New Jersey Attorneys are held to the highest ethical standards and it doesn’t stop at providing legal services.

Well-meaning attorneys can become to ensnared in the pursuit of providing stellar representation that they neglect some of their business operations, in particular their record-keeping obligations. It is understandable that when your running a business your focus is on making money, building a brand, or simply perfected your craft. However, if you neglect your record-keeping obligations you likely will spend more money, put your brand at risk and could be spending time catching up rather than perfecting your craft. I have put together the following to allow you a better understanding.

To start off, what are some of your duties regarding record-keeping?

1.     The duty to maintain records as described in R.1:21-6 (The Record-keeping Rule).

2.     The duty to account for all client, third party or shared-interest funds that you have been entrusted with (See RPC 1.15(a)).

3.     The duty to segregate client, third party or shared-interest funds from your own (see RPC 1.15(a).

4.     The duty to maintain the integrity of client, third party or shared-interest funds (funds must be held in tact – not borrowed, not used for other clients while awaiting clearance of other deposits, not misappropriated, etc.).

5.     The duty to account for all funds entrusted with you (RPC 1.15(a)).

6.     The duty to notify clients or third parties of your receipt and holding of funds in which they have an interest (see RPC 1.15(b)).

7.     The duty to pay promptly, after funds have been received and properly cleared (NOT “available”) in your Attorney Trust Account (timing varies by financial institution) and clearance to release said funds has been obtained or is expressly understood.

Among all of your other obligations described and mandated in the court rules as well as, your rules of professional conduct, who has the time? When R.1:21-6 is understood and properly applied, you will be meeting some of your record-keeping duties, as the rule appears to be designed to do help you.

What is R.1:21-6 (The Record-keeping Rule)? What is required?

The Attorney Trust Account

All lawyers in private practice must maintain an Attorney Trust Account.  However, this does not require every attorney who is engaged in private practice to maintain an Attorney Trust Account. Rather, every practice must maintain at least one Attorney Trust Account. For instance, a multi-person firm can have one Attorney Trust Account (or multiple) and this would meet the requirement. This holds true for practices that will not be holding client funds, they too need to maintain an Attorney Trust Account even if they will never hold client funds.

Alright, you opened your Attorney Trust Account with an approved trust depository. You made sure the banking insitituion you chose to open the account in was listed on the IOLTA website as approved. Further, when you set up the account you made it an IOLTA account (Interest On Lawyer Trust Accounts) as you know your required to have one with them. You sent in the paperwork to IOLTA. If you would like the extra hassle, you may open an interest-bearing Attorney Trust Account but remember the interest earned is for the client only (and with the length of time, burden of accounting for, and poor interest rates, you may want to scrap this from consideration). Did you make sure you opened the account at a New Jersey Branch? It must be as stated in the rule “every attorney who practices in this state shall maintain in a financial institution in New Jersey, in the attorney’s own name, or in the name of a partnership of attorneys, or in the name of the professional corporation of which the attorney is a member, or in the name of the attorney or partnership of attorneys by whom employed” (R.1:21-6(a)).

When you set up the account you should’ve been designated as Attorney Trust Account” or “IOLTA Attorney Trust Account” on your bank statement, checks and deposit slips. Double check this once you get all of the documents (or view them electronically).

The following accounting records must be maintained:

1.     A checkbook (or check register) with a running balance (the use of pre-numbered checks is required) (may be maintained in computer system, a one-write system or in some other manual form);

2.     A receipts journal containing descriptive entries of transactions (may be maintained in computer system, a one-write system or in some other manual form);

3.     A disbursements journal containing descriptive entries of transactions (may be maintained in computer system, a one-write system or in some other manual form);

4.     Individual client ledger cards (or sheets) containing descriptive entries of transactions, specific to the client, with a running balance (may be maintained in computer system, a one-write system or in some other manual form);

5.     Processed imaged checks (or cancelled checks) limited to no more than two per page, front and back (these could come with your bank statement, if only accessible online look into your view-able period and consider saving as PDFs or printing);

6.     Deposit slips (carbon copies or the receipt of deposit detailing what funds were deposited (attributing amounts to clients with the source of the deposit);

7.     Monthly three-way reconciliations (Book, Bank, and listing of client ledger balances) (may be performed via computer system, or manual form).

Some other things to consider regarding your Attorney Trust Account:

1.     You must maintain the above records for a period of seven years;

2.     Only New Jersey attorneys can be signatories on the Attorney Trust Account;

3.     You may not obtain an ATM card for your Attorney Trust Account;

4.     You may not transfer funds electronically from your Attorney Trust Account to your personal account (even if they are earned fees). All earned fees must pass through your Attorney Business Account and all electronic transfers out of your Attorney Trust Account must be done on signed written instruction to your bank (this holds true for wire transfers out, as well (you cannot just call the bank, use a token, etc). You can continue to accept wire transfers into your account without any additional steps.

5.     You cannot commingle your own funds in the Attorney Trust Account, you are allowed to maintain a reasonable amount of personal funds (firm funds) to cover banking costs (statement fees, wire fees). You must maintain a trust ledger identifying these funds in the same manner as client ledger cards.

6.     You must be able to identify all funds in your Attorney Trust Account! There is no such thing as an overage, anything unidentified should be investigated. A shortage indicates a misappropriation of funds (or simple mistake) requiring an immediate review of your account and swift resolution.

7.     If a client ledger card has a negative (or debit) balance you may be using other client funds to cover the shortfall, correct this immediately.

While this does not cover everything possible for the Attorney Trust Account, it should provide you with a good basis.

Attorney Business Account

You are required to have an Attorney Business Account as a private practitioner. The bar is much lower for this account. Heck, you can have anyone be a signatory on this account. Probably foolish to add stranger though.

The Attorney Business Account does not have to be opened at an approved trust depository, so feel free to open this account at any bank of your choosing, so long as it’s a New Jersey branch.

You get some options with designating this account. Your bank statements, checks and deposit slips shall read one of the following three: “Attorney Business Account” (most common), “Attorney Professional Account” (sounds professional) or “Attorney Office Account” (Michael Scott approves)).

The following accounting records must be maintained:

1.     A receipts journal containing descriptive entries of transactions (may be maintained in computer system, a one-write system or in some other manual form);

2.     A disbursements journal containing descriptive entries of transactions (may be maintained in computer system, a one-write system or in some other manual form);

3.     A checkbook (or check register) with a running balance (the use of pre-numbered checks is required) (may be maintained in computer system, a one-write system or in some other manual form);

4.     Processed imaged checks (or cancelled checks) limited to no more than two per page, front and back (these could come with your bank statement, if only accessible online look into your view-able period and consider saving as PDFs or printing);

5.     Deposit slips (carbon copies or the receipt of deposit detailing what funds were deposited (attributing amounts to clients with the source of the deposit).

Some other things to consider:

1.     You must maintain these records for 7 years;

2.     Don’t deposit client funds in you business account, just don’t. If you make a mistake, get the funds into your Attorney Trust Account as soon as possible.

3.     You’re not required to reconcile your business account, but it is a good business practice.

If this all sounds overwhelming, consider hiring a professional who understands your rule.

Please feel free to reach out to me below for a confidential consultation, I offer affordable customized options allowing you to grow your practice without worrying about your records. Thank you for reading!