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Trust Account Guidelines for Multistate Practices: Staying Compliant Across Jurisdictions
For law firms operating in multiple states, trust account compliance becomes significantly more complex. Each jurisdiction has its own IOLTA rules, recordkeeping requirements, and reconciliation standards—and failing to comply in even one state can lead to serious disciplinary consequences.
If your firm handles client funds across state lines, understanding the unique challenges and best practices for multistate trust account management is essential.
This guide covers:
Common trust account challenges for multistate firms Key differences between state IOLTA rules Best practices for maintaining compliance across jurisdictionsCommon Trust Account Challenges for Multistate Firms
Operating in multiple states means navigating multiple sets of trust accounting rules. Here are the biggest challenges firms face:
Varying IOLTA Participation RulesNot all states treat IOLTA participation the same way. Some require mandatory enrollment, while others allow optional participation for certain attorneys.
Example:
- California & Florida: Mandatory IOLTA participation for all attorneys handling client funds.
- Kansas: IOLTA participation is optional unless the attorney is handling qualifying client funds.
Solution: Firms must register and maintain separate IOLTA accounts in states where participation is required while ensuring compliance with reporting obligations.
Separate Trust Accounts for Each State? It Depends.In some jurisdictions, multistate firms can use a single IOLTA account for multiple states, while others require separate trust accounts for each state where client funds are handled.
Example:
- Florida requires firms with offices in multiple states to maintain a separate Florida trust account for Florida client matters.
- New York allows multistate firms to use a single IOLTA account, provided it meets all NY state requirements.
Solution: Check each state’s bar rules to determine whether your firm needs state-specific trust accounts. If using a single IOLTA account for multiple states, confirm that it meets all applicable regulations.
Different Recordkeeping & Reconciliation RequirementsTrust account reconciliation and record retention rules vary by state, meaning firms must ensure compliance with the strictest applicable regulations.
Example:
- California requires attorneys to perform a three-way reconciliation monthly and retain records for at least five years.
- Texas requires trust account records to be maintained for a minimum of six years.
Solution:
Perform monthly three-way reconciliations across all accounts. Retain trust account records for the longest retention period required by any state in which your firm operates.
Handling Trust Account Interest CorrectlyWhen a firm operates in multiple jurisdictions, interest generated from IOLTA accounts must be directed to the correct state program.
Example:
- California IOLTA funds must be directed to the California State Bar Foundation.
- Illinois requires IOLTA funds to be sent to the Lawyers Trust Fund of Illinois.
Solution: Ensure each IOLTA account is set up to remit interest to the appropriate state and verify compliance with each jurisdiction’s reporting requirements.
Best Practices for Managing Multistate Trust Accounts
Successfully managing trust accounts across multiple states requires a structured compliance approach.
Centralize Oversight While Maintaining State-Specific Compliance
- Designate a trust account manager or CPA to oversee firm-wide compliance.
- Maintain a state-by-state compliance checklist to track each jurisdiction’s trust account rules.
Use Legal-Specific Trust Accounting Software
- Choose a legal accounting platform that can track multiple trust accounts and reconcile them separately.
- Popular options include Clio, LeanLaw, and Cosmolex—which can automate compliance tracking across multiple states.
Set Up Internal Audits for Each Jurisdiction
- Conduct internal audits at least twice per year to identify discrepancies or compliance risks.
- Work with a CPA experienced in multistate trust accounting to ensure all accounts meet jurisdictional requirements.
Train Your Team on Multistate Compliance
- Ensure that all attorneys and staff handling trust accounts understand the differences in state rules.
- Implement written trust account policies that outline firm-wide and state-specific procedures.
Final Thoughts: Ensure Compliance Across Every Jurisdiction
Multistate firms must go beyond standard trust account compliance to navigate the complexities of state-specific regulations. By implementing structured processes, leveraging legal accounting technology, and staying proactive with internal audits, firms can avoid compliance violations and ensure the integrity of client funds.
If your firm operates across multiple states and you want to ensure your trust accounts are fully compliant, we can help. Schedule a free consultation to review your multistate trust account procedures and safeguard your practice.
