As trust-account rules move into digital age, caution is advised

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Thanks to changes that took effect July 1, Wisconsin lawyers can now receive electronic payments into trust accounts and manage those accounts in much the same way as their private banking accounts.

But don’t breathe a sigh of relief just yet, says Richard Cayo, a Milwaukee attorney who often represents lawyers in misconduct and disciplinary cases. Although the changes bring the state’s trust-account rules into line with modern banking practices — something lawyers have sought for some time — they also come with a few pitfalls.

For one, lawyers will be presumed to have committed a violation if they cannot meet an Office of Lawyer Regulation request to produce trust-account records. In other words, when such records aren’t forthcoming for whatever reason, lawyers will be the ones who have the burden of proving they aren’t at fault.

The OLR has sought to justify the presumption against lawyers in part by arguing that, by allowing electronic banking, it will no longer be able to follow the paper trails it could count on having under the old rules.

But Cayo, who makes no attempt to hide his work defending lawyers accused of misconduct, maintains that the presumption is unfortunate.

“I get that it’s a matter of public policy, but to say ‘If you can’t produce the records, we presume you stole,’ I think it’s overreaching,” Cayo said. “It spares the OLR from doing any investigating.”

OLR officials freely acknowledge that they pushed for the changes, which received the Wisconsin Supreme Court’s approval in December, so they could spend less time investigating trust-account violations involving mere mistakes and more on those that actually lead to public harm. With the new rules in effect for little more than a month, the OLR does not yet have a sense of how many lawyers have decided to use e-banking, said Keith Sellen, director of the agency.

Aside from having a few misgivings, Cayo thinks the changes to the trust-account rules come as an improvement. Lawyers who plan to receive electronic payments, he said, need to make sure that they are aware of the risks and are taking appropriate precautions.

For one, lawyers should not think they are no longer under an obligation to keep records for at least six years. Although the new rules did make changes to what specific types of records must be held onto, they did not touch the basic storage requirement.

“Keeping records is indispensable,” Cayo said.

Cayo said lawyers, particularly those in small firms or in solo practice, should consider designating someone in the office to manage their trust accounts. For this task, it’s often wise to turn to choose someone outside the legal profession.

“It will be a secondary priority (for lawyers) and lose out to things that have priority like deadlines for motions or briefs,” he said.

Law firms should also have someone who is in the habit of trying once a month to reconcile records of money coming into and out of trust accounts. Too often, Cayo said, that task is put off until there is a problem.

Once again, he said, caution should be the watchword.

“If you do it, do it carefully and don’t overdraw the account,” he said.

In some ways, the recent changes should make it easier for attorneys to keep records. The old rules had placed a blanket ban on electronic transactions, and lawyers were under an obligation to keep client ledgers, transaction registers and other specific types of paper records. These are exactly the sort of requirements that are most likely to trip up lawyers and lead to OLR inquiries.

Of the recent changes, one of the most significant will allow payments to be electronically transferred to e-banking accounts and IOLTA trust accounts, which generate interest for clients who might have a hard time paying for legal representation. The money can be moved in various ways, including through the popular service PayPal.

One thing some lawyers are unsure about is which among the various types of trust accounts allowed under the new rules they would be best off using. Would it be better, for instance, to use IOLTA trust accounts or to convert credit-card trust accounts to e-banking accounts? Or should they seek out an alternative to an e-banking trust account?

Sellen says the OLR plans to use its website to provide some additional guidance. He also said that the OLR has also received a number of questions about any security measures that might be required by the new rules.

Cayo said another risk of e-banking is that it makes lawyers and law firms more vulnerable to hacking. For that reason, he said, a priority should be set on security.

“Once you get into electronic banking, people who are adept at using the Internet are eventually going to work their way in,” he said. “It’s not that we’re against using paper. Every state will eventually permit it. Money is simply not going to be limited in the future to paper. It’s efficient but it’s less secure until e-banking matures.”