Rule 221 outlines the terms of record-keeping requirements for attorneys.

Where can I find the record-keeping requirements for my escrow account?

Samuel C. Stretton.

Record-keeping requirements are set forth in Pennsylvania Rules of Professional Conduct 1.15. But the Rules of Disciplinary Enforcement, under Rule 221, are very specific in terms of what a lawyer must do and not do in terms of keeping records. Rule 221 also sets forth potential penalties for failure to maintain the records.

Rule 221, which has probably not been read by most attorneys requires escrow funds to be held in an approved account. The lawyer is responsible under Rule 221 for identifying the name of the account on the annual registration form. The lists of approved banks are published each year.

In Rule 221(a), a lawyer has to maintain for five years after conclusion of the attorney-client relationship or after disposition of property the following documents: the fee letter or fee agreement, the statement of distribution if it is a contingent fee matter and the bank records for the escrow account have to be maintained for that five-year period. The records are all the records provided by the bank or financial institution. That would be the bank statements, cancelled checks, deposit items and records of electronic transactions.

Also, the lawyer has to keep a separately maintained ledger that includes the payee, date, purpose and amount of each check and withdrawal for each client. In other words, there has to be an individual ledger for each client and it has to have a running accurate balance. This ledger can be either done by paper or electronically, but it must be maintained. Ledgers have to have a regular trial balance. Then there has to be a reconciliation on a monthly basis with the escrow/IOLTA account. The reconciliation has to also reconcile the client balance on the ledger sheets with the bank statements. These records and reconciliations have to be maintained for five years. If the records are maintained in electronic form, there has to be a backup with a separate storage device where the records are entered at the end of each day.

These financial records required under 221(g), have to be accessible for the lawyers from the Pennsylvania Client Security Fund and by the Office of Disciplinary Counsel.

Under Pennsylvania Rules of Disciplinary Enforcement 221(g), the records must be accessible. If Disciplinary Counsel sends a letter requesting records within 10 business days after service of the letter, the records are to be produced. Of importance is Pennsylvania Rules of Disciplinary Enforcement 221(g)(3). That talks about the failure to produce the records. That failure to produce allows the Office of Disciplinary Counsel to request the court to enter a temporary suspension of the lawyer who fails to maintain the records as set forth above. In other words, the court will order a suspension if lawyers do not maintain these financial records. This suspension is separate from any other disciplinary violations due to the poor record-keeping.

Unfortunately, for many lawyers, the day of keeping a running balance on the file folder or just using a small checkbook for the escrow account are gone. The records have to be maintained properly with individual ledger sheets. There has to be monthly reconciliations for the escrow account.

Also, under Rule 1.15, lawyers must know that funds placed in the IOLTA account should remain there only for short periods of time. If the funds are more than a de minimis amount which a lawyer is holding in their IOLTA account for a client, then the funds have to be moved over to an interest-bearing escrow account and the interest obviously has to be maintained for the client's benefit. This is required if the funds are to be in an escrow account longer than several weeks.

Therefore, one should maintain for at least five years after the end of representation, the fee letters; statements of distribution; the bank records, including statements, checks and deposit slips. The lawyer must maintain and perform monthly reconciliation of the escrow account and the ledger sheets. These must be readily accessible so they can be produced within the 10-day period if the Disciplinary Counsel requests them or the Client Security Fund requests them.

These rules are probably good accounting techniques that ought to be filed. But it's a shame they are made regulatory rules that could cause professional discipline. Sometimes the legal profession is over-regulated. It doesn't seem right that a lawyer should be disciplined for not having a fee agreement or not maintaining records or not doing all the monthly reconciliations. Further, such record-keeping is costly. Many smaller firms or solo practitioners don't have the money or resources to hire accountants to maintain the records in the fashion set forth in the rules. Sometimes the Office of Disciplinary Counsel or the Disciplinary Board seems to assume every lawyer is rolling in money and has an in-house accountant. That's not the case.

Having said the above, the rules are there and lawyers have to be very careful and comply. These rules were put in place because in years past lawyers were not able to produce the records since they didn't keep any. That, of course, made it difficult for timely prosecution when there were serious acts of underlying misconduct by the lawyer. The Pennsylvania Supreme Court finally had enough, and these more draconian rules were put in place.

However one wants to term these rules, they are what lawyers have to comply with and if the lawyer has not, then it is a good time to start.

It is a wise idea for lawyers of any age to start thinking of back-up plans.

I have been a solo practitioner for several years. Do I have any obligations to my clients if something should happen to me?

The life of a lawyer is normally stressful and fast-paced. The stress, particularly associated with being a trial lawyer, is phenomenal and many excellent trial lawyers have died in their 50s and 60s. Since every lawyer is going to die at some point in time, clients have to be protected to some extent. A lawyer can't protect against every tragedy, but lawyers do die or become disabled or mentally infirm.

The Rules of Professional Conduct do not have a specific rule on what to do. But, under Rule 1.3 Diligence, in Comment 5, the following is noted: “To protect neglected client matters in the event of a solo practitioner's death or disability, the duty of diligence may require that each solo practitioner prepare a plan, in conforming with applicable rules, that designate another competent lawyer to review clients' files, notify each client of the lawyer's death or disability and determine whether there is a need for immediate protective action.”

The comments to the rules aren't mandatory, only advisory. But it is a good idea to have some sort of plan. The comment applies only to solo practitioners, but a small firm may also consider some sort of back-up plan.

The Rules of Disciplinary Enforcement allow the president judge to seek the appointment of a conservator for lawyers unable to continue to practice due to illness or death. But that is a last resort.

The problem realistically is who is going to agree to do this? Any solo practitioner going on vacation knows how difficult it is to get another lawyer to cover their practice during a week or two. Of course, one could hire a lawyer to fulfill that role, but most solo practitioners aren't in the position financially to hire another lawyer and pay them enough monies to have them take over one's practice and review the practice if something should happen to the lawyer. In days of old when a lawyer passed away, the clients would obviously be aware of it and they would come pick up the file or hire a new lawyer to get the file from the lawyer's estate. Some of these problems can be mitigated by the fact that lawyers now can sell their practice, either some or all of it. Pennsylvania Rules of Professional Conduct, Rule 1.17, allows for the sale of all or some of one's law practice. This is a recent change. Traditionally, a law practice was not allowed to be sold until the rule change in the early 2000s.

It has been reported that the annual registration forms for every attorney will soon have a new question in May or June 2019 asking if lawyers have a back-up plan. Clearly, that question is to see if they do or don't, and could result in some mandatory requirement. It may not be a wise idea for a mandatory plan because of the burden it places on lawyers, particularly small firms.

It is a wise idea for lawyers of any age, but particularly older lawyers, to start thinking of back-up plans or thinking of plans to sell their practice, etc. In theory, it is a great thought. In practice, it becomes very difficult for many lawyers and can create a financial burden.

Although inspirationally the plan is a good idea, from a practical standpoint it should not be made a requirement in the Rules of Professional Conduct. It is going to become too burdensome and could cause lawyers to lose the right to practice just because they are not in a position to hire a lawyer to be their backup.

Perhaps the real solution might be the collective activity of bar associations to create a panel of lawyers who are willing to serve in a back-up role.

Chester County lawyer Samuel C. Stretton has practiced in the area of legal and judicial ethics for more than 35 years. He welcomes questions and comments from readers. If you have a question, call Stretton directly at 610-696-4243 or write to him at 301 S. High St. P.O. Box 3231, West Chester, Pennsylvania, 19381.