Managing Client Trust Accounts: A Back-Office Balancing Act

For lawyers managing a small or independent practice, maintaining client trust accounts (CTAs) can present serious challenges.

Attorneys establishing a practice must set up a CTA or accounts designated specifically for funds that a client or third party pays against future services, such as advances on fees, costs, legal settlement amounts or escrowed amounts (e.g. for business or real estate transactions). Such accounts must be kept separate from personal or business bank accounts.

Rules governing the above accounts vary by state, but one thing is true across the board: The rules are complex, and violations can result in significant consequences — even disbarment.

In our work with growing law practices, we've identified several guidelines that are key to managing CTAs:

1. Timing is everything when it comes to accessing funds. Your firm cannot access these funds before rendering services. At that point, however, the firm must transfer the funds immediately from the CTA to the firm's operating bank account in accordance with terms established with the client.

2. Understand your state's "interest on lawyer trust account" (IOLTA) requirements. Many states require that a specific type of CTA be set up for client funds held or "pooled" together in a single trust account. The interest earned on such accounts goes to a state-sponsored IOLTA program to help with legal aid and other educational and charitable efforts.

All 50 states have IOLTA programs, and you must adhere to your state's specific guidelines. You can learn more about the ins and outs of IOLTAs in Carole Brucker's article on the topic for the American Bar Association.

3. Protect yourself with proper bookkeeping. From tracking expenses and earned revenue to invoicing the client and obtaining authorization for withdrawals, firms rely on proper bookkeeping to stay in compliance when applying trust account funds. Particularly in the case of smaller firms, bookkeeping expertise is also essential for maintaining sufficient account funds to cover associated costs, including payroll and taxes.

Going Above and Beyond
In addition to providing those protections, bookkeeping services with law-firm specific expertise — like Supporting Strategies — have document management, reconciliation/review and retention processes in place to help keep you in compliance with all recordkeeping requirements.