Attorney Trust Accounts

The attorney may use his or her good faith judgment to determine which funds should and should not be placed into IOLTA accounts. If a client has reasonable grounds to believe that funds held in trust by an attorney have been misappropriated, the client can report this to the relevant Legal Practice Council. An investigation will be conducted and should the legal practitioner be found to be at fault, reparations will be ordered. Interest accrued on funds held in the trust account must be paid over to the client, provided that 5% of the interest earned will be paid over to the Fidelity Fund in terms of Section 86(5) of the Act. Trust accounts are used by legal practitioners for holding money on behalf of a client, in connection with the provision of the type of legal service the client needs.

Ensure IOLTA Account Compliance with LawPay

• IOLTA and IOLA (Interest on Lawyer Account) essentially serve the same purpose—to manage client funds temporarily held by lawyers.
• Next, we’ll answer some frequently asked questions about attorney trust account rules to help you stay compliant and informed.
• This is a significant mistake, akin to confusing a client’s checking account with your personal funds.
• In situations where an attorney believes that the client funds are to be held long enough and/or are of sufficient size to earn interest for the client net of administrative fees, such funds should not be placed into IOLTA accounts.
• This case-specific separation offers precision over IOLTA’s broader pooling, allowing firms to align funds with client expectations, like interest accrual, while still upholding fiduciary duty.
• Firms must select a financial institution approved by their state’s IOLTA program, register the account under the firm’s tax ID with an explicit “IOLTA” label, and notify the state bar of its establishment.

However, there’s plenty of room to optimize an attorney’s trust account process and avoid common pitfalls. Expect more from your legal practice management software with Smokeball’s advanced legal features. If you don’t use your trust account, it’s easier not to violate the rules as mandated by your jurisdiction—even if it’s at the cost of cash flow. It’s your responsibility to track each incoming and outgoing transaction with detailed notes, accounting for every single amount, no matter how small. At the end of every month, you are required to reconcile the account to ensure everything is accurate. These measures align with state bar oversight, protecting client assets while channeling interest to public programs, which is a key distinction from escrow’s client-focused model.

Benefits of IOLTA

Challenges arise in the form of setup costs, potential fees for third-party oversight, and the need for rigorous tracking to avoid errors or disputes. Law firms typically use IOLTA accounts for advance fee payments, retainers, or settlement proceeds awaiting disbursement when the sums or holding periods don’t justify a separate interest-bearing account. Q. If a financial institution offers no other type of account, does this mean it can continue to offer only NOW accounts?

How long should I keep records relating to my client trust account?

Instead, it will first go into the trust account so that the attorney can deduct fees, third-party claims, and expenses. Before IOLTA came about in the early 1980s, trust accounts were to be put into non-interest-bearing checking accounts since lawyers were not to benefit from their clients’ money. Furthermore, disciplinary Rule states that client funds paid to a lawyer or law firm, other than advances for costs and expenses, must be deposited into identifiable bank accounts maintained in the state in which the law office is situated. In other words, you can’t open a trust account in New York if your law practice is in New Jersey. Manage attorney trust accounts in South Africa with Nuvia’s comprehensive guide. Ensure compliance, proper record-keeping, and fiduciary duties to avoid penalties and safeguard client funds.

Why Lawyers Have Trust Accounts: A Guide to Client Funds and Ethical Practices

We are fiduciaries and the fiduciary legal standard puts the burden on the lawyer to prove that it was done right, not on the client to prove it was done wrong. Typically, trust funds are used for short-term deposits — things like money to be expended on attorney’s fees or costs in a relatively short period of time, such as under six months. Another common violation of attorney trust account rules is blending client trust account funds with your own business accounts. For example, ‘earned funds’—money that an attorney has earned for services rendered—should not remain in the trust account. Instead, these funds must be moved to your business account before being used to cover operating expenses.

Fiduciary Responsibility

• For more information about COLTAF, the IOLTA program generally, or COLTAF’s Prime Partner Program, please email
• By implementing these best practices, law firms can minimize the risk of errors, prevent commingling, and ensure the highest level of ethical conduct in handling client funds.
• If, however, the institution only offers a single NOW account, then that will simply need to be certified to COLTAF on your Financial Institution Compliance Statement.
• Transaction costs do not include the cost of printing checks or NSF charges.
• Rule 4-1.5 (e) requires that a nonrefundable fee be confirmed in a writing that explains the nature and the amount of the nonrefundable fee.

Additionally, attorneys might turn to more generalized accounting solutions like QuickBooks Online or Xero for managing their financials and record keeping, rather than Excel spreadsheets. That’s because any trust account update made in Clio will be automatically updated in QuickBooks or Xero. While trust accounting seems like a relatively straightforward concept, keeping track of client trusts can get complicated if you’re managing accounts for multiple clients. You are responsible for reading, understanding, and accounting agreeing to the National Law Review’s (NLR’s) and the National Law Forum LLC’s  Terms of Use and Privacy Policy before using the National Law Review website. The National Law Review is a free-to-use, no-log-in database of legal and business articles. The content and links on  are intended for general information purposes only.

How does Indiana’s program work?

Mishandling client funds, breaching confidentiality, or acting in a way that undermines the client’s trust can lead to severe professional and legal consequences, including disciplinary action, loss of clients, and even criminal charges. This program manages client funds held in trust by lawyers, which are typically nominal in amount or deposited for a short period only. Any interest earned on these funds is pooled together and used for legal aid, increasing access to justice for those who are unable to afford it. Nuvia is dedicated to supporting attorneys in the meticulous management of trust accounts. Our expertise in the audit of attorney trust accounts and compliance with anti-money laundering and counter-terrorist financing regulations makes us an invaluable partner in your legal practice. This process ensures compliance with rules like ABA Model Rule 1.15, with funds tracked via trust accounting software Accounting for Technology Companies and reconciled monthly to catch discrepancies early.

For example, some jurisdictions may require lawyers to place into an attorney trust account any portion of a flat fee that has yet to be earned. A lawyer can earn a fee advance in some jurisdictions, but every jurisdiction has different rules. In some jurisdictions, depositing client funds into an attorney trust account isn’t required. In others, lawyers can deposit funds directly into the law firm’s operating account if the legal team has already earned the funds. But the rules around what money can be comingled or kept can get complex, so if there is any doubt about where the client funds should go, putting them into an attorney trust account is the wisest decision.

Clients have the right to request a full accounting of attorney trust account their funds, ensuring they know exactly how their money has been handled. To see how LawPay can optimize your lawyer trust account management, schedule a demo today and discover how it can transform your trust accounting process. If you are a lawyer who maintains a qualifying client trust account and have not yet opened an interest-bearing IOLA account for making nominal or short-term deposits, you should take steps to do so immediately. Escrow accounts, by contrast, are trust accounts established to hold client funds for specific purposes, often tied to a transaction or longer-term arrangement.