Are lawyers trust accounts safe?

A lawyer trust account is a special bank account in which clients' funds are kept safe until it's time to withdraw them. Whether it's known as a client's fund account or a lawyer's trust account, using a lawyer trust account is a good business idea for lawyers who have money as an advance (or any other money) on behalf of a client for their case. And there are lawyer trust accounting guidelines that every lawyer should understand and follow. Take horror stories about others' fiduciary accounting failures as cautionary tales and use your learnings to inform your own fiduciary accounting processes.

However, IOLTA, which stands for “interest in attorneys' trust accounts,” allowed lawyers to place funds in interest-bearing trust accounts. While most lawyers are good at keeping copies of checks from their trust accounts, not everyone remembers that they must write down the client's name or file number on every check when it is issued. While fiduciary accounting seems like a relatively straightforward concept, keeping track of customer trusts can be tricky if managing accounts for multiple clients. When you open an attorney trust account, also known as an IOLTA account, you must be explicitly designated as such with your bank.

A legal trust accounting tool like Clio that has security measures to give you peace of mind about trust transactions will help your company to scale. Having these documents handy will be useful for trust reconciliations and annual Trust Report requirements. Each state bar association has different rules, so unless you are absolutely sure that it is allowed in your state to send advance fees as retainers and fixed fees into your personal account, you'd better deposit the funds into your attorney's trust account. Beyond the basic rule of depositing client funds into an attorney trust account in states where it is required, the rules can vary wildly from jurisdiction to jurisdiction.

This may seem obvious, having a trust account to comply with statutory trust accounting regulations, but many lawyers actually choose to give up having an account. In no case is a lawyer allowed to use a trust account such as an operating account, a savings account, or a place to hide assets. In some jurisdictions, it is not required to deposit clients' funds into a law trust account, while in others lawyers are allowed to deposit funds directly into the law firm's operating account as long as the funds have already been earned. But the rules about what money can be combined or kept can become complex, so if there is any doubt about where the client's funds should go, putting them in a lawyer trust account is the smartest decision.

Instead of eliminating all fees after they have been earned, the lawyer delays moving the trust money to reduce the risk of spending it.

Katherine Moretto
Katherine Moretto

Avid pop culture nerd. Infuriatingly humble web guru. Certified food maven. General coffee fan. Passionate zombie enthusiast. Amateur baconaholic.

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