Trust Account Reconciliations: Ensuring Accuracy and Compliance for Indiana and California Attorneys
April 29, 2025
Trust Account Recordkeeping: Essential Practices
May 8, 2025
How to Avoid Trust Account Discipline
Managing client trust accounts is a fundamental responsibility for attorneys, and mishandling these accounts can lead to severe disciplinary actions, including fines, suspension, or even disbarment. Understanding common pitfalls and implementing best practices are essential steps to maintain compliance and uphold your professional reputation.
Common Trust Account Violations and How to Avoid Them
Commingling of Funds 
Commingling occurs when an attorney mixes personal or firm funds with client funds in a trust account. This practice is strictly prohibited and can lead to significant disciplinary action.
Avoidance Strategy:
- Maintain Separate Accounts: Always keep client funds in a designated trust account, separate from the firm’s operating account.
- Deposit Funds Promptly: Ensure that client funds are deposited into the trust account as soon as they are received.
Misappropriation of Client Funds 
Using client funds for any purpose other than that intended by the client is considered misappropriation and is a serious ethical violation.
Avoidance Strategy:
- Withdraw Funds Only When Earned: Transfer funds from the trust account to the firm’s operating account only after they have been earned or expenses have been incurred on behalf of the client.(https://www.lawpay.com/about/blog/trust-accounting-for-lawyers/)
- Obtain Client Consent: Always secure explicit consent from the client before making any disbursements from their funds.
Inadequate Record-Keeping 
Failure to maintain accurate and detailed records of all transactions related to client trust accounts can lead to compliance issues and disciplinary measures.
Avoidance Strategy:
- Implement Robust Accounting Systems: Utilize legal-specific accounting software to track all trust account transactions meticulously.
- Regular Reconciliations: Perform monthly reconciliations of trust accounts to ensure accuracy and identify discrepancies promptly.
Failure to Provide Timely Accountings 
Clients have the right to receive timely and accurate accountings of their funds held in trust. Failure to provide this information upon request can result in disciplinary action. (https://www.findlaw.com/legalblogs/strategist/ethical-dilemma-of-the-week-accounting-mistakes-and-client-funds/)
Avoidance Strategy:
- Proactive Communication: Regularly update clients on the status of their funds and provide detailed accountings without delay when requested.
- Documentation: Keep thorough records of all communications with clients regarding their trust accounts.
Lack of Oversight and Supervision 
Delegating trust account management without proper oversight can lead to errors or misconduct by staff, for which the attorney remains responsible.
Avoidance Strategy:
- Establish Internal Controls: Develop and enforce policies and procedures for handling trust accounts, ensuring that all staff are adequately trained.
- Regular Audits: Conduct periodic internal audits to verify compliance with trust account regulations and identify potential issues early.
When Trust Account Mismanagement Goes Wrong: Real Cases & Lessons for Attorneys 
Thomas Girardi: From Legal Titan to Disbarred & Convicted
What Happened?
Thomas Girardi, once a powerhouse attorney in Los Angeles, stole at least $2 million from client trust accounts—money meant for families of victims of a plane crash.
The Consequences:
- Girardi’s assets were frozen, and he faced over 100 lawsuits for mismanaging client funds.
- Disbarred by the California State Bar in 2022.
- Convicted of federal wire fraud in 2024, facing potential life in prison.
Lesson: Even the most powerful attorneys are not above the law. Mishandling client funds—even temporarily—can destroy your career.
More on the case: Thomas Girardi Scandal
Michael Avenatti: Fraud, Lies & 14 Years in Prison
What Happened?
Avenatti, famous for high-profile legal battles, embezzled millions from client settlements and submitted fake tax returns to get bank loans.
The Consequences:
- Convicted of wire fraud and tax evasion.
- Sentenced to 14 years in federal prison.
Lesson: It’s not just about trust accounts—it’s about integrity. Financial dishonesty in any form will catch up with you.
More on the case: Michael Avenatti Conviction
Scott Rothstein: $1.2 Billion Trust Account Ponzi Scheme
What Happened?
Rothstein ran a billion-dollar Ponzi scheme by faking trust account statements to convince investors to give him money.
The Consequences:
- Sentenced to 50 years in federal prison.
- Law firm collapsed overnight.
Lesson: If your trust account doesn’t match your records, that’s fraud waiting to happen.
More on the case: Scott Rothstein Ponzi Scheme
Ed Fagan: Taking Advantage of Holocaust Survivors
What Happened?
Ed Fagan, known for representing Holocaust survivors, stole their trust funds and used the money for personal expenses.
The Consequences:
- Disbarred in New York and New Jersey.
- Declared bankruptcy and lost all credibility.
Lesson: Your reputation is your biggest asset as a lawyer. Once trust is broken, you’ll never get it back.
More on the case: Ed Fagan Disbarment
What Attorneys Can Do to Stay Compliant & Avoid These Mistakes
If you don’t want to end up in the headlines, follow these steps to keep your trust account clean and compliant:
Keep Client & Business Funds Separate: Never mix firm money with client trust funds. Reconcile Your Trust Account Monthly: If your books don’t match, find out why—immediately. Track Every Dollar with Detailed Records: Keep clear, up-to-date ledgers for every client transaction. Work with a Trust Accounting Expert: Don’t guess your way through compliance.
Protect Your Law License: Get Expert Help with Your Trust Accounts
Let’s be real—managing trust accounts is a pain. But getting it wrong can end your career.
At Prestige Accounting & Consulting, we help attorneys:
Keep their trust accounts 100% compliant with state bar rules.
Perform monthly reconciliations to catch & fix mistakes.
Avoid disciplinary actions, fines, and bar complaints.Don’t wait until it’s too late. If you’re not 100% confident your trust accounts are in order, let’s fix that now.
