer trust account (i.e., a client or third party) is eligible for NCUSIF APPENDIX D - Page 21

96 insurance only if that individual owner is a member of the credit union, or if the credit union is designated by the National Credit Union Administration (NCUA) as a "low-income" credit union. The exceptions to the SCR 20:1.15(e)(2)a. requirement relate to trust property other than funds and to IOLTA accounts that are subject to the safety requirements of SCR 20:1.15(cm)(3)b. and c. SCR 20:1.15(cm)(4) Risk associated with sweep accounts. Pursuant to SCR 20:1.15 (cm) (4), IOLTA accounts shall bear the highest non-promotional interest rate or dividend that is generally available to non-iolta customers at the same branch or main office location when the IOLTA account meets or exceeds the same eligibility qualifications, if any, including a minimum balance. Investment products, including repurchase agreements and shares of mutual funds, are neither deposits nor federally or FDIC-insured. An investment in a repurchase agreement or money market fund may involve investment risk including possible loss of the principal amount invested. The rule, however, provides safeguards to minimize any potential risk by limiting investment products to repurchase agreements and openend money market funds that invest in United States government securities only. SCR 20:1.15(d) Interest of 3rd parties. Third parties, such as a client's creditors, may have just claims against funds or other property in a lawyer's custody. A lawyer may have a duty under applicable law, including SCR 20:1.15(d), to protect such 3rd-party claims against wrongful interference by the client, and accordingly, may refuse to surrender the property to the client. However, a lawyer should not unilaterally assume to arbitrate a dispute between the client and the 3rd party. If a lawyer holds property belonging to one person and a second person has a contractual or similar claim against that person but does not claim to own the property or have a security interest in it, the lawyer is free to deliver the property to the person to whom it belongs. SCR 20:1.15(e)(2) Insurance and safety requirements. Pursuant to SCR 20:1.15(e)(2), trust accounts are required to be held in financial, investment, or IOLTA participating institutions that are insured by the federal deposit insurance corporation (FDIC), the national credit union share insurance fund (NCUSIF), the securities investor protection corporation (SIPC) or any other investment institution financial guaranty insurance. However, since federal law dictates the amount of insurance coverage available from the FDIC, the NCUSIF and the SIPC, funds in excess of those limits are not insured. Federal law also limits the types of losses that are covered by SIPC insurance. Consequently, the purpose of the insurance and safety requirements is not to guarantee that all funds are adequately insured. Rather, it is to assure that trust funds are held in reputable financial, investment, or IOLTA participating institutions and, as specified in subsection (e)(2)a., that the funds are eligible for the insurance that is available. SCR 20:1.15(e)(2)a. requires a lawyer to hold funds in an account where each owner s funds are eligible for the financial institution s insurance coverage. Practitioners should exercise care when placing trust funds in an IOLTA or any other type of lawyer trust account at a credit union, because an individual owner of funds placed in any type of lawyer trust account (i.e., a client or third party) is eligible for NCUSIF insurance only if that individual owner is a member of the credit union, or if the credit union is designated by the National Credit Union Administration (NCUA) as a "low-income" credit union. The exceptions to the SCR 20:1.15(e)(2)a. requirement relate to trust property other than funds and to IOLTA accounts that are subject to the safety requirements of SCR 20:1.15(cm)(3)b. and c. SCR 20:1.15(e)(4)d. Electronic transfers by 3rd parties. Many forms of electronic deposit allow the transferor to remove the funds without the consent of the account holder. A lawyer must not only be aware of the bank's policy but also federal regulations pertaining to the specific form of electronic deposit, and must ensure that the transferor is prohibited from withdrawing deposited funds without the lawyer's consent. APPENDIX D - Page 22

97 SCR 20:1.15(e)(4)g. Exception: Collection trust accounts. This exception was adopted in response to concerns raised by members of the collection bar who presently rely on certain electronic banking practices that were not expressly prohibited prior to the adoption of this rule. The court acknowledges that electronic banking practices are increasingly used in the practice of law. However, the court also acknowledges that such transactions will require new approaches to alleviate legitimate concerns about the potential for fraud and risk of conversion with respect to their usage in connection with trust accounts. Collection lawyers may be able to satisfy these concerns because of security measures inherent in their practice. This exception is intended as a temporary measure, pending further consideration of the issue and eventual adoption of a rule that will permit electronic banking procedures in additional practice areas, conditioned upon the implementation of appropriate safeguards. The agreement referenced in the exception is available from the office of lawyer regulation. SCR 20:1.15(e)(4)h.3. Exception: Fee and cost advances by credit card, debit card or other electronic deposit. Financial institutions, as credit card issuers, routinely impose charges on vendors when a customer pays for goods or services with a credit card. That charge is deducted directly from the customer's payment. Vendors who accept credit cards routinely credit the customer with the full amount of the payment and absorb the charges. Before holding a client responsible for such charges, a lawyer needs to disclose this practice to the client in advance, and assure that the client understands and consents to the charges. In addition, the lawyer needs to investigate the following concerns before accepting payments by credit card: 1. Does the credit card issuer prohibit a lawyer/vendor from requiring the customer to pay the charge? If a lawyer intends to credit the client for anything less than the full amount of the credit card payment, the lawyer needs to assure that this practice is not prohibited by the credit card issuer's regulations and/or by the agreement between the lawyer and the credit card issuer. Entering into an agreement with a credit card issuer with the intent to violate this type of requirement may constitute conduct involving dishonesty, fraud, or deceit, in violation of SCR 20:8.4(c). 2. Does the credit card issuer require services to be rendered before a credit card payment is accepted? If a lawyer intends to accept fee advances by credit card, the lawyer needs to assure that fee advances are not prohibited by the credit card issuer's regulations and/or by the agreement between the lawyer and the credit card issuer. Entering into an agreement with a credit card issuer with the intent to violate this type of requirement may constitute conduct involving dishonesty, fraud, or deceit, in violation of SCR 20:8.4(c). 3. By requiring clients to pay the credit cards charges, is the lawyer required to make certain specific disclosures to such clients and offer cash discounts to all clients? If a lawyer intends to require clients to pay credit card charges, the lawyer needs to assure that the lawyer complies with all state and federal laws relating to such transactions, including, but not limited to, Regulation Z of the Truth in Lending Act, 12 C.F.R. s SCR 20:1.15(e)(5)b. Real estate transactions. SCR 20:1.15(e)(5)b. establishes an exception to the requirement that a lawyer only disburse funds that are available for disbursement, i.e., funds that have been credited to the account. This exception was created in recognition of the fact that real estate transactions in Wisconsin require a simultaneous exchange of funds. However, even under this exception, the funds from which a lawyer disburses the proceeds of the real estate transaction, i.e., the lender's check, draft, wire transfer, etc., must be deposited no later than the first business day following the date of the closing. In refinancing transactions, the lender's funds must be deposited as soon as possible, but no later than the first business day after the loan proceeds are distributed. Proceeds are generally distributed three days after the closing date. APPENDIX D - Page 23

98 SCR 20:1.15(e)(7) Inspection of records. The duty of the lawyer to produce client trust account records for inspection under SCR 20:1.15(e)(7) is a specific exception to the lawyer's responsibility to maintain the confidentiality of the client's information as required by SCR 20:1.6. SCR 20:1.15(g) Withdrawal of non-contingent fees from trust account. This section applies to attorney fees, other than contingent fees. It does not apply to filing fees, expert witness fees, subpoena fees, and other costs and expenses that a lawyer may incur on behalf of a client in the course of a representation. In addition, this section does not require contingent fees to remain in the trust account or to be returned to the trust account if a client objects to the disbursement of the contingent fee, provided that the contingent fee arrangement is documented by a written fee agreement, as required by SCR 20:1.5(c). While a client may dispute the reasonableness of a lawyer's contingent fee, such disputes are subject to SCR 20:1.5(a), not to this subsection. A client's objection under sub. (g)(3) must offer a specific and reasonable basis for the fee dispute in order to trigger the lawyer's obligation to keep funds in the lawyer's trust account or return funds to the lawyer's trust account. A generalized objection to the overall amount of the fees or a client's unilateral desire to abrogate the terms of a fee agreement should not ordinarily be considered sufficient to trigger the lawyer's obligation. A lawyer may resolve a dispute over fees by offering to participate and abide by the decision of a fee arbitration program. In addition, a lawyer may bring an action for declaratory judgment pursuant to s , Wis. Stats. to resolve a dispute between the lawyer and a client regarding funds held in trust by the lawyer. The court of appeals suggested employment of that method to resolve a dispute between a client and a 3rd party over funds held in trust by the lawyer. See Riegleman v. Krieg, 2004 WI App 85, 271 Wis. 2d 798, 679 N.W.2d 857, 2004 Wisc. App. LEXIS 229 (2004). Additionally, when a lawyer's fees are subject to final approval by a court, such as fees paid to a guardian ad litem or lawyer's fees in formal probate matters, objections to disbursements by clients or 3rd party payors are properly brought before the court having jurisdiction over the matter. A lawyer should hold disputed funds in trust until such time as the appropriate court resolves the dispute. SCR 20:1.15(i) and SCR 20:1.15(j)(10) Certification of compliance. The current rule is intended to implement the supreme court's order of April 11, 2001; certification is required for "all trust accounts and safe deposit boxes in which the lawyer deposits clients' funds or property held in connection with a representation or held in a fiduciary capacity that directly arises in the course of or as a result of a lawyer-client relationship." SCR 20:1.15(j) Lawyer as professional fiduciary. A lawyer must hold the property of others with the care required of a professional fiduciary. All property which is the property of clients or 3rd parties must be kept separate from the lawyer's business and personal property and, if monies, in one or more segregated accounts. SCR 20:1.15(j) identifies the requirements and responsibilities of a lawyer with respect to the management of fiduciary property. SCR 20:1.15(j)(1) Separate accounts. With respect to probate matters, a lawyer's role may be to represent the estate's personal representative, to serve as the personal representative, or to act as both personal representative and attorney for an estate. SCR 20:1.15(j) applies only when the lawyer serves solely as an estate's personal representative. If the lawyer represents a client/personal representative, or when the lawyer serves as both personal representative and attorney for the estate, the lawyer is responsible for "trust" property and is subject to the requirements of SCR 20:1.15(b)-(i). APPENDIX D - Page 24