The Costly Trust Account Mistakes Attorneys Make

Trust Account & Business Account Mix-Ups

• Even transferring one dollar from a trust account for firm expenses can get you in trouble.
• Solution: Keep separate, clearly labeled trust and operating accounts.

Withdrawing Funds Too Early

• You can’t take fees from a trust account before they’re earned. Some attorneys assume it’s fine if the client “agrees”—it’s not.
• Solution: Bill clients properly, transfer funds only after they’re earned, and document the transaction.

Poor Record-Keeping

• Incomplete records are a huge red flag. If an auditor asks for documentation and you can’t produce it, you’re in trouble.
• Solution: Maintain a detailed ledger, track every deposit and withdrawal, and reconcile accounts monthly.

Failing to Reconcile Accounts

• If you’re not checking balances against records every month, you might not even realize there’s a problem.
• Solution: Set up three-way reconciliation (Client ledger + Trust account + Bank statement).

Holding Large Client Funds in IOLTA When You Shouldn’t

• Short-term and nominal funds belong in IOLTA. Larger, long-term client funds? They must go in a separate interest-bearing trust account.
• Solution: Know when client funds should be kept outside IOLTA and set up separate accounts when required.

DC Trust Account Rules (IOLTA Compliance)

Mandatory IOLTA Participation – If you hold client funds, they must go in an IOLTA account unless an exemption applies.

Proper Account Setup – The account must be interest-bearing, with interest remitted to the DC Bar Foundation.

Account Labeling Requirement – Your trust account must be clearly labeled as a Trust Account or IOLTA Account.

Detailed Record-Keeping – Maintain:

• Client-specific ledgers
• A check register for all trust transactions
• Deposit records & monthly reconciliation reports

Full DC IOLTA Guidelines: dcbarfoundation.org

Florida Trust Account Rules (IOLTA Compliance)

IOLTA Account Requirement – All nominal or short-term client funds must be in an IOLTA account at an approved institution.

Interest Goes to The Florida Bar Foundation – Attorneys cannot keep any interest earned on IOLTA accounts.

Overdraft Notification Rule – Florida requires banks to report overdrafts or insufficient funds in trust accounts to the Bar.

Trust Account Reconciliation & Record-Keeping – You must maintain:

• A client ledger for each client’s funds
• Copies of all deposit slips, checks, and transactions
• Monthly reconciliations to match the bank balance with trust account records

Full Florida IOLTA Guidelines: fundingfla.org

Weekly Practices:

• Review Transaction Records: Examine all deposits and withdrawals to ensure they align with client instructions and case activities.
• Update Client Ledgers: Ensure each client’s ledger reflects accurate balances after every transaction.
• Monitor for Overdrafts: Check for any overdrafts or irregularities, addressing issues immediately to maintain compliance.

Monthly Practices:

• Reconcile Bank Statements: Compare trust account records with bank statements to identify and rectify discrepancies.
• Audit Compliance Checklists: Verify adherence to DC and Florida Bar IOLTA rules, ensuring all protocols are followed.
• Review Fee Agreements: Confirm that fees withdrawn correspond to services rendered, with proper client authorization documented.
• Secure Documentation: Organize and securely store all records, maintaining backups to safeguard against data loss.

Worried About Compliance? Let’s Make This Easy

One mistake can lead to serious consequences—but with the right help, you can stay compliant and focus on what you do best: practicing law.

Let’s make sure your trust accounts are rock solid. Book a free consultation today and take compliance worries off your plate.