In this instructional video, Lynda Artesani delivers a concise, practical refresher on trust accounting for bookkeepers serving law firms. She explains what IOLTA (Interest on Lawyers Trust Accounts) are, why the interest earned benefits legal aid, and emphasizes the paramount rule of never commingling client funds with firm or personal accounts. Drawing on ABA Model Rule 1.15 and state-specific bar requirements (e.g., California’s 48‑hour correction rule), she outlines core compliance obligations: prompt deposit of client money, detailed transaction records, and regular three‑way bank reconciliations. Artesani highlights frequent pitfalls—accidental commingling, premature disbursements, skipped reconciliations, poor documentation, and mishandling of stale or unclaimed funds—and provides concrete corrective workflows, such as strict deposit procedures, monthly repeatable checklists, matter‑level ledgers, and scheduled trust reviews with attorneys. She stresses the importance of transparent communication with clients, including required balance notifications. Recommended software tools (Clio, LeanLaw, TrustBooks) are mentioned to streamline these processes. The video concludes with a free downloadable monthly trust reconciliation checklist and a preview of the next topic (chart of accounts).
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Hi, I'm Lynda Artesani, and welcome to the Accountants Law Lab. If you're a bookkeeper working with law firms, you already know that trust accounting can be scary. One small error can risk triggering a bar complaint for your client. In this video, I'm going to give you a clear, no-fluffed trust accounting 101 refresher. In fact, this entire month is going to be about refreshing and honing and tweaking our skills that we need as legal bookkeepers. So this is going to give you exactly what every legal bookkeeper needs to know about IOLTA accounts and all about client trust rules and common mistakes and the practical systems that keep you compliant. Stick around to the end for a free monthly reconciliation checklist that you can download in the description. So let's start with the basics. What is IOLTA? So IOLTA stands for Interest on Lawyers Trust Accounts. These are specially pooled bank accounts that hold client funds that are either small amounts or short-term. Instead of opening hundreds of interest-bearing accounts, the money sits together in one IOLTA bank account. The trust is earned on the monies that are sitting there and goes to the State Bar Foundation to fund legal aid. It's not for the lawyer. So that's the first thing. When you see the trust interest come in, you want to see the interest go out, and that's what it's supposed to do. So the number one rule with trust accounting is never mix client money with the firm's operating account or the attorney's personal funds. As the bookkeeper, you're usually the gatekeeper of making sure that every retainer and settlement check Hits the trust account immediately. Compliance isn't just red tape. It protects your client from fines, suspension, and disbarment. So for you, this means fewer stressful audits if you have cleaner books and stronger client relationships. Get this right and you become way more valuable to every law firm you serve. And I can tell you this firsthand because we took on a client that had a really tough time. Wasn't so much with the trust accounting. It was more with the books in general. And the best words they could say to me was, I can finally sleep at night. So this is what makes our job so special because a lot of these lawyers will come to us with messy IOLTA accounts. And it's our job to know the rules, learn the bar rules for the place that the attorney works. And most rules all have ABA's model rule is 1.15. It's the core requirements are to keep the funds that belong to clients separate from the attorney's funds. Prompt deposit of client money. This is probably the biggest area that we see where a client will maybe not manage their funds properly is they'll leave it sitting around inside. They won't move it out of IOLTA because they're afraid to, because they're not sure if the balances are what they're supposed to be. And also The other rule is to keep detailed records of the client's money. So I think that every transaction should tell a story. If there's an impropriety, like just a mistake where a client takes money out of their— they take it and they put it into operating by mistake. It belongs in trust and they have to make a transfer. That should have a long detailed record to explain what happened and what the mistake was. And then there should be regular, usually monthly, three-way bank reconciliations. Always check your specific state bar website because the rules on timing and reporting can vary. One of the rules I know that's in California is that if you see a mistake like that, it has to be fixed within 48 hours. So you can't forget about it, not move the funds out of trust, and then just leave it there for years. It doesn't happen. So here's some of the common mistakes that I see bookkeepers make all the time. The first one's more about what an attorney would do. They commingle the funds even by accident. So They put the funds in the wrong bank account. They have to make movement of the funds. To fix it, you really want to have strict deposit workflows. If you're working with a personal injury attorney and the settlement comes in and everybody wants their money, you have to wait till the money actually is physically in your bank account before you disburse. That's another one we see a lot. Skipping or rushing through bank reconciliations, or skipping is probably the biggest egregious thing that we see. Block time in your calendar and treat it as non-negotiable. This is what you're going to do. And sometimes we see when somebody's made a correction, they don't have good documentation. So poor documentation is another place. So every deposit and withdrawal should have clear notes. Who, what, when, and why. And if you have a lot of funds sitting there that have just been stale and not come off the books in years, it can even be 25 cents on a client's account. You need to know the state's unclaimed fund rules and know that from the bar. And then know what the procedure is to get those funds to the unclaimed fund account so that now they're off the books of the law firm. So practical things you should be doing right now. Build a repeatable monthly checklist. So this should just be part of your workflow, your SOP. Create the list of what you need to do monthly to maintain the records. Maintain the matter-level ledger. So don't combing it all into customers and try to filter it out. It's not what the bar wants to see if you've ever had to sit through an audit. You need to have a good set, clean book of records in the liability account. Schedule regular trust reviews with the attorney. Go through the accounts with them. Say, you know, these, these accounts have had balances or somebody hasn't cashed their check that you mailed out, and you need to have a conversation with them to find out what's the next steps to get that money back to the client. Never ever pay bills from the trust account. This just happened to one of my clients the other day. I noticed that they paid their paralegal with the wrong bank account. Happens, right? Real life. Hurried up and as soon as I notified the client, he instantly moved the funds back and covered the funds that they were, that were taken out in error. But I had to make a lot of notes to make sure that they, that it's understood. 'Cause 3 years from now, if we get audited, I need to understand what happened there and tell the story to an auditor. Clients love transparency, and even some bar rules require you, if there's no movement of funds at all and the balance just stays even keel, you you still have to send that person a notification to let them know their balance, how there's been no activity and the money's sitting there. That money belongs to the client. It's just an accounting of it. And some states require you to do that even if there was no activity. So some recommended tools. Use software that makes your life easier. It'll make your attorney's life easier. It'll save them money in the long run. Think Clio, think LeanLaw, think TrustBooks. Those are some of the ones that work. Where they just— TrustBooks is very basic, but you can have something that will give you a good secondary place to keep track of the ins and outs in the ledger system. Look to get the 3-way bank reconciliation created and have some strong audit trails. Trust accounting just comes down to consistency and respect for the rules. If you master this, you're going to stand out as that go-to bookkeeper for law firms. So don't forget to download our free monthly trust reconciliation checklist. It's in the description below. Drop a comment and tell me what's your biggest trust accounting struggle right now. And if you found this helpful, please hit the like and the subscribe button so you'll get notifications when we have another video. We do these once a week. Next week we're going to talk about the chart of accounts. It's a basic step, but it's one of the steps you do when you do a cleanup. So thanks for watching and I'll see you all in the next video. Bye. Bye-bye now.
