How to avoid issues when handling Settlement Funds
Settlements are those types of funds that required special treatment. First and most important, these funds are always deposited into the Law Firm Trust Account and all payments to third parties must be disbursed from there. The way you handle the funds starts with a proper Contingent Fee Agreement where you clearly specify how this settlement will be disbursed, including what expenses and fees the client will be responsible for paying if the settlement is not reached.
Every state has its own particular guidelines and procedures, however, there are general best practices for handling settlements.
You should start by Recording and Depositing the check - if you received one-. Before proceeding to further steps you need to make sure the money has cleared in the bank account so you are not using somebody else trust funds.
Get the Client’s signature if the check is made out to both the client and the law firm.
Write the case number and Client’s name in the check. Just for reference (you never know if this will help you later), make a copy before depositing and save this copy in the client's file.
If you receive an electronic transfer of funds, save the verification of deposit.
It’s time to Prepare a Settlement Statement, here you are going to break down the way the money is going to be disbursed, present it to the client to collect their signature and approval. This should include the total amount of the settlement and the payee, the amount payable to the firm for fees earned, the amount payable to third parties, the balance due to the client, and an area for the client and the lawyer’s signature. If any additional adjustments are necessary, revised, and present for final approval.
Before you get paid you need to bill your fees and all expenses incurred during the representation case. Once funds are available and the settlement statement is approved you can proceed to Write Checks. These checks must be recorded in your Practice Management and a copy should be filed. Start with receiving payment for your open invoices, following by writing checks to thirds parties, and last but not least write the final check for the client's portion of the settlement.
Now that you have disbursed all the funds, run a Client Trust Ledger, the balance of this should be $0.00. Add this report to the client's file and collect all documentation and paperwork to turn in to your client (if he/she decides to keep them).
We hope this information helps you understand the general process of Settlements disbursement, let’s keep in mind there are other ways the money can be disbursed. For Structured Settlement, the process may vary.
Always reach for the help of a professional with the knowledge and the experience to help you develop the right processes and systems in accordance with your state laws.
As always, we are here to help. If you have any questions and want to discuss this or any other topic related to Law Firm Accounting please contact us by setting up a phone call using our calendar: https://book.mybooksntaxes.com/lite/20-min-call