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ON ETHICS: What we should have learned about trust accounts

Nate Cade is a solo attorney who previously served on and chaired the State Bar’s Ethics Committee and served on the ABA’s Standing Ethics Committee. You can contact him at nate@cade-law.com if you want to buy him a beer.

Nate Cade is a solo attorney who previously served on and chaired the State Bar’s Ethics Committee and served on the ABA’s Standing Ethics Committee. You can contact him at nate@cade-law.com if you want to buy him a beer.

My dad used to tell me that the older you get, the more you realize what you don’t know.

It especially is true when I start thinking about what I didn’t learn in law school.

One thing I definitely did not learn was how to handle a trust account. It is easy to understand why law schools do not want to waste time teaching their students about trust accounts. Students are only paying $50,000 per year for tuition and other fees, board, etc. How could anyone have an expectation that law schools, with only 100 students in a first-year class, could even begin to think about teaching its soon-to-be graduates about trust accounts on such a measly amount of money?

Sarcasm aside, it is true that the only thing about trust accounts that most of us learned while in law school pertained solely to what we may have learned in ethics class. We learned that we are supposed to hold funds in trust, that the money is not supposed to be extra income for the lawyer and that it is a big deal if money is missing. Most law schools do not teach much more than that.

Schools that actually teach students how to operate and maintain a law firm trust account are a rarity. I am not referring to going to the bank and ordering stamps, or putting money into the account when you get a settlement check. Rather, my rant pertains to the actual knowledge and operation of a trust account.

For example, when is the last time you actually performed an audit of your trust account? Not that you made a request and had a staff member certify that an audit of the trust account had occurred and all was fine, but actually, you, as an attorney, performed an analysis of your trust account?

A recent disciplinary decision from our state Supreme Court highlights the dangers of relying blindly on others to do such an audit. In this recent decision, a Wisconsin attorney practicing out west was publicly reprimanded for allowing a staff member to run his trust account. Nothing is wrong with allowing a staff member to handle the trust account, preparing the accounting of that account, draft checks, etc. However, what this lawyer did wrong is that he failed to properly supervise his legal assistant.

And therein lies the problem. It turns out that this lawyer’s assistant was stealing from the trust account and subsequently destroying documents that would evidence the thefts. A lot of money was stolen, which is troubling because we, as lawyers, truly do hold trust funds in trust for clients, and we must do everything possible to protect those funds.

But the amount stolen is not the point. The problem was that the lawyer turned a blind eye to the trust account and treated it as something that did not deserve his attention. He subsequently was disciplined in his home state under Rule 1:15(a), and received a public reprimand from Wisconsin for being disciplined in his home state and his failure to report that discipline to Wisconsin within 21 days, as required by the Rules of Professional Responsibility.

However, in an uncharacteristic fashion, the Office of Lawyer Regulation appears to have let this lawyer off lightly. The OLR could have charged this Wisconsin lawyer with other violations of the ethics rules, including 5.1 and 5.3, for failing to supervise the legal assistant. You did know that you could be disciplined for failing to supervise your partners, associates and staff members, right?

I am not writing to advocate additional discipline for lawyers. No, I write because this case, although only a few pages long, highlights the problem that lawyers face when they place their heads in the proverbial sand and refuse to get their hands dirty, roll up their sleeves or any other cliché that you can think of because something is too hard, not in your wheelhouse or that you did not learn in law school.

While it is true that most of us went to law school to become lawyers, not accountants or IT professionals, there is no basis for a lawyer in private practice to fail to understand the basics of accounting, and more importantly, to fail to account for money that the lawyer is holding in trust.

Yes, it sucks to do an audit of your trust account, but it must be done. If all is recorded properly, it should not take more than a few hours or even a weekend. Just know that the OLR doesn’t care that you did not learn about trust accounting in law school.

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