Why Trust Accounts Matter: A Bookkeeperā€™s Guide to Protecting Client Funds in Law Firms
Jul 28, 2025In the legal world, trust is more than a professional courtesy—it’s a binding responsibility. Law firms are not only stewards of confidential information but also temporary guardians of client money. That’s why trust accounts are a cornerstone of legal practice, and as bookkeepers, it’s our job to help ensure they’re managed with absolute precision.
In this post, we’ll break down what trust accounts are, why they matter, and how your firm can maintain them properly, because compliance isn’t just about avoiding trouble; it’s about honoring the trust clients place in their attorneys.
What Is a Trust Account—and Why Is It So Important?
A lawyer trust account (also referred to as an IOLTA—Interest on Lawyers’ Trust Account—or simply a client trust account) is a bank account established to hold client funds separately from a law firm’s operating capital. These funds might include retainers, settlement proceeds, or filing fees paid in advance.
Think of a trust account as a financial firewall—it ensures that client money is used only for its intended purpose, not for overhead, payroll, or any other business expense. This separation isn’t optional; it’s legally and ethically required in every U.S. jurisdiction.
But beyond compliance, properly managing a trust account signals something more profound: it demonstrates to a client that their attorney is trustworthy, transparent, and acting with integrity.
Why Mishandling Trust Funds Is So Risky
The stakes are high when it comes to managing client funds. Mishandling trust accounts—whether through commingling, delayed disbursement, or sloppy recordkeeping—can lead to serious consequences, including:
- Bar complaints or disbarment
- Loss of client confidence
- Damaged reputation
- Criminal liability in severe cases
Trust account violations are one of the most common causes of attorney disciplinary action, according to state bar associations. Even well-meaning firms can find themselves in hot water if their systems aren’t airtight.
The Right Way to Manage a Trust Account: Key Steps
Proper trust account management is a team effort between attorneys and their bookkeepers. Here are the essential best practices to follow:
1. Open a Dedicated, Compliant Account
This must be a separate, clearly labeled trust account at an FDIC-insured bank. In some states, only approved financial institutions can be used for IOLTA accounts, so be sure to verify requirements with the relevant bar association.
2. Maintain Detailed, Up-to-Date Records
Every deposit, withdrawal, and interest accrual must be tracked meticulously. Client ledgers should reconcile with the trust account balance at all times. Regular reconciliations—ideally monthly—are critical.
3. Never Comingle Funds
Client money must never mix with firm funds. Even temporarily. This includes using trust funds to cover firm expenses or depositing checks made out to the firm into the trust account.
4. Disburse Funds Promptly
Once funds are earned or expenses are due, timely disbursement is essential. One of the most common issues we see is firms forgetting to transfer earned funds from trust to the operating account, which may not harm the client but puts the firm out of compliance.
5. Be Audit-Ready
Firms must be prepared to provide trust account reports to clients, auditors, or regulators. Keeping clean, accurate records helps the firm stay ready for audits and instills confidence in clients.
The Bookkeeper’s Role: Supporting Compliance Every Step of the Way
As a bookkeeper, you’re the unsung hero in maintaining trust account integrity. You’re the one making sure:
- Funds are tracked to the penny.
- Reconciliations are completed on time.
- Records are organized and audit-ready.
- Attorneys understand their obligations and don’t let deadlines slip.
Your role isn’t just about managing money—it’s about safeguarding trust.
Final Thoughts: Trust Is Earned—and It’s Protected Through Process
A law firm’s reputation is only as strong as its systems. When you help attorneys manage trust accounts properly, you’re not just keeping the books—you’re reinforcing the foundation of their professional credibility.
In an era where clients are more informed and compliance is more closely monitored than ever, doing things “by the book” is more than good practice—it’s a competitive edge.
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