Trust Account Management Guide
Critical Compliance Area
Trust account violations are among the most serious ethical violations attorneys can commit, often resulting in suspension or disbarment.
When in doubt, consult your state bar association's ethics hotline or a qualified legal ethics attorney.
23%
of attorney disciplinary actions involve trust account violations
$2.1B
total IOLTA funds held by attorneys nationwide
Monthly
required frequency for trust account reconciliation
Fundamental Trust Account Rules
Segregation of Funds
Client funds must be kept separate from attorney personal and business funds
- Maintain separate IOLTA-compliant bank account
- Never commingle client funds with personal/business money
- Establish separate accounts for different client matters if required
- Use only financial institutions approved for IOLTA accounts
Safekeeping and Protection
Attorneys must protect client funds from loss and unauthorized use
- Promptly deposit client funds upon receipt
- Maintain adequate records of all transactions
- Obtain proper authorization before disbursements
- Ensure account is properly insured and protected
Prompt Delivery
Client funds must be delivered promptly when requested or due
- Disburse funds immediately when no dispute exists
- Provide accounting of all transactions upon request
- Maintain sufficient balance for immediate disbursement
- Notify clients promptly of fund receipt and availability
Record Keeping
Maintain detailed records of all trust account transactions
- Individual client ledgers for each matter
- Complete bank account records and reconciliations
- Documentation of all deposits and withdrawals
- Retention of records per state requirements (typically 5-7 years)
Monthly Reconciliation Process
1
Bank Statement Reconciliation
Reconcile trust account bank statement to accounting records
- Obtain and review monthly bank statement
- Compare bank balance to accounting records
- Identify and investigate any discrepancies
- Adjust for outstanding checks and deposits in transit
2
Client Ledger Review
Review individual client balances and transactions
- Update all client subsidiary ledgers
- Verify individual client balances are accurate
- Confirm all client transactions are properly recorded
- Check for any negative client balances
3
Three-Way Reconciliation
Ensure bank balance equals sum of all client balances
- Calculate total of all individual client balances
- Compare to adjusted bank balance
- Investigate and resolve any differences
- Document reconciliation process and results
4
Documentation and Review
Complete reconciliation documentation and supervisory review
- Prepare written reconciliation report
- Have supervising attorney review and approve
- File reconciliation records in appropriate location
- Address any identified problems immediately
Required Trust Account Records
Bank Account Records:
- Monthly bank statements
- Deposit slips and check copies
- Electronic transaction records
- Bank reconciliation worksheets
Client Records:
- Individual client subsidiary ledgers
- Receipts and disbursement records
- Authorization for disbursements
- Client correspondence regarding funds
Common Violations to Avoid
Commingling of Funds
Mixing client funds with personal or business money
Potential Consequences: Disciplinary action, suspension, potential disbarment
Prevention Strategy: Maintain strict separation of all accounts and funds
Misappropriation
Using client funds for unauthorized purposes
Potential Consequences: Criminal charges, disbarment, civil liability
Prevention Strategy: Never use client funds without proper authorization
Inadequate Record Keeping
Failing to maintain required trust account records
Potential Consequences: Disciplinary action, audit requirements, sanctions
Prevention Strategy: Implement systematic record keeping and reconciliation procedures
Delayed Disbursement
Failing to promptly deliver funds to clients
Potential Consequences: Disciplinary action, interest liability, client complaints
Prevention Strategy: Establish clear procedures for prompt fund delivery
State-Specific Requirements
California:
- • Client Trust Account (CTA) requirements
- • State Bar audit authority
- • Specific record retention periods
- • Electronic signature requirements
New York:
- • Special Account (IOLA) requirements
- • Detailed record keeping rules
- • Random audit procedures
- • Mandatory reporting requirements
Texas:
- • Trust account examination requirements
- • Specific ledger maintenance rules
- • Overdraft notification requirements
- • Client notification procedures
Florida:
- • Trust Accounting Program requirements
- • Mandatory CLE on trust accounts
- • Electronic record keeping standards
- • Client security fund provisions
Technology Solutions
Recommended Features:
- • Automated three-way reconciliation
- • Individual client ledger maintenance
- • Electronic bank statement import
- • Overdraft and shortage alerts
- • Comprehensive audit trails
- • State-specific compliance reporting
Popular Software Options:
- • Practice management software with trust accounting
- • Specialized trust account software (PCLaw, QuickBooks)
- • Cloud-based solutions with bank integration
- • Mobile apps for transaction tracking
- • Integration with time and billing systems
Emergency and Problem Resolution
If You Discover a Trust Account Problem:
- • Stop all trust account activity immediately
- • Contact your malpractice insurance carrier
- • Consult with a legal ethics attorney
- • Consider voluntary disclosure to state bar
- • Document all remedial actions taken
Overdraft or Shortage Response:
- • Immediately deposit personal funds to cover shortage
- • Investigate cause of the shortage
- • Notify affected clients if required by state rules
- • Report to state bar if mandatory
- • Implement additional safeguards to prevent recurrence