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Trust Account Management 101: Keeping Your Firm Compliant
If you’re running a law firm, mismanaging your trust account isn’t just an accounting mistake—it’s a career-threatening ethical violation. And yet, many attorneys, even experienced ones, struggle to navigate the maze of trust account compliance without stepping on a landmine.
In this guide, we’ll break down what New Jersey and New Mexico attorneys need to know to stay compliant, avoid disciplinary action, and ensure their trust accounts are managed the right way. No fluff—just the critical steps you need to take.
The Most Common Trust Account Pitfalls
Before diving into state-specific rules, let’s talk about what gets attorneys in trouble when managing their trust accounts.
Failing to Separate Client Funds Properly – Keeping your firm’s money and client funds in the same account is an immediate ethics violation. Some attorneys assume that as long as they “keep track” of which funds belong to whom, they’re fine. They’re not. Not Reconciling Accounts Regularly – If you’re not reconciling monthly (or more often), you’re flying blind. That means you could miss errors or unintentional mismanagement of funds until it’s too late. Using Trust Account Funds for Business Expenses (Even Temporarily) – You can’t “borrow” from your trust account to cover firm expenses, even if you plan to put the money right back. It’s an ethical violation, plain and simple. Failing to Document Every Transaction – Every dollar that goes in and out of your trust account must have a clear, detailed paper trail. If an auditor or disciplinary board asks for documentation, “I know where the money went” isn’t going to cut it. Ignoring State-Specific Rules – Every state has its own IOLTA (Interest on Lawyers’ Trust Accounts) requirements, and failing to comply can result in hefty fines or even disbarment. New Jersey and New Mexico have strict trust account management rules—let’s break them down.New Jersey Trust Account Rules (IOLTA Compliance)
Attorneys in New Jersey must comply with Rule 1:28A of the state’s trust accounting regulations. Here’s what you need to know:
IOLTA Account Requirement – If you hold client funds that are nominal in amount or short-term, they must go into an IOLTA account at a Supreme Court-approved financial institution. Proper Account Titling – Your account must be labeled “Attorney Trust Account” or “IOLTA Account.” If your bank statement just says your firm’s name, you’re already out of compliance. Mandatory Interest Remittance – Any interest earned must be sent to the IOLTA Fund of the Bar of New Jersey. You don’t keep the interest—the bank handles this automatically, but you must ensure it’s set up correctly. Detailed Record-Keeping – The following records must be maintained for at least seven years:- A client ledger for each individual client
- A check register showing all transactions
- Monthly reconciliations
- Copies of all deposit slips and disbursement records
Annual Attorney Registration & Certification – Every year, attorneys must certify their IOLTA compliance when renewing their attorney registration with the Supreme Court.New Jersey Red Flags That Get Attorneys in Trouble:
- Not conducting monthly three-way reconciliations (Client ledger + Trust account + Bank statement)
- Holding a client’s funds in IOLTA for too long instead of moving them to an interest-bearing trust account for that specific client
- Not notifying clients immediately when funds are received (Clients have the right to know when their money arrives)
Full NJ IOLTA Guidelines: ioltanj.orgNew Mexico Trust Account Rules (IOLTA Compliance)
New Mexico’s Rule 24-109 NMRA lays out strict compliance guidelines for attorneys handling client funds.
Who Must Participate? – If you’re an attorney handling client funds, you must open and maintain an IOLTA account unless you qualify for an exemption. Choosing a Bank – The trust account must be held at a financial institution that reports overdrafts to the New Mexico Disciplinary Board. If your bank doesn’t, you’re already non-compliant. Handling Interest Properly – The interest on IOLTA accounts must be sent to the State Bar of New Mexico’s IOLTA Program. Required Record-Keeping – You must maintain:- A client-specific ledger
- Monthly three-way reconciliation reports
- Copies of all checks, deposits, and transfers
- A complete record of every transaction for at least five years
Annual Certification – Every year, you must certify IOLTA compliance when renewing your bar license.New Mexico Red Flags That Get Attorneys in Trouble:
- Not keeping individual client ledgers (Just tracking the total balance isn’t enough)
- Holding large sums in IOLTA instead of opening separate trust accounts for long-term client funds
- Failing to document bank charges (You must show that charges were covered by firm funds, not client funds)
Full NM IOLTA Guidelines: sbnm.orgFeeling Overwhelmed? Let’s Make This Easy for You
If you’ve made it this far, you’re probably realizing just how much is at stake when it comes to trust account management.
Here’s the reality: Even one small mistake in your trust account can trigger a bar audit, financial penalties, or even disbarment.
That’s why attorneys turn to Prestige CEO Jayden Doye for help.
We make sure your trust accounts are fully compliant We handle the books so you can focus on practicing law We help law firms avoid costly trust accounting mistakes
If trust accounting feels like a headache, let’s talk. Schedule a free consultation today and protect your law firm’s future.
