Dangers of Co-Mingling and Escrow Accounting
Attorneys (should) know all about the care and maintenance of escrow accounts as one of the top industries that manage these types of accounts outside of finance. However, each state has different regulations on reporting, documentation and payment guidelines.
Settlements, disbursements, fees and charges all have regulatory guidelines imposed that can make you cross eyed before you get passed “ABA Model Rules”.
On most legal books, these accounts are Trust Accounts. Another moniker might be IOLTA Accounts. Either way, there are some common mistakes that many attorneys make and can easily avoid:
- Know your state’s reporting requirements, and follow them
- Plan ahead as to how your will structure your accounts (i.e., some clients may require their own account)
- DO the bookkeeping and reconciliations regularly, or hire someone who will
- Never disburse uncleared funds
Even with a bookkeeper, it is ultimately you, the owner, who is responsible to keep these rules straight, keep your funds in their separate “piles” and comply with reporting and documentation regulations. However, bookkeepers can help manage the files, simplify the process and having someone whose only job it is to keep things the way they should be will help you sleep at night.
Want a few quick tips on how to avoid commingling?
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Danger of Commingling and Conversion of Client and Third Party Funds by Thomas P. Sukowicz (attorneys-advantage.com)
Commingling in Real Estate: Everything You Need to Know by Than Merrill (furtunebuilders.com)