Trust accounts, also known as IOLTA accounts, are used for the purpose of protecting client property. To manage them properly and stay compliant, firms need to avoid the commingling of firm and client funds.
At all times, any monies belonging to a client and not the firm should be in a trust account. Any client funds should always be deposited directly into the trust account, rather than depositing them into the operating account and then transferring to the trust account.
Any retainer amounts should be kept in a trust account. Under certain circumstances, some states allow fees earned in advance to be placed into the firm’s operating account. If you are unsure, it’s always better to place client retainer funds in a trust account.
Once services are completed and the client approves a bill, those retainer funds should immediately be moved out of the client’s trust account. At no time should earned client fees from a retainer remain in the trust account, as once the invoice is approved those funds no longer belong to the client and then become the property of the firm.
If you are holding funds related to a settlement payout, those should always go into a trust account. Even though you may need to make payments to third parties and will need to take fees from the payout, the initial check should be deposited to the client’s trust account. Once the client approves the payments, those funds can then be moved out of the trust account.
Escrows or Estate Administration
If you are holding funds in escrow or are responsible for administering an estate, you should keep all funds in a trust account. Depending on your jurisdiction, a separate client trust account may be warranted. Be sure to check with your local bar association for clarification.
Firm funds should never be placed into a trust account. Instead, the firm should have an operating account where these balances are kept.