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Escrow Accounts — Watch Out For The Easy Slip-Ups

Marianne Reidy, CPA 02.02.2011 | Practice Made Perfect

In managing a client’s escrow account, the devil truly is in the details and the last thing you want is for a slip-up on a detail to send your career to the devil. In the bustle of daily activity, here are some mistakes that can come back to bite you.

It’s Got To Be Your Signature: You must be a licensed attorney to place a signature on an escrow account. This cannot be handed off to the pen of a controller or bookkeeper.

Transfer Before Taking Your Fee: Fees you’ve earned cannot be taken directly from the escrow account even though the funds for your fee were placed in that account. First write a check from the escrow account payable to your operating account, then take the fee from that. Make sure to keep a clear and detailed paper trail of each transaction.

Know How Long To Retain Records: The rules for how long to keep escrow account records vary from state to state. Rather than make an educated guess that could leave you unprotected if you can’t produce a record, check the rules that apply in each state where you manage an escrow account. As examples, New York and New Jersey have 7-year retention periods while the Florida rule is 6-years.

Fee Payments — Say It In The Engagement Letter: To circumvent questions arising down the road, include in your engagement letter exactly how you will apply funds in the escrow account to pay your fees and other costs incurred. To add a further layer of assurance, the letter should also note that you will provide regular statements explaining these charges.

Refresh Yourself On The Ethics Rules: While they are not subject to monumental changes, individual state ethics rules do change from time to time — often addressing transgressions that have shown an uptick. A visit to your state bar association website can give you the most up-to-date rules. 

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