Escrow is a financial arrangement where a third party holds and regulates payment of the funds required for the two parties involved in a transaction. Escrow arrangements make transactions more secure by keeping the payment in a secure account which is only released when all the terms of a given agreement are met.
An escrow is also a contractual arrangement in which a neutral third party/escrow agent receives and disburses money for the primary transacting parties e.g., the buyer and seller. The escrow protects both parties by keeping the payment in a secure escrow account which is only released when all the terms of an agreement are met as overseen by the neutral escrow agent.
IOLTA or “Interest on Lawyers Trust Accounts “are essentially an attorney’s version of an escrow account. Primarily, these are used for funds that are deposited by Clients into IOLTA accounts for unearned and/or future legal services and costs. Funds are held “in trust” within an IOLTA and are the Client’s funds until earned by the attorney or transferred back to the Client. IOLTA accounts are also used to facilitate the transfer of funds between other parties and Clients.
A lawyer who receives funds that belong to a client must place those funds in a trust account separate from the lawyer’s own money. Client funds are deposited in an IOLTA account when the funds cannot otherwise earn enough income for the client or be more than the cost of securing that income. These funds, together with state and federal appropriations as well as private grants and donations, enable nonprofit legal aid providers to help low-income people with civil legal matters such as landlord/tenant issues, child custody disputes and advocacy for those with disabilities.
Escrow-type Services Provided by The Law Office of David Watson, LLC
Paymasters do not have to be attorneys or even licensed in Wisconsin. However, attorneys often serve in the role of a Paymaster because they can use Attorney’s Trust Accounts (IOLTA accounts and used for short term escrow transactions). Further, these accounts are monitored by the Wisconsin State Bar and the Wisconsin Office of Lawyer Regulation which provide an additional measure of security for handling large sums of money.
As a licensed attorney, the attorney Paymaster is subject to large penalties and serious licensing consequences, up and to including disbarment, if any funds are misappropriated. More importantly, the attorney Paymaster has a specific duty to maintain a neutral 3rd party relationship with the parties by not providing legal services for any of the clients in the transaction to avoid a conflict of interest.
As licensed professionals and officers of the court, attorneys are held to higher standards, thereby making them a legitimate and sometimes better alternative to other “escrow agents” and online services that are not structured to escrow larger transactions. Further, additional malpractice and liability protection ensure against fraudulent transactions.
Key elements of The Law Office of David Watson, LLC Paymaster services include but are not limited to:
Example: Two parties working with their own counsel have agreed to a large transaction involving the purchase of 4 million widgets for $8M. The terms of the agreement state that a neutral 3rd party (defined by “escrow”) will be used to facilitate the transfer of funds. In such a case, Watson Law will act as a neutral Paymaster and facilitate the transfer of $8M between the parties as per the terms of the transaction (whereby both parties agree to the release of the funds).
A typical Paymaster arrangement occurs as follows:
Funds are deposited to one of the Firm’s general client IOLTA account (as opposed to a Client-specific account). In such a scenario, the Firm is offering the use of its IOLTA account as a financial tool to facilitate a funds transfer between another party and the Firm’s Client. The Firm has an ethical duty to the client engaged and not any other party. These transactions are usually not considered to be a form of “escrow”.
Example: A Client sells their business and in consideration of a fully executed Asset Purchase Agreement, the buyer deposits funds into the Firm’s IOLTA account (instead of directly into the Client’s bank account). The funds are then transferred out of the IOLTA per the instructions of the Client.
Example: A Client is buying a business and instead of the Client wiring the seller the funds directly, the Client deposits funds within the Firm’s IOLTA and upon the Client’s authorization, the funds are released by the Firm on behalf of the Client.