How attorney trust accounts are commonly run.

An attorney trust account holds money that belongs to clients or third parties, such as advance fees, settlement funds and deposits, separately from the firm's own money. The shared principles are: never mix client money with firm money, keep a separate ledger for each client, never pay out more than a client has in the account, keep complete records, and reconcile the account on a regular schedule.

IOLTA stands for Interest on Lawyers' Trust Accounts. It is a US arrangement in which nominal or short-term client funds are pooled in one account and the interest goes to a state program, usually funding legal aid. Other countries use client accounts or trust accounts under their own rules, which follow similar principles with different details.

The specifics, such as how often you must reconcile, how long records are kept, which banks qualify and when overdraft notices go to the regulator, are set by each jurisdiction. This guide is general information, not legal advice. Check your own regulator's current rules and, where in doubt, ask your bar's ethics or trust accounting helpline.

No commingling.

Client money and firm money stay in separate accounts. Firm money in a trust account is commonly allowed only in a small amount to cover bank charges, where the rules permit it. Earned fees are moved out promptly rather than left in trust.

One ledger per client.

Every deposit and payment is recorded against the client or matter it belongs to. The total of all client ledgers should always equal the trust account's book balance.

No negative client balances.

A payment for one client must never be funded with another client's money. Paying more than a client holds is a breach even when the pooled account has enough money in it.

Cleared funds before disbursement.

Many rules say you should not pay out against a deposit until the funds have cleared, because a returned check leaves other clients' money covering the gap.

Regular reconciliation.

Many jurisdictions require a monthly or quarterly reconciliation of the bank statement, the trust book balance and the client ledgers. Check your own rules for the required frequency and sign-off.

• A receipts and disbursements journal for each trust account, in date order.
• A ledger for each client showing every transaction and a running balance.
• Bank statements, deposit records and cancelled check images or equivalent.
• Signed, dated reconciliation reports for each period, with any differences explained.
• Written authority or an invoice for every transfer from trust to operating.
• Records of interest, bank charges and any adjustments, with the reason.
• Retention of all of the above for the period your rules set, which is commonly several years after the matter ends.

In many US states, banks that hold IOLTA or trust accounts agree to notify the regulator if a trust check is presented against insufficient funds. An overdraft notice commonly leads to a request for records, so a firm with clean ledgers and filed reconciliations can answer quickly.

Random or targeted trust account audits, sometimes called an attorneys trust account audit program, exist in a number of jurisdictions. Auditors usually ask for client ledgers, the journal, bank statements and reconciliations for a sample period. The simplest preparation is to keep each month's reconciliation filed and to fix differences in the month they appear.