Set Minimum Escrow Account Balances To Protect Your Practice From Liability

In theory escrow account management is pretty simple. The trustee takes money in and sends money out and in the end everything balances to zero. However the reality of trust accounting is a bit messier than that.

A central tenet of trust fund management is that the ledger can never show a negative balance. In our personal finances and often in business finances we float payments. We write a check knowing there isn’t enough in the account to cover the payment right now but that there will be by the time the transaction clears. While acceptable in normal business practice–as long as that deposit really does come in before the check hits the account–this is unacceptable in trust accounting. A negative ledger balance is sloppy at best and illegal at worst.

Law practices protect themselves against negative escrow balances by requiring a minimum balance in each fund. The amount of the minimum will vary from client to client. A divorce financial settlement account that will never have more than a few hundred dollars in it will obviously have a lower minimum balance than one used for a corporate case involving millions of dollars.

Establishing a minimum is only the first step. The practice needs to know when to ask the client for more funds to bring the account back up to the minimum. That gets complicated when an attorney has multiple clients sharing a general trust account, and that’s why it’s so important to use legal software programs designed to track trust transactions.

Law practice management software simplifies the process of recording and categorizing transactions in the general fund. Attorneys can use Easy Trust to isolate transactions belonging to a single case with the click of a mouse and see if it is time to request another retainer from the client. And since our trust software is designed to integrate with our other products such as Easy TimeBill and Easy HUD, attorneys can be confident that when they look at an account balance it includes all recorded transactions.

Accounting may not be your favorite pastime but it is an essential part of business management, and trust administration requires absolutely scrupulous attention to detail. Don’t continue to depend on outdated and error-prone tracking systems. Use Easy Trust and other Easy Soft law practice management software so you always know the current status of client trust accounts.