Client Trust Accounting for Attorneys

client-trust-accounting-for-attorneys-imageIt is the lawyers’ responsibility to maintain accurate and complete client trust accounting records for any monies held in trust for a client. Many lawyers use QuickBooks® to track their time and operating bank account activities, but are unaware that they can use it to track client trust accounts. I have worked with hundreds of lawyers and small to medium sized law firms and taught them how they can use QuickBooks® to do it all in their office.

But before we go too far, I think that it is important to go over the basics of client trust accounting and why it is so important for attorneys. In fact, one of the biggest reasons that attorneys get in trouble with their stat bar associations that we see is not being in compliance with state bar regulations concerning trust accounting.

Know the rules!

First and most important is knowing what your regulations and reporting requirements are for client trust accounting for your state. Check your state bar association for rules governing client funds, and read them thoroughly.   You need to understand the types of reporting requirements that your state mandates, and make sure that you follow these to the letter. If you need help deciphering the requirements, don’t be afraid to contact the bar for help.  Almost every state bar association has a LOMAS or Practice Management section that can help you with the requirements.

Dealing with the bank

The next step to maintaining an accurate and compliant trust account is setting up the account correctly at your financial institution. It is essential that you work with an institution that is familiar with these rules and regulations so that you will be in full compliance with the rules.  Because you are dealing with client funds, your bank needs to be aware of IOTA or IOLTA funding requirements, as well as notification requirements.  If you are unsure that a financial institution meets the requirements contact your bar association or LOMAS division for guidance.

The trust bank account is a bank account you are using to hold money for a client to cover the cost of expenses. This money is to be kept in a separate bank account and cannot be commingled with other operating funds. It must be clearly identified, using the guidelines set forth by your state rules of conduct.

When opening your trust bank account you may be required to do the following:

  • Make sure your bank knows how to handle your trust account.  It is best to open your trust account at the largest bank in your area. You can still do your daily banking at a local branch it is just best to set it up at the main location.

Bank Resolution Forms – Most State Bar Associations require the name on the account reads Trust Account, IOLTA or IOTA Trust Account spelled out.

  • Make sure the checks have Trust Account, IOLTA or IOTA Trust Account spelled out.
  • Make sure the statement has Trust Account, IOLTA or IOTA Trust Account spelled out.
  • No overdraft protection is on the Trust Account.
  • No ATM card is issued with the Trust Account.
  • If you are going to accept payments into the Trust Account using credit cards you may be required to set up a merchant account that will deposit the funds directly into the Trust Account.

As a final suggestion it is highly recommended, and you may be required, that once you set up your trust account with your financial institution that you may need to send a letter to them asking them to notify the bar in the event of a NSF or other returns absent bank error on the trust account. You need to check with your state to find out if this is required. Here is an example of the letter that the State of Florida uses (PDF) or (Word).  You can also take a look at some of the other trust accounting & IOLTA documents that we have on our resources page for download.

You can use QuickBooks® for client trust accounting

Once you have your accounts established, and you know the rules and regulations, your halfway home.  Now it is time to put all you know into practice.  While there are many different methods and software programs that you can use to track client trust accounts, we recommend leveraging the power of QuickBooks® to handle all of your accounting and reporting needs.  While QuickBooks® is not specifically written for Attorneys, we have developed a system that can help you do everything that you need to do.

Be careful, however.  There are many people online that are offering free advice on how to setup QuickBooks® for client trust accounting.   I have read many of them, and almost all of them are missing steps, or just off the mark completely.   Many years of experience with hundreds of law firms – from solo practices to multi-partner firms – has given us the expertise in this area.  We can teach you how to setup and use QuickBooks® efficiently for tracking your Trust Account.   After all, we wrote the book on the subject – Client Trust Accounting Using QuickBooks®.  Check out our books for lawyers, or give us a call and we can help you get started.

About Lynette Benton

Lynette Benton is a Certified QuickBooks ProAdvisor and offers over 18 years experience working with QuickBooks and lawyers. She has set up hundreds of small businesses and law firms and trained staff members how to get the most out of QuickBooks with the least amount of time.