Attorney trust accounts serve an essential purpose: protecting clients’ funds by segregating them from the law firm’s operating accounts. Keeping client funds separate will help ensure they aren’t used for the attorney’s personal or business expenses — either inadvertently or intentionally.
Attorneys have a professional responsibility to manage these trust accounts in good faith, also known as Interest Only Lawyers Trust Accounts (IOLTA). Failing to do so can have consequences, including disbarment. Since a firm doesn’t own the money in an IOLTA, misusing it is tantamount to theft. Considering the stakes involved, stay abreast of best practices for handling and accounting for client trust accounts.
Client Trust Fund Accounting Options
According to the National Law Review, client trust funds typically are used in three situations:
There are generally two ways to maintain IOLTA funds:
Either way, it’s crucial to keep track of the sources and uses for all funds.
Best Practices for Client Trust Fund Accounting
Following these best practices demonstrates you’re using the money legally and ethically and can help build trust with clients.
Each state has legal requirements for managing client funds and billing, so familiarize yourself with the laws in your state. At a minimum, every transaction in or out of your trust accounts should be accounted for — no matter how small—and you should be able to provide accurate and timely records for all trust accounts to the state bar upon request.
Receive Free financial tips & Tax Alerts!
"*" indicates required fields
The Employee Retention Credit (ERC) Voluntary Disclosure Program is a program introduced by the Internal Revenue Service in response to certain businesses claiming the ERC improperly or failing to claim…
A recent report shows that post-pandemic global business travel is going strong. The market reached $665.3 billion in 2022 and is estimated to hit $928.4 billion by 2030, according to…
In the landscape of financial planning and tax optimization, Qualified Charitable Distributions (QCDs) stand out as a powerful mechanism for individuals looking to enhance their philanthropic impact while optimizing their…