What do I do if a client overpays?
If a client overpays, those additional funds belong to the client and at no point should the law firm keep them. It is the lawyer’s responsibility to make sure those funds make it back to the client. Those funds should be placed back in the client trust account and a diligent effort made to reimburse […]
Do I need to keep original canceled checks for compliance purposes?
Rule 1.15 of the American Bar Associations’ model requires lawyers to keep complete records for trust accounts. As part of this, lawyers should be prepared to keep supporting documentation for all transactions and balance amounts. When acting as a fiduciary for client funds[1], part of that responsibility requires lawyers to be able to substantiate their […]
How do I handle interest on settlement funds?
The handling of interest from settlement funds kept in trust accounts falls under Model Rule 1.151 regarding the safekeeping of property. Because the funds are considered to be the property of the client as long as they remain in the trust account, the client may be entitled to any interest accrued during its term in […]
How should I record trust deposits?
No matter what type of accounting your firm uses, trust account deposits should be recorded using the principles of double-entry accounting[1]. In double-entry accounting, each transaction is entered twice: once as a credit and once as a debit. Which accounts the transaction is applied to will be determined by how your firm’s chart of accounts […]
How to Avoid Client Ledger Overdrafts
Keeping track of individual client ledger balances and making sure there are sufficient funds to cover any disbursements is a requirement of trust accounting compliance[1]. To prevent a situation where there is an overdraft on a client trust account, you must keep careful track of the balances of each individual trust account. These funds are […]
What trust accounting reports should my firm be generating?
Maintaining proper trust accounting records is crucial in order to ensure accurate bookkeeping, provide an audit trail, and clearly establish proper trust account handling to maintain compliance. Also known as IOLTA accounting, managing these specialized client accounts requires diligent reporting. Each state varies in its specific report requirements, but the following are a list of […]
What types of funds should and shouldn’t be in trust accounts?
Trust accounts, also known as IOLTA accounts, are used for the purpose of protecting client property. To manage them properly and stay compliant, firms need to avoid the commingling of firm and client funds. At all times, any monies belonging to a client and not the firm should be in a trust account. Any client […]
How do I maintain trust account compliance?
In order to maintain trust account compliance, be prepared for an audit[1] and avoid sanctions, firms need to adhere to a number of requirements. At all times, lawyers should keep in mind they are acting as fiduciaries for trust funds belonging entirely to their client and that no trust accounts funds are the property of […]
When can I transfer earned fees from a trust account?
Earned fees should promptly be moved to the firm’s operating account from the client trust account[1]. The trust account is meant for funds that belong to the client only, and once the fees are earned, they are no longer the property of the client. To avoid commingling, those funds need to be transferred to the […]
How do I set up a trust account?
If you will be handling client funds that need to be kept in a trust account, you want to make sure you set up the account properly. Not only are there numerous regulations as to how the account should be maintained, but there are also rules on what banks can be used and how the […]
