5 Trust Accounting Rules That Keep Law Firms Out of Trouble With the Bar
Sam's List Editorial | 2026-06-27
5 Trust Accounting Rules That Keep Law Firms Out of Trouble With the Bar For a law firm, trust accounting is the one area where a bookkeeping error can become an ethics problem. Client funds held in trust belong to the client, and state bars treat mistakes seriously even when they are honest. Getting law firm trust accounting right is less about sophistication and more about discipline around a handful of rules. Here are five that keep firms out of trouble, and what each one prevents. These are general principles. Specific requirements vary by state bar, so always check your jurisdiction's rules. The point is to understand the shape of the obligations so you can build a process that meets them. 1. Never Commingle Trust and Operating Funds Client funds belong in a separate trust account, never mixed with the firm's operating money. Commingling is one of the fastest ways to draw a bar complaint, because it blurs the line between the client's money and yours. What it prevents: the appearance, or reality, of using client funds to run your firm. 2. Reconcile Three Ways, Every Month Trust accounting requires that three numbers always agree: the trust bank balance, your book balance, and the total of every individual client's ledger. A three-way reconciliation done monthly catches errors before they compound. What it prevents: a small discrepancy quietly growing into a shortfall you cannot explain to the bar. 3. Keep a Ledger for Every Client You must be able to show exactly how much of the trust account belongs to each client at any moment. Individual client ledgers make that possible. What it prevents: the nightmare scenario of knowing the total but not being able to prove whose money is whose. 4. Only Withdraw What Is Earned Money in trust becomes yours only when it is earned or costs are incurred, and the rules around moving it require care. Withdrawing unearned funds, even temporarily, is a violation. What it prevents: dipping into client money before you have the right to it, which bars treat as a serious breach. 5. Never Let the Trust Account Go Negative An individual client's balance within the trust account should never go negative, because that means you have spent another client's money. Even a brief overdraft on one client's ledger is a red flag. What it prevents: using one client's funds to cover another's, a classic and serious trust violation. Why Specialized Bookkeeping Matters Here Trust accounting is exactly the kind of work where a generalist bookkeeper, however skilled, can create real exposure if they have never handled an IOLTA account....
