Posted On 16 Sep 2020

Trust accounting refers to carefully tracking the movement of funds into and out of a trust account, to make sure trust accounting rules have not been violated. When done well, trust accounting allows for the safe provisioning of client resources while simultaneously avoiding legal pitfalls. That’s why one of the best practices for trust accounting is to utilize trust accounting software to do some of the work for you. One way to avoid making trust accounting mistakes is to learn from the errors other attorneys have made with their accounts. Other times lawyers trust accounts will be set up independently, specifically for one client.

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Any legal analysis, legislative updates or other content and links should not be construed as legal or professional advice or a substitute for such advice. If you require legal or professional advice, kindly contact an attorney or other suitable professional advisor. TrustBooks has simplified the intricacies of trust accounting such that I can focus more on my client’s needs and less on law firm administration. The software is extremely user-friendly and accessible, and support is just an email or phone call away.

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Errors made in trust accounting can be costly, leading to fines, penalties, and civil judgments. Attorneys could even be disbarred or suspended from practice for mishandling a client’s trust funds. That’s why it’s essential to understand the basics of trust accounting and stay up-to-date trust accounting for lawyers on related bar association rules. Explore real-life horror stories to bring these rules to life and walk away with a full toolbox of trust account techniques that you need to master – from advanced trust accounting software to basic bookkeeping techniques and office-wide best practices.

• Laws and regulations governing trust accounting for lawyers can evolve, making continuous education and staying abreast of legal updates crucial for compliance.
• By implementing these best practices, law firms can effectively manage client funds in a way that upholds their professional responsibilities and reinforces the trust placed in them by their clients.
• If you’re like most attorneys, you have a love/hate relationship with them.
• Ethically, lawyers have a fiduciary duty to their clients, which includes safeguarding their assets.
• Legal accounting software can be beneficial during an audit because you can quickly create reports, reconciliations, and other evidence to establish an audit trail.

Blending Client and Business Accounts

• Remember, even if you hire an independent outside party, ultimate responsibility for your firm’s internal controls and trust accounting compliance still lies with you.
• And you can learn how to minimize the time spent managing your IOLTA account so you can get back to practicing law.
• Quite often, investigations aren’t triggered by lawyers playing fast and loose with the rules, but from the basic paper trail that is left by innocent mistakes made in management of an IOLA/IOLTA trust account.
• This is especially important at large firms with multiple locations, where record-keeping can be complex.
• If your trust accounting isn’t up to speed and needs an overhaul, let us show you how TrustBooks can streamline the process, free up some of your time, and reduce your stress.
• Compliance with trust accounting rules is also a requirement of state bar associations, making it essential for legal practice and the avoidance of disciplinary actions.
• This is a good overview of trust accounting from the American Bar Association, but we strongly recommend you do research on how your state handles trust accounting internally.

Your firm should perform trust account reconciliations on a monthly basis. Another good practice is to verify that the total sub-ledger balances agree with the general ledger balances and the related bank reconciliations. In addition to the monthly reconciliations, someone besides the person who oversees the monthly process should review reconciliations, unannounced, at least once a year. TrustBooks is an affordable, intuitive trust account management solution. Monthly and quarterly trust account reconciliations are much easier with TrustBooks.

How LeanLaw Can Make Accurate Trust Accounting Work for Your Firm

Attorneys have a duty to keep very detailed records of trust account monies. Likewise, any checks issued should be immediately recorded in the check register. Errors, even unintentional ones, can be damaging to attorneys and firms. Create client ledgers and maintain appropriate bookkeeping of account balances with https://www.bookstime.com/ LeanLaw’s automated trust reports. And even though you most likely know that correct trust accounting is important, it’s vital that every attorney knows that it’s even more than that. Implementing a formal process for requesting and approving new trust accounts can help make this situation more manageable.

Navigating Trust Accounting: A Balancing Act

Your responsibility as an attorney is to manage the trust, but you don’t own the assets placed there. You must maintain a strict separation between trust assets and your own assets, including when reporting income. There are many types of trust accounts, and people choose to create them for many reasons. For example, escrow accounts might be used for real estate expenses, and trusts can be established to handle inheritance or estate planning. However, losing data for your trust account can create an accounting nightmare.

But this is exactly the kind of slippery slope that encourages bad trust accounting. If you don’t enforce a strict distinction between client and business accounts, you’re asking for trouble down the road. This guide will provide an overview of trust accounting, talk about the challenges of remaining in compliance with trust account rules, and discuss various software tools that make trust accounting safer and easier. That said, trust accounting for lawyers can still be a complex and intimidating part of practicing law and lead to large consequences if it’s not done correctly.

Common Mistakes in Trust Accounting

An attorney should maintain control of authorizing transfers from trust accounts. For greater accountability, it can also be beneficial to require the signature of two attorneys on trust account checks exceeding a certain amount. Backing up data daily is the best way to ensure you don’t lose any information. A comprehensive legal trust account software can automatically perform data backups each day to avoid this problem.