This month we are digging into the importance of trust accounting. Stay tuned next month for a feature on how CPN Legal has assisted clients through trust account audits, and how we can help you stay ahead of an audit.


When our firms talk about ethics, too often they focus on widely known issues such as embezzlement, misrepresentation, and undisclosed conflict of interest. The truth is you are far more likely to run into ethics violations when you handle your billing incorrectly. One of the most common ways to get into trouble is by incorrectly managing your IOLTA (also known as trust) accounts. Mishandled client funds are among the number one cause of disbarment in the United States.

It’s time to check out your state’s requirements and give yourself an audit! Better to find out if and where your firm may be missing the mark than to have your state bar find it for you. Here are a few simple rules to start with, that apply to most jurisdictions.

How is your firm opening your IOLTA accounts? The answer to this question is laid out in detail in every jurisdiction. Most state bars require that IOLTA accounts be held in the state where the case is being managed.  Pay close attention to any rules regarding titling because some jurisdictions require that an IOLTA account be titled as an “attorney-client trust account.”

How is your firm handling retainers? Client retainers typically have not been earned and as a result, they must be held in an IOLTA account. Anytime you are handling unearned fees, they must be immediately placed in your IOLTA account. They may not be held in any other type of account, especially not your operating account. Many attorneys get into trouble by prematurely bringing unearned funds from their IOLTA account to their operating account.

So when can you withdraw funds? Funds may only be withdrawn from IOLTA accounts after they’ve been earned. For funds to be considered earned, you must send a bill to the client reflecting the fees earned and money to be placed into your operating account. Be sure to check your local state bar requirements as well.

What about disputed fees? You believe you’ve earned the fees from the IOLTA account but your fee is being disputed. It is best to leave those funds in the trust account until the matter is resolved. If the dispute happens after you have withdrawn funds from the trust, you may need to return those funds to the trust.

Are you paying attention to how you receive previously earned fees? Pay close attention to clients whose bills are more than the amount in the IOLTA account. It can be easy to make a simple mistake to put their funds toward the remaining balance in a trust account and leave it there instead of correctly moving it to the operating account. This type of error is the opposite of what you might expect but can still cause serious problems with your books.

Regarding refunds. If a client demands a return of their money held in your IOLTA account, then the client’s money should be returned promptly. The funds in the trust account are unearned by the firm and remain the property of the client. The same is true regarding funds remaining at the end of a case if the bill is less than originally expected and excess funds are housed in the IOLTA account.

PRO TIP: If you’re given a large amount that goes well above the fees that the case will likely cost, check your state’s rules to find out if you need to open a completely separate account to generate interest on the balance.

How intentional are you about keeping IOLTA Accounts separate? Many firms may use a general attorney trust fund which houses all of their trust accounts and shows how much of the deposited funds belong to each client. Although clients’ money is housed in the same fund, the money is not to be used interchangeably. Using software such as Clio, you will keep client trust funds separated with access to a client trust ledger.

Each state has strict rules regarding IOLTA Accounts for many reasons. Mismanaging client funds can lead to serious consequences for everyone involved. It can be very difficult to defend your firm against allegations of misappropriation of client funds. Allegations alone can be damaging to a firm’s reputation.

Need help getting your firm on track with your state bar’s guidelines? Give CPN Legal a call. We can help you!