What You Need To Know About Trust Accounting For Attorney

What is trust account?

Whenever a practice is started, the client will provide their attorney with an advance amount of money, which then will be deposited into the bank as a trust account. It is where client funds are kept safe until it is time to withdraw, basically, it is an account holding money on behalf of a client for their case. Every attorney or law firm has a fiduciary obligation to keep its client funds separate from the law firm’s funds.

Another way to properly describe the client’s trust account: “It is not an asset of the law firm - it is considered another current liability.” If all of the clients request a refund of their trust account balances, you will need to pay them off immediately. As a result, this trust account is another short-term liability for the company, that is why we need Trust Accounting to manage funds in this account.

The Essential Role of Trust Accounting

For a basic definition, Trust Accounting is simply bookkeeping of bank trust account under state requirements which involves separating the expenses of a trust account into different categories. Some of the expenses for the practice include legal documents, notaries, accountancy, court fee and it is important to run the money from the Trust account relating to these expenses. At the end of the practice, based on your work, the final invoice will be sent to the client for payment.


What Is Required For Trust Accounting?

  • Follow regulations, each state bar has a different set of rules governing trust funds, we need to make sure that we keep up with any changes to maintain compliance.

  • Keep all trust funds separate from business funds

  • Tracking of all transactions (deposits and disbursements). Every financial transaction made with a trust fund needs to be recorded with a detailed ledger for transparency.

  • Monthly reconciliation of the account.

What Are the Responsibilities of a Trustee?

Base on the above requirements, we can assume some responsibilities of a trustee (can be a trusted accountant or an attorney) as follow:

  • Administration of the trust prudently and in good faith when it comes to the needs of the clients.

  • Proper handling of all tax matters related to the trust account.

  • Keeping accurate and true accounts of all transactions with receipts and proof of payment as support.

  • Ensuring that the trust account is always available to be inspected by the clients.


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If you, as a business owner, see that you cannot handle accounting on your own, consider hiring an accountancy service for contractors to help you with it.

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