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Have You Hugged Your Trust Account Oversight Officer Today?

Posted By Colleen Glatfelter, Thursday, March 23, 2017

By David Smyth, Brooks Pierce McLendon Humphrey & Leonard LLP  

 Have you hugged your Trust Account Oversight Officer today?  You should.  Wait.  Do you even have a Trust Account Oversight Officer?  Maybe you should consider getting one.  Last June, the N.C. Supreme Court approved amendments to the trust accounting rules, including Rule 1.15-4: Alternative Trust Account Management Procedure for Multi-Member Firms.  The rule allows appointment of such an officer to “oversee the administration of any such trust account in conformity with the requirements of Rule 1.15.”  The rule is technically voluntary, but there are good reasons to take advantage of its provisions.

Here’s some background: In the past, faced with misconduct or negligence in trust account management at multi-member firms, the State Bar has at times faced a quandary.  That is, if all of a law firm’s partners are in charge of the trust account, is it true that effectively none of them are in charge?  Put another way, if a single partner’s actions or omissions cause losses from a trust account, can the other partners fairly be held to answer for those losses?  Those are tough questions that can be extremely hard depending on the circumstances.  The other partners might reasonably argue that they were far too removed from the problems to be held accountable.

Enter Rule 1.15-4.  Now a multi-member firm is allowed to designate a Trust Account Oversight Officer (“TAOO”) to be the partner on the hook for administration of a law firm’s trust account.  In short, the rule allows for one throat to choke – and ends the quite plausible deniability for the rest of the partnership – if something goes wrong.  Of course, there are limits to the limits.  Lawyers who serve as primary counsel for a particular matter cannot deny responsibility for trust account issues associated with that matter.  See Rule 1.15-4(b). 

Also, a TAOO will have some significant and ongoing education obligations to maintain compliance with Rule 1.15-4(c).  Those obligations and the potential liability that could result may not be attractive features.  But opting out of Rule 1.15-4 and failing to designate such an officer could yield similar liability for every partner in the firm in the event that problems with a trust account are uncovered someday.

Weigh the benefits and risks, and think about hugging your TAOO.



 *Any opinion or views expressed in blogs posted on this site are those of the identified author and not the Committee as a whole

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