With trust accounting being a malpractice trap, many attorneys choose to structure their fees and payment plans to avoid using their trust accounts. Trust accounting best practice #2: Use the trust account as little as possible Having these documents on hand will be useful for trust reconciliations and annual Trust Report requirements. This will ensure that the financial institution reports all activities and balances in your trust account at month-end and year-end dates. When setting up a new trust account, ask your financial institution to provide trust account statements at the end of the reporting period. On the other hand, a criminal practice may require only one pooled trust account. It’s common for law firms to operate one or more pooled trust accounts depending on the nature and needs of the practice.įor example, law firms that handle real estate matters may require several pooled trust accounts at different financial institutions. However, in some jurisdictions, you can’t even practice without having a trust account-even if it’s for pro bono work. Having a trust account to comply with legal trust accounting regulations might seem obvious, but many attorneys actually choose to forego having an account. Trust accounts can be pooled (holding funds for more than one client) or separate (usually if it’s a larger sum of money or explicitly requested by the client).īest practices for trust accounting Trust accounting best practice #1: Have an account We’ve explained what trust accounting is-but what is a trust account? There are two types. It pays to know the basics of trust accounting. If you, or your bank, make one mistake, it could cost you your license. Plus, you’ll likely encounter a system of banks and credit card processors that are far too often ignorant of said rules. This includes unearned fees (typically paid as a retainer), settlement funds, or advanced costs and court fees.Īttorneys striking out on their own-either as newly-minted bar members or as veteran attorneys hanging their own shingle-will have to deal with a frustrating obstacle course of bar rules. Keep money that isn’t yours in a separate account so that you don’t accidentally spend it. The second rule above means that lawyers also need to keep a watchful eye on how much each client has in trust, as they cannot use one client’s money to cover expenses for another client.Ĭonceptually, trust accounting is simple. The firm must maintain accurate and detailed records of the money coming in and out, and must use the client’s own money for their own matters.Funds in trust must not commingle with the firm’s funds.While each jurisdiction has its own requirements, the two main rules they have in common are: Trust accounting is keeping track of client funds that are held in trust. This article will take you through the basics of trust accounting for law firms. Practice for a few years, and you’ll undoubtedly hear horror stories of that one attorney who made a mistake-just that one time -and lost their ability to practice law. The concept of trust accounting can be one of the most feared and mythologized by lawyers when it comes to running a law firm. What is trust accounting? Essentially, it’s necessary to keep separate track of client funds given in trust, away from law firm operating funds.
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