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4 Key Practices For Effective Trust Account Management

Client's money
Client's money held in Trust

Every single lawyer knows Trust funds are very crucial to them. They are not only your clients’ most valuable assets but are also restricted in the way they should be handled. You are obliged by law to secure and protect client funds while making sure to follow the compliance requirements in good faith and transparency. Managing your trust accounts well plays important role in maintaining the consistency and transparency of your accounting records, even in case of an audit. Besides, it also helps you to stay in the safe zone with related authorities in terms of jurisdictional rules which come in different shapes and sizes. Below are some good practices which have been proven to be helpful for lawyers in trust account management.

Keeping Trust Funds Separate

separate trust fund
Keep things separate in order to manage them well

A Trust account is actually a checking account opened by the law firm to secure the retainer received from the client. So basically, any funds deposited into this account is the client’s money and property, not your firm’s. Any misuse and/or commingling of the funds with other accounts may lead to serious consequences. Some mistakes include ‘Borrow’ money or withdraw money from the account because some attorneys will put the entire retainer received from clients into their business accounts.

The best practice is to keep your trust account separate from all other firm or personal accounts. Law firms may not use trust account funds until they are earned. This practice guarantees that you keep accurate records related to your client matter and help maintain your firm’s integrity.

Trust account rules differ by state, therefore you need to consult your State Bar Association and a legal professional accountant if you’re not sure about anything in relation to accounting activity and management of your trust accounts.

Typically, a law firm is required to follow one of the two standards:

  • Have one account to hold all client funds or

  • Have individual trust accounts so that one client’s funds can’t be commingled with another one.

The latter one is mostly advised currently due to the fact that ‘separate’ will get things clear, avoid mistakes as well as serve good purposes of tracking and monitoring the information well.

Keeping All Records

record details
Are your firm's transactions documented well?

Due to its grave importance, managing trust accounts can be tricky if you don’t do it properly. It is advised that you keep complete records of all activities related to your client trust account. Good record-keeping allows you to account for every single transaction in and out of the trust accounts, no matter how small it is. It also helps you to reconcile the accounts and stay within the safe line with the state rules. An example of good record-keeping which has been suggested by some experts is to write client names and file numbers on every check that you issue. Yes, you can add details to the check for your easy tracking. Any transaction or activity can be treated the same way as the check. This practice helps you to track your client funds easily and properly, therefore manage your trust accounts more efficiently.


Be Clear On The Rules

unsure trust account rule

Regarding trust account management, every state has certain requirements or rules. Make sure you know those rules applied at your practice coverage to handle the following appropriately:

  • Advanced fees: Fees earned in advance could be a field for errors. In limited circumstances, some states allow lawyers to deposit advance fees paid by clients into the firm’s business account whereas most others require that they stay in the trust account until the fee is earned. If you’re not sure, place client retainer into your attorney trust account. You need to check to be 100% sure that the account into which you keep retainers, fees in advance, flat fees, and non-refundable fees is allowed in your state.

  • Earned fees: Some states require lawyers to remove funds from the client trust account when it is earned to avoid the commingling of funds. For example, you can’t pay your operating expenses directly out of this trust account. You must transfer the money earned to your business account in order to use it.

  • Trust account interest: There are certain regulations about interest earned from your client trust account. If you’re in a state with a compulsory IOLTA program, Interest on Lawyer Trust Accounts (IOLTA) regulations require interest earned on trust accounts to be sent to the state bar association. The interest will be used for charitable purposes, mainly to provide civil legal services to indigent persons. Ensure you get clear on the IOLTA procedures at the area where you practice.

Using Legal Accounting Software

legal accounting software
Seek for legal accounting software setup

Considering the modern technology growth and current options of accounting tools available, it is hard to imagine managing a law firm without the support of legal-specific software, especially legal accounting ones offering trust accounting systems. By maintaining accurate records of your trust account’s transactions, legal accounting software helps you to avoid unnecessary mistakes and compliance issues.

You need to make sure the software you use allow for the following:

  • Transfer of trust account fund: since you need to remove the amount of money when it is earned e.g. to pay for an outstanding invoice or to reimburse for activities completed for an ongoing case, the software should allow you to easily move funds from the trust account to your operating account. Some states permit lawyers to transfer funds straight away before billing to reflect the transaction on the client invoice.

  • Pull reports for trust account: reports serve many purposes including tracking information, managing client matter transactions, presenting to a state bar auditor, etc. Reports let you know the trust balances on a matter by matter basis, total balance, and the balance of the trust bank account for the same date range. Make sure the second and the third balance are equal.

  • Customize reports: you could track all transactions involved in every single client you have. This function should allow you to filter by client name, matter, date range, and transaction type.

There are definitely more good practices advised by the experts or legal professionals in terms of trust account management. These have been applicable to law firms and also proven their efficiency despite the scope and size of the firm. Find more good practices that may be included in our other blogs about the law industry. Thank you so much for your reading.




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