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Trust Account Basics: A Quick Reference
What goes in trust, what stays out, which records to keep and how to reconcile.
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A trust account holds money that belongs to someone else. The rules on it are among the strictest a lawyer faces, because mistakes harm clients and are easy to prevent. This page is a quick reference, not legal advice.
The model for most state rules is ABA Model Rule 1.15, Safekeeping Property. States adopt their own versions, add detailed rules on accounts and records, and some run overdraft notification or random audits. Your state bar’s rules and guidance have the final word.
What goes in and what stays out
| Money | In trust? | Note |
|---|---|---|
| Advance deposit for fees not yet earned | Yes | Moves out only as fees are earned, under Rule 1.15(c) |
| Advance deposit for costs not yet incurred | Yes | Moves out as costs are incurred |
| Settlement or judgment proceeds | Yes | Held until paid out to the client, lienholders or others entitled to it |
| Funds held for a third party | Yes | Follow the agreement and your state’s rules |
| Fees already earned | No | Move them out promptly, and record the transfer |
| The firm’s operating money | No | Mixing it in is commingling |
| A small amount of firm money for bank charges | Limited | The model rule allows only the amount needed for that purpose |
| Flat fees | Depends | Varies by state and by the wording of the agreement |
IOLTA or a separate account
An IOLTA account pools funds that are small in amount or held for a short time, so the interest would not be worth earning for any one client. The interest goes to a state program, typically legal aid. If a client’s funds are large or will be held for a long time, a separate interest-bearing account for that client, with interest paid to the client, may be required. Your state sets the test, and it also decides which banks are eligible.
Records to keep
- A ledger for each client, showing every deposit and payment with a running balance.
- A journal or check register for the account as a whole.
- Bank statements, deposit records and images of cancelled checks.
- A written record of each monthly reconciliation.
The model rule uses five years after the representation ends, and the number sits in brackets because each state chooses its own. Check your state’s period before you destroy anything.
The monthly reconciliation
Three figures must agree: the bank balance adjusted for outstanding items, the balance in the firm’s trust journal and the total of all client ledgers.
- Start with the ending balance on the bank statement.
- Add deposits not yet shown and subtract checks not yet cleared.
- Compare the result to the journal balance.
- Add up every client ledger and compare that total to both.
- If anything differs, find the cause before making further transactions.
No client ledger should ever go below zero. Paying one client’s expense from another client’s money is the classic way trust violations start.
Moving money
- Record the client, the matter, the source and the date on the day a deposit arrives.
- Do not pay out against a check that has not cleared. If it fails later, the money you paid out belonged to other clients.
- When a fee is earned, transfer exactly that amount to the operating account and note it on the ledger and the invoice.
- Under Rule 1.15(e), property in which two people claim an interest stays separate until the dispute is resolved, and the undisputed part is paid out promptly.
- Rule 1.15(d) asks you to tell clients promptly when you receive funds for them and to account for the money on request.
Common mistakes
- Paying a firm expense from trust “just for a few days.”
- Depositing an advance fee into the operating account.
- Letting a staff member run the account with no review. Delegating the work is fine, but the lawyer remains responsible for it.
- Taking card payments for advance deposits without confirming that they land in the trust account and that processing fees come from the operating account.
- Leaving old balances sitting for years without a plan. Unclaimed property rules vary by state.
For the vocabulary, see the law office glossary. The billing and trust accounts guides cover day-to-day practice.
Quick answers
When can I move money out of the trust account to myself?
When the fee is earned under your agreement and the funds are collected. Record the transfer on the client's ledger and show it on the invoice. If the client disputes the amount, the disputed portion stays in trust until it is resolved.
Can I leave some of my own money in the account to cover bank fees?
The ABA Model Rule allows it only in the amount needed to pay the account's bank charges. States differ on how they handle this, so check yours before leaving any firm money in the account.
Where do I find the rules that apply to me?
Your state bar publishes the rules on client trust accounts, and many also offer guides and an ethics hotline. Your malpractice insurer may have material as well.