Managing client funds through trust or IOLTA accounts is one of the most critical responsibilities for law firms. Especially for contingency-fee firms, ensuring that disbursements are made accurately, ethically, and securely is essential to maintaining compliance with Bar Association rules and avoiding serious penalties.
We wrote this article to help you navigate the ethics rules and opinions around disbursing client funds electronically.
Bar Associations across the United States have issued rules and guidance to ensure accurate recordkeeping for trust and IOLTA account transactions. One persistent myth, however, is that trust account disbursements must be made by paper check. In reality, no state requires firms to limit disbursements to paper checks, opening the door for more secure, efficient electronic options.
In many states, the rules of professional conduct don’t specify what payment methods can be used for disbursements. Instead, they focus on documentation. Proper recordkeeping is key, including tracking who received the funds, when they were disbursed, and who approved the disbursement. Each disbursement should have a unique identifier and be tied to a specific client/matter.
Certain states, such as New York and Arizona, have gone a step further by issuing guidance specifically addressing electronic disbursements. New York’s guidance even touches on the practice of issuing pre-paid debit cards, which can provide flexibility for unbanked clients.
Most states' recordkeeping requirements can be boiled down to a few key points: