The requirement that lawyers be able to account to their clients for all money entrusted to them has roots going back centuries. Of course, the requirements today are mostly not left to common-law development; they are expressed in the Rules of Professional Conduct. However, the rules' requirements can be met by following some general methods that apply regardless whether one keeps client trust accounts with paper and ink or with a computer program or web-based service. This seminar will review those methods, tying them to the requirements of the Rules. Presenter: Michael Trittipo, Attorney Editor, MSBA. Michael is an attorney editor with the MSBA. He earned his J.D. cum laude in 1981, and practiced law for several years. Since 1999, he has written several guides telling lawyers how they can safely use various software programs to keep their clients’ trust account books and records in compliance with Minnesota’s rules.

1. Trust accounting basics
– why, what, and how
– including IOLTA
From the 13th Century to the 21st
and from general principles through Rule 1.15

2. Two separate but related obligations
• 1) obligation to keep trust accounts as such (the real-world
bank accounts, separate and identifiable as trust accounts)
• 2) obligation to maintain certain records about the money in
the accounts in certain ways – the trust accounting

3. Why?

4. Only a modern bureaucratic requirement?
Like tax law? No.
• Historical, trans-national, and inter-state comparative view
• Beginning ca. 13th century in Europe
• European requirements now
• Interstate today:
• Wisconsin 2016 amendments
• Minnesota pre-1975
• Minnesota now
• Structural issue: money is an inherent conflict (as is loyalty), and
there’s a power/information imbalance – hence the treatment of
lawyers as fiduciaries

5. Sources and reasons for rules go back
centuries (even millennia)
• Roman antipathy to lawyers – especially to lawyers asking or
receiving compensation at all
• Early European antipathy over compensation also
• Icelandic sagas (ca. 13th cent.) “After accepting a[n expensive] ring at the
initial consultation, Eyjolf [the lawyer, told his client to] ‘[b]e most careful
not to say that y[ou] have given goods for my help.’” The Story of Burnt Njal
(Sir George Webbe Dusent trans., 1971), n.137.
• Vehement condemnation of lawyers generally in Europe (including
England) from 13th century on, for stirring up strife and having
conflicting loyalties – but money always among complaints

6. Resolution: account to clients
• Lawyers’ obligation to account to clients (and to disciplinary
authorities of various kinds)
• “Account” began as a non-technical word: simply to tell what
happened, what was done (Cf. French “conte,” meaning “story.”)
• But since it’s money, counting’s involved, too. (Shakespeare mentions
“counters” at least twice, in the context of accounting.)
• Lawyers remain unpopular (See, La Farce de maître Pathelin, anon.,
1457; Utopia, by Sir Thomas More, 1516; Tiers Livre, Rabelais, 1546,
and Henry VI Part 2, Act IV, Scene 2, Wm. Shakespeare, ca. 1592),
but clients have an action for an accounting – so lawyers had to be
prepared to give an account.

7. Historical constant: tensions over money, loyalty,
even lawyers’ very existence
– including in the American colonies
• Antipathy to lawyers being paid fees not unique to Rome, the middle ages, or
Europe
• Roughly 1650-1720, American colonies like Virginia and Carolina (and
others) made “mercenary” lawyers illegal
• “[It is] a base and vile thing to plead for money or reward; nor shall anyone
(except he be a near kinsman…) be permitted to plead another man's cause,
till … he hath taken an oath, that he doth not plead for money or reward ….”
The Fundamental Constitutions of Carolina (1669), § 70. 2 Poore, note 48, at
1404
• Lawyers (and their exclusions from utopias) remained a topic for satirists.
See, e.g., ch. 5 of Gulliver’s Travels by Jonathan Swift, 1726.

8. Resolution: account to clients
• But to be able to “account” (to tell
accurately, to tell the story of) what
happened with clients’ money
requires accounting techniques.
• As paid lawyers re-appear in
Europe, European accounting gets
new tools: (Hindu-)Arabic numbers
and double-entry methods.
• What were Shakespeare’s
“counters”; what did his “counter-
casters” do?

9. Accounting terms and history
• Double-entry: every transaction gets entered twice, two places
• Double-entry methods known in Cairo and used among Jewish
bankers in 11th century
• Double-entry methods reached Italy by early 1300s
• First popular textbook teaching double-entry methods printed in
1494 (Summa de Arithmetica, Geometria, Proportioni et
Proportionalità, by Luca Pacioli) (also 1st book to use + and – signs for
addition and subtraction) – credited earlier writers like Benedikt
Kotruljević from present-day Dubrovnik in Croatia, from 1458
• But as Shakespeare’s lines make clear, it took a while to spread

10. Today, rules for lawyers’ accounting are not
just US particularities: France & Belgium
• Operating and client accounts must be separate
• Must keep current (“producable at any moment”) detailed account of
all monies received and how spent or applied
• Necessarily individual accounts and matters
• Necessitates keeping journals and books per fixed accounting standards
• May have to use a bank account created by their local bar, not one
chosen by themselves
• Individual accounts per client; sub-accounts for each separate matter; no
inter-matter transfers
• Need to account to the bar, not just to the client – as MN lawyers may have to
do to LPRB/S.Ct.

11. France or Belgium – modern
• May only use software with equivalent of “indelible ink” entries for
audit trail: not mere spreadsheet software like Excel, with “pencil”-
like (erasable, modifiable) entries
• Must periodically print records from software to paper and keep for
6 years

12. Czech Republic – modern
• Need a special contract with client for safe-keeping of entrusted
money, securities, other property
• Must be in a bank account with access limited to the lawyer (no “my
office manager did it” defenses)
• Documentation requirements
• “immediate” access by bar officials
• “immediate” ability to pay right amount to client
• 5-year retention requirement
• Violation may be criminal offense (like embezzlement) – 5+ years of
prison

13. Wisconsin’s 2016 change in approach
• Wisconsin – the base rule itself was made general, with specifics and
details being moved into OLR “guidelines.”
• “A lawyer shall maintain and preserve complete records of fiduciary
account funds, all deposits and disbursements, and other fiduciary
property …. The office of lawyer regulation shall publish guidelines for
fiduciary account record keeping.”
— SCR 20:1.15(g)(1) (eff. July 1, 2016).
• “While lawyers may still be subject to discipline for keeping inadequate
records, lawyers may no longer be subject to discipline for failing to keep
the precise records mandated by the former rule.” — T. Pierce, Wisc. State
Bar ethics counsel (emphasis added) (in Wisconsin Lawyer, vol. 89, no. 7,
July 28, 2016, available online)

14. Wisconsin’s 2016 change in approach
• Possible uncertainty re what’s “complete” and what’s “inadequate”
• Failure to “promptly provide an accounting of trust property to the
office of lawyer regulation shall result in a presumption that the
lawyer has failed to hold trust property in trust … [rebuttable by
producing] an accounting that overcomes this presumption by clear,
satisfactory, and convincing evidence” – reverses the burden of proof
from the disciplinary board to the lawyer
• If you practice in Wisconsin, it might still be advisable when possible
with your software to follow the non-binding but clear guidelines

15. Minnesota
• Reasons in 1975 for going into specifics about what records
to keep and procedures to follow, versus earlier generality
• ABA rule 1.15 was (is) too short, assumed (…s) too much about
the level of the lawyers’ competency in various areas
• Lawyers not trained in accounting or how to comply with rules
stated in accounting terms
• The new details on “do this, that, this way” in Appendix 1 were
(are) meant to be helpful and clear

16. Conclusions from comparisons
• The need to be able to account is old
• It addresses historically persistent and well-founded client
concerns, themselves systemically inherent in the disparity
in knowledge and power between a lawyer and a client
• It’s not just some U.S. bureaucratic burden. All countries
with a developed legal system have similar requirements.
• Minnesota’s rule is helpfully thorough about how to keep the
required trust accounts.

17. Note on scope so far and for rest of talk:
only one of four “ethics” arenas: the rules
• Disciplinary proceedings – the Minnesota Rules of Professional
Conduct
• Liability to clients – the disciplinary rules are not a pre-emptive safe
harbor1
• Public opinion – collective opinion of potential clients, trust in
(legitimacy of) the legal system and in you
• Criminal prosecution – for embezzlement or misappropriation
1 “The lawyer codes . . . do not preclude application of remedies prescribed by other law.”
RESTATEMENT (THIRD) OF THE LAW GOVERNING LAWYERS § 1 cmt. b (2000)

18. Scope as to trust accounting itself for the rest
of this presentation
• Only trust accounting basics – enough to give you a conceptual
framework for, & way to approach, any specific system or software –
but including IOLTA
• Not advance fees (1.5(b))
• Not termination of representation (1.16(d))
• Not reasonableness of fees or antitrust issues (“how much do you
charge for X?”)
• Not into detail with credit cards, electronic transactions, etc.
• Not into UCC detail with availability vs. cleared, etc. – but be aware
of the issues, go learn more

19. What’s required? Read the rule
• “Minnesota’s Rule 1.15 is approximately ten times the length of its
ABA Model Rule counterpart. In addition, Minnesota prescribes,
again at length, certain books and records that must be created and
maintained.”1
• Wisconsin made its basic rule less specific, to let lawyers use
software of their choice despite possible limitations meeting the
former rule’s precise requirements.
• But there was a reason Minnesota went the route of greater
specificity.
1 Wernz, Minnesota Legal Ethics (ebook, 2017)

20. Two duties at first level
• Two duties:
• actually safekeeping the property (OPM), and
• keeping the books and records correctly to show at any moment that it’s been
properly handled (no “no harm, no foul” rule) (RTR)
• (essentially a duty of loyalty for the first, and a duty of diligence or
competence for the second)

21. What books and records do you need?
• “Books and records … sufficient to establish compliance”
• — with business records requirements
• — with trust records requirements
– MRPC 1.15(h)
• Rule 1.15(i) requires the LPRB to say each year what is “sufficient”
and thus what is “required.” It does so in Appendix 1.

22. Re-read regularly
—both Rule & Appendix 1
• Rule 1.15: “Amended Dec. 27, 1989 …, July 28, 1999 …, June 17,
2005 …, Dec. 21, 2006 …, effective July 1, 2010; effective July 1,
2011 …
• Appendix 1 may change each year even if Rule 1.15 doesn’t. It
hasn’t changed often, but you want to know when it does
• 2015 amendments re reconciliation date, method of handling negative
balances, “separately maintained,” etc.
• 2015 amendments most recent as of the date of this CLE (July 30, 2018)

23. 2015 amendments, App. 1

24. 2015 amendments, App. 1

25. 2015 (most recent) amendments, highlights
• Trial balance used to be required as of “the end of each month,” but 2015 changed that to “as of the
date of the monthly bank statement.”
• Allowed “printing” to PDFs, not just onto paper (with some conditions)
• Books and records must be maintained “separately … for each individual trust account.” (“May
factor into … whether to open a separate interest-bearing account ….”) (Read “individual” as
“separate” or “distinct,” not as “non-pooled.”)
• Set ceiling on lawyer’s “nominal” funds in trust account at $200.00 specifically.
• Added specific detail on mandated treatment of any negative balance in a client ledger during
reconciliation.
• Added credit cards provisions; required a check number in register
• “Director does not consider overdrafts caused by a lawyer issuing funds from a trust account prior
to the deposit instrument clearing to be bank error.”

26. • “The revised Opinion eliminates the
requirement of separate cash receipts and
disbursements journals, in favor of a more
detailed chronological check register ….”
- 1998 Committee Cmmt., LPRB Op. 9 (Repealed January 26, 2006)
• Repealed — but review the rules and
opinions regularly
Change can good, make life easier

27. Required books & records
1. An identification of all trust accounts
2. A check register for each trust account
3. A subsidiary ledger for each client matter
4. A trial balance of the subsidiary ledgers (monthly)
5. A reconciliation of the check register balance, the subsidiary ledger trial
balance total, and the bank statement balance (monthly)
• Plus source/original records: bank statements, canceled checks or images,
bank wire, electronic or telephone transfer confirmations, duplicate
deposit slips, etc.
• Appendix 1, I.

28. Equivalency?
• “Equivalent books and records demonstrating the same information
in an easily accessible manner and in substantially the same detail
are acceptable.”
– Minn.R.Prof.Cond. 1.15(h); Appendix 1
• No known cases or opinions on “equivalent,” “easily accessible,” or
“substantially the same detail.”

29. LPRB Advisory opinions
• LPRB will answer questions about actions you are considering
• Must be asked in advance: prospective only
• Need to be sufficiently concrete as to the facts
• http://lprb.mncourts.gov/LawyerResources/Pages/AdvisoryOpinions.as
pxf
• (651) 296-3952

30. Responsibility is not delegable.
• In re Montpetit, 528 N.W.2d 243, 245-46 (Minn. 1995)
(“[r]espondent may not have acted out of evil intent or
malevolence, [but] he knew or should have known, based
on the information available to him, the trust account was
being mishandled.”)
• You can have others do it – the work is delegable – but
you remain responsible, so you have to know “enough.”
Rule 5.3, MRPC.

31. Relationship to Partnership Liability
• A client whose money one law partner has misappropriated may sue
other partner(s) – even though they didn’t know of the defalcation1
• Cure: good accounting books, and systems to enforce their reliability;
review the books regularly
• So even without regard to delegability, having checks & balances &
controls in place to ensure lawyer supervision of accounts is good
• So on to the accounts themselves now …
1 Stein, The Law of Law Firms (1994) section 6:15 (citing multiple cases)

32. Operating accounts
• Operating accounts: Rule 1.15(h):
• “maintain or cause to be maintained”
• i.e., can delegate much of the work
• can not delegate the responsibility
• “sufficient to demonstrate income derived from, and expenses related to, the
lawyer’s private practice of law”
• i.e., the “operating” or “business” or “firm” books
• ideally, you keep more records than required, and more data, in order to know where
you do and don’t make money

33. Operating accounts
• Only 15 Minnesota decisions cite in full the “sufficient to demonstrate
income” and “private practice” language (inherited from DR 9-103(A)).
• Only 2 mention business, operating, or office accounts
• In re Disciplinary Action against Grigsby, 764 N.W.2d 54 (Minn., 2009)
• Failure to pay income taxes multiple years, no written retainer agreements for allegedly non-
refundable advance payments, non-cooperation with investigation, false statements, and no
practice-related books or records (used another lawyer’s bank account)
• In re Discipline of Beal, 374 N.W.2d 715 (Minn., 1985)
• Commingling (deposited own funds in trust account), false certifications, illegal legal fees
(ignoring workers comp limits), improper attorney liens, “failure to keep the required trust
account and office account books and records” – no further discussion of business records

34. Trust accounts
• Trust accounts: also Rule 1.15(h)
• “maintain or cause to be maintained” – some work delegable
• but several requirements for lawyer’s own signature, not an office manager’s or
accountant’s
• in any event, need internal safeguards; don’t create temptations for embezzlement
• “sufficient …to establish compliance with paragraphs (a) through (f)”
• (a) through (f) are the provisions requiring trust accounts
• (h) itself requires keeping operating account records
• no record-keeping re (g) (choice of trust account type)

35. Kinds/types of trust accounts
─ and how to choose
• IOLTA – (interest goes to Legal Services Advisory Committee (LSAC))
(source: MRPC 1.15(e))
• Non-IOLTA (interest to clients) (source: MRPC 1.15(f))
• How to choose: 1.15(g)
• — “Is it worth it?”
• — Will there be interest more than the costs, including your costs, (time,
services, preparing tax forms for clients, etc.) of doing individualized client-
by-client accounting?

36. IOLTA
• In the Matter of the Petition of the MINNESOTA STATE BAR ASSOCIATION, a
Corporation, FOR AMENDMENT OF DR 9-102 AND 9-103, AND TO ENACT A NEW DR 9-104 OF THE CODE OF
PROFESSIONAL RESPONSIBILITY RELATING TO TRUST FUNDS, AND FOR ESTABLISHMENT OF A LAWYER TRUST
ACCOUNT BOARD, 332 N.W.2d 151 (1982)
• “Traditionally, such funds have been held in trust by lawyers in a noninterest
bearing checking account[,] because of the general unavailability of interest-
bearing demand accounts. [But new banking technology allows] capturing
interest which cannot economically or practically be identified or paid to
specific clients and [using it] for various law-related, public purposes. … [N]o
charge of ethical impropriety or other breach of professional conduct should
attend an attorney's good faith exercise of judgment [regarding the choice of an
IOLTA or non-IOLTA account].”

37. Records about all accounts
• Need records identifying all trust accounts, when opened, where they
are, what type (pooled or not), etc.
• App. 1, I.1.
• Name accounts to include the words “trust account” (on checks too).
Individual accounts can be named “Trust for [client’s name]”
• 1.15(a) ‘identifiable trust accounts’ and 1.15(o) ‘”Trust account” is an
account denominated as such ….’

38. Where to Bank
• Trust accounts must be “in an eligible financial institution selected by
a lawyer in the exercise of ordinary prudence.”
• Rule 1.15(d)
• “[O]nly in eligible financial institutions approved by the Office ...”
• Rule 1.15(j)
• Definition: Rule 1.15(o)
• Consider also MSBA’s “Prime Partners” program, paying higher
interest than legally required (e.g., 0.5%):
https://www.mnbar.org/public/access-to-justice/access-to-justice-
policy/iolta-prime-partners#.W18os_lKi70

39. Preliminary Notes
• Always use separate books (“company” in Quickbooks terms) for the
operating and trust accounts
• KISS: Separate, separate, separate
• Avoids opportunities for confusion, mistake
• Both ways: avoids seeing assets in operating accounts, & overlooking trust account shortfalls
• No magic in software: don’t do anything you couldn’t do on paper
• Trust accounts are always cash basis, never accrual
• What’s there, not what will be
• Actual payments, not bills or anticipated bills
• Mirror reality without mental or software gymnastics
• Use asset/liability whenever can, not income/expense
• Be consistent; make it simple and routine

40. Paper and Ink
• Described in Illinois Attorney Registration and Disciplinary
Commission guide:
• http://www.iardc.org/clienttrusthandbook_toc.html
• Also described in a California handbook:
• http://www.calbar.ca.gov/Portals/0/documents/ethics/Publications/CTA-
Handbook.pdf
• Recommended by Jay Foonberg in an ABA guide, as a foundation
before computerizing.
• Gets you clear on the concept and practice of double entry

41. Double entry
example on
paper
copied & color-coded from
Other People’s Money: Operating
Lawyer Trust Accounts, rev. Apr.
2018, LPRB

42. Overview of general trust accounting method

43. Reasons for that table
• tracking reality: amounts in trust are a liability, to the penny equal to
the amount held (LPRB’s use of “income” accounts in Quicken is a
concession to software limitations, not a model to follow elsewhere)
• simplicity: could treat some items, e.g., interest, as income matched
by an expense (the payment over to the IOLTA program) — but
simplicity and consistency (always doing the same thing) win
• also, App. 1 puts subsidiary ledgers for the firm’s funds and any interest balance in parallel
with client subsidiary ledgers. App. 1, I.3.b.
• 2015 amendments to App. 1: “separately maintained for each
individual trust account” – but maintainable within same software

44. Trust accounting principles to keep it simple
• The score/difference must always be zero — no profit, loss; balance
• No negative numbers (stay under 6th grade)
• No one can spend what they don’t have
• Separate clients have separate subaccounts on the liability side –
ensures (if the right subaccount is always chosen) no commingling,
no having one client’s funds cover another’s expenses
• Audit trails are your friend: they let you be more convincing when
you say “Let me explain”

45. Computers, software, and online services
• The biggest advantage: they do the double entry (the second of the
two entries) “for you” so you only have to do it once – BUT YOU have
to tell the program WHERE the second entry should be.
• Don’t trust blindly: must do reality checks
• Three typical signs of faulty procedures: amounts doubled, not netted to zero,
constantly increasing balances, negative numbers
• NO MAGIC: need to know why, how it’s right
• Don’t do it “live” out of the box:
• Practice, practice, practice with “trial” books
• Dummy or trial companies and accounts next to paper with which to do
reality checks

46. What programs or services?
• Quicken
• QuickBooks
• Desktop
• Online
• Cosmolex
• GnuCash
• …

47. Choice of Local Software / Cloud Service?
• Not always cheaper: check monthly or annual licensing costs; may
vary depending on numbers of users, clients, sets of books needed
• Consider risk, availability, portability guarantees; check features &
use free trials to experiment and test
• Never do anything live without having tried it first; trust accounting
not a place for high-wire acts

48. Documenting That It’s Been Done Right
• Not going paperless: your accounting books may be electronic, but
there is a specific list of records you must “print” at least monthly,
and non-accounting paper records you must keep (e.g., check deposit
slips, etc.)
• App. 1, I.7 (‘must print … on a monthly basis’)
• Cf. App. 1, I.4 through I.6 (‘monthly’ items)
• “Printing” can, with some conditions, be to PDF – App. 1, I.7.
• Note the document retention period: “for … books and records
relating to funds or property of clients or third persons, for at least
six years after completion of the employment to which they relate.”
MRPC 1.15(h).

49. Avoid inadvertent commingling
• Not taking money out of the trust account can be as bad as taking
money out: it’s “commingling,” even if done without bad intent.
• When your fee is earned (or a bill is due and the money for the client
to pay it with is there), pay it – don’t wait.
• Don’t even think of trying to make a cushion of your own money as
self-created “overdraft” protection. Maximum $200.

50. Never bypass
your operating account
• In re Miley, 486 N.W.2d 759 (Minn. 1992) (lawyer disciplined for
personal use of a trust account)
• First put earned fees into your operating account, then you can make
checks to whomever out from it
• To do so, write a check from the trust account to your firm: that will create
an entry decreasing your liability to one or more clients, at the same time as
it decreases the trust account balance.
• Then deposit that check into your operating account: that will create an entry
reflecting the income to the firm, satisfying a bill, etc.
• Attempting to just “transfer” from one account to the other in a single step
will fail to create the necessary counterpart entries. (Or complicate things.)

51. Almost never
• Credit cards can be a problem.
• Taking credit cards may help some clients pay.
• But typical issuer agreement gives issuer rights to unilaterally reverse
transactions, debit accounts to which deposits were made, etc. –
violating 1.15(j)
• Solution: put into operating account, with immediate transfer of
unearned portions to trust account. Any reversal by issuer will affect
your operating account, not the trust account.

52. Special caution: scams
• “Where the lawyer has reason to be concerned about whether a check being
deposited will clear, the lawyer should not issue trust account checks against
that deposit until he or she has confirmed with the issuing bank that the
deposited check has cleared.” (emphasis added)
• http://lprb.mncourts.gov/LawyerResources/TADocuments/Trust%20Account%20FAQs.pdf
• FAQ may have a typo. Really a “must not,” not just a “should not.” An earlier
sentence in the FAQ says just that: “A lawyer must not disburse funds from a trust
account until the instrument that serves as the source for the disbursement has
cleared the bank on which it was issued and the lawyer’s bank has collected
those funds.” Cf. also App. 1:
• “Except in the context of real estate sales transactions, an attorney shall not
disburse funds from a trust account unless the bank in which the attorney
maintains the trust account has made the funds available for disbursement and
the instrument that is the source of the deposit has cleared the bank account on
which it was issued. (emphasis added)

53. Scams
• Rely on creating delay in presentment and dishonor
• Typically via false, inaccurate, or inconsistent data as between
supposed issuing bank name, contact information for it, and routing
or account numbers (optical or magnetic) – can create multiple-
week delays
• Local depositary bank’s “availability” policy irrelevant – Q is clearing
or dishonor at the bank upon which supposedly drawn

54. Review, 1
• Prefer asset/liability, but income/expense can work (LPRB’s “Quicken”
method) if no possible effect on operating accounts
• If can do splits on firm fees, a plus
• Be consistent
• Practice trial transactions of all types
• Make sure there are no negative numbers in the reports: KISS (and
LPRB)

55. Review, 2
• There is never conceptual income or expense: can't make profits
without risk, and client funds never should be at risk
• Never accrual: always cash basis and current, never anticipated
• Reconcile multiple ways
• “Print” monthly records monthly & keep for 6 years after END of the
matter involved