I’ve written many times on the challenges of properly administering a trust. The regulations are strict and a trustee who breaks the rules through an honest mistake can end up in a lot of trouble. Something as simple as missing information on a check printed by escrow account software can trip up even experienced law firms.
First I need to give a little disclaimer. The information in this posting is fairly standard stuff for trust laws throughout the country, but you should always check your state’s regulations. If your locality does something a little differently than what is presented here, then you need to follow your state’s rules.
Trust laws generally require each check to have client reference information written on the check. It’s not enough to merely issue a payment from the account. Anyone looking at the check must be able to see at a glance who the client is so there is no confusion where the money has come from. Most trust accounting software does this automatically but it pays to verify that it is legible on the final check.
Trustees handling several similar accounts might make payments for several clients to a single payee. For example a real estate firm might pay the same title company for several clients at once. These payments can be combined onto a single check if the trusts are mingled in the same bank account, but the individual clients and payments must be detailed on the check.
States have regulations about check format such as a minimum physical size or required fields. Modern business checks are often printed with MICR (magnetic ink character recognition). Typical legal billing and accounting software can print these lines but trust checks must use a special format that prevents these checks from being automatically converted to electronic transaction, thus destroying the paper audit trail.
What about lawyers using legal software programs that can’t print customized checks that meet state trust laws? This is rare but can happen when firms are using older software created without the capabilities of modern applications. In that case the firm must manually write the information on the checks before they are issued. However manual corrections take time and create an opportunity for errors.
Trust administration is too important to be left in the hands of outdated applications. If your current software can’t meet the check requirements of your state, upgrade to a trust accounting system designed to meet the needs of modern escrow management.