Attorney Trust Accounting How to Avoid Errors and Stay Compliant

Trust accounts are generally demand bank accounts held by approved banks. Trust accounts must also have check writing privileges and be clearly identified Record Keeping for Small Business as client trust bank accounts. Clear communication about how funds will be handled, what will be deposited into the client trust account, and the timing of withdrawals can prevent misunderstandings and disputes later on. This step is crucial for maintaining transparency and trust in your client relationships.

Detailed Records

• By avoiding these common pitfalls, you can ensure compliance with attorney trust account rules and maintain proper trust accounting practices.
• The software is extremely user-friendly and accessible, and support is just an email or phone call away.
• Our comprehensive library of books and treatises form the State’s most inclusive series of regionally focused legal materials.
• One of the core functions of a trust is to ensure that there is no commingling between client funds and the lawyer’s funds.
• Lawyers who retain the interest without the client’s knowledge or written consent have been publicly disciplined, even when the amounts involved are relatively modest.
• Attorneys might be tempted to ‘borrow’ money from the trust account during cash flow problems, thinking it harmless since the money will be theirs eventually.

Administration expenses are categorized under administration expenses taken from principal and administration expenses taken from income. These expenses must be sufficiently described, justified, and supported by receipts. Distributions are also categorized as those taken attorney trust account from principal as opposed to those taken from income. At the end of the accounting summary, the remaining on hand should generally balance with your cash reconciliation, a separate schedule that provides the ending balances for all the bank accounts.

Accounting for my firm is simple with Clio and TrustBooks

• Check our CLE catalog and calendar for trust accounting seminars that offer CLE credit.
• Once law firms start using our system, our in-house support team is always available to provide training or onboarding or simply answer specific questions about our products and services.
• Everything that goes into and comes out of this “checking account” belongs to the client or is spent on their behalf — not a law firm’s.
• Depending on the law firm and the local Bar rules, sometimes attorneys use the funds directly out of the client’s trust bank account to pay for client expenses.
• MyCase’s legal accounting software can help you efficiently and easily monitor client and admin ledgers under a single platform.

Individual client accounts are separate trust accounts set retained earnings up for a single client. These are typically used for larger sums or when a client specifically requests it. Every month, attorneys must reconcile (match) the balance in the bank account with the balance in the journal. The bank account balance, plus outstanding deposits, minus outstanding checks, must equal the balance in the journal. Most banks provide step-by-step instructions on how to reconcile with the bank statement. Deposits that have been outstanding for more than a few days, and checks that have been outstanding for several months warrant research.

The 6 Trust Accounting Reports You Should Review Each Month

You can also produce trust reports by matter, ensuring that your total balance is the same as your IOLTA account for the same time range, which may not be possible with traditional accounting software. If you are audited by the state bar, you’ll want to make sure you can produce your trust balances on the fly in an easy-to-read format on a matter-by-matter basis. After being disappointed by other accounting programs such as Quickbooks and iBank, I was relieved to learn about a new online program designed specifically for trust accounts. Trustbooks has reduced my time spent on reconciliation from 4 or more hours per month, to 10 minutes or less. I love helping our law firm clients get their accounting squared away and put everything on cruise control.

What Is IOLTA and Why Is It Important?

This initiative helps ensure that even the smallest amounts of interest can contribute to the greater good. Smokeball’s AI-driven legal drafting helps you work faster, smarter, and more accurately—freeing you to focus on what matters. Discover how to craft an estate closing letter to beneficiaries, covering key steps, IRS requirements, and effective communication. Check the status of IOLTA programs in your state to see if you’re required to use one. You can go with an accrual or cash accounting method in the US, and the difference is mostly about timing.