In this instructional video, Linda Artesani of Artesani Accounting and The Proper Trust explains the fundamental challenges lawyers face with trust accounting and offers practical solutions. She begins by outlining the complexity of jurisdiction‑specific bar rules that govern trust accounts, especially for attorneys practicing in multiple states. Trust accounting is defined as the meticulous tracking of client retainers—pre‑payment funds that must be accounted for to the penny. Artesani warns against using spreadsheets, highlighting how manual entries quickly lead to errors and non‑compliance. She advocates for dedicated legal‑tech software (e.g., LeanLaw, Clio) integrated with QuickBooks, noting that many platforms provide free accountant seats and automate data entry from matters to the ledger. A core recommendation is performing a three‑way reconciliation among the trust ledger, bank statements, and software records to ensure every dollar matches. Common pitfalls discussed include missed entries, bank wire fees mistakenly charged to trust accounts, mishandling of IOLTA interest, and delayed transaction recording. Artesani stresses that compliance is paramount, especially in anticipation of bar audits, and that having accurate, software‑generated reports can streamline audit readiness. Finally, she advises hiring bookkeepers or accountants familiar with legal trust accounting, offering The Proper Trust’s remediation services for firms with existing messes. The overall message is that early adoption of proper software, diligent reconciliation, and industry‑savvy bookkeeping are essential to maintain compliance and avoid costly errors.
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Hi there. Linda Artesani, Artesani Accounting and The Proper Trust. This week we're going to move away from all the Clio stuff from the past few weeks and we're going to move into just some basic language around the challenges with trust accounting for lawyers. Trust accounting is probably the major pain point. I know a lot of times we'll have discussions with attorneys and they're like, how do I get around this? I've looked into the bar rules to see if I can just get away from using trust accounting at all. Most of the time they cannot. So it's something that they know they have to do, and they know that there's specific bar rules for their, for their location or where they're practicing. Sometimes attorneys practice in multiple locations, so they'll need to know the rules on both or multiple places. If you're like in Rhode Island, you might practice in Massachusetts and Connecticut, so you need to know the rules around all those locations. If you're in Oregon, you might have to know the local rules Or even the county rules. So it can get that down to the finite area of learning these things. So let's get into what is trust accounting in this week's video. So what is trust accounting? To get to really down to the basics, trust accounting is a way for attorneys to keep track of money that they're paid for in a prepayment. So much like a contractor would receive a deposit upfront before the job starts, it's the same thing for attorneys. That's what a retainer is. So these prepayments have to be— because they're getting the money before they do any of the work, they have to really track this money to the penny. So the bar wants to see this laid out as you have this one bucket of money in the bank, one total amount of money, but it belongs to multiple people. And they want to see almost like individual check registers. Really why you want to use software. A lot of attorneys start out when they're starting out in business, they start out with just using a spreadsheet. that becomes quickly unmanageable. And then you have to pay somebody to migrate that over to either a legal tech software or just into QuickBooks itself. So you really want to start off with the right foot. You know, business is going to grow. Every attorney I've worked with starts out not kind of unsure of where they're going to be. And the next thing you know, their business is exploding and they need to get a handle on that. And like I said, it becomes quickly unmanageable doing it in a spreadsheet. So some of the challenges that we see attorneys maybe face as they start to work with trust accounting It's that working in a spreadsheet or trying to manage it themselves, they fall quickly out of compliance. Manual entries in a spreadsheet is manual, so manual can equal to errors. So that's one of the biggest things you really want to stay away from. You want to put yourself into some kind of software that it will protect you. So if I receive $1,000 from Joe Bananas, I can't give back or, or move $1,001. It doesn't allow me to do that. So those protections are in place when you use the software. The software, you might seem at first you're trying to keep your costs down if you're starting out, might seem expensive. It's per user. So maybe you're just the only user. A lot of the software allow us as accountants and bookkeepers like LeanLaw to get a free seat. So you're not having to pay for us, which is great. But if you have the software in place from the very, very beginning, you will be so happy because otherwise you're going to start in a spreadsheet to save a few dollars. And I'm going to tell you that compliance purposes, use the software. The time saved just from when you start opening up a matter or case, you enter the customer, you enter the matter, it ports over to QuickBooks instantly. So you're saving time in every single way to get that data into the system. And that's important when you're looking at getting the records proper. Remember, compliance is your biggest, biggest thing, and you want to make sure that that's done correctly to the penny. It's really critical. They need to prove that they're not overcharging the clients. There's a lot of rules around it, and you just need to look up the rules in the bar association. I can probably provide a link so that you can see the different states. It's pretty cool that we have that ability to kind of click and see the rules, the bar rules per state. My case software actually gave us that link. It's really helpful. So some suggestions for overcoming any trust accounting errors. You just got to be careful you don't omit anything. A lot of times what we see when we're working with attorneys is that they, they will be busy and they'll maybe receive a retainer and not put the money in, or they put the money, the money gets into the bank, but they don't put it into the legal software, or they don't put it in QuickBooks. And then a deposit lands in our lap and like, what is this money? Where did this come from? So you want to make sure that that's, that's not missed, which is why you reconcile and make sure everything is right to the penny. And you want that 3-way reconciliation. You want to have that reconciliation where the trust account, the trust bank account matches the statement plus or minus any transactions in transit and also matches that software. So you want to make sure that— and also that list of what's inside that one bank account, all those little individual ledgers adds up to what's in the bank. That's the big piece. A lot of times when we work with attorneys, they'll say, oh yeah, my bank is reconciled. The bank can be reconciled, but if those individual ledgers don't equal the amount of money in the bank, that's an issue that needs to be addressed. Making sure the entries are done timely. You know, you get busy, you're like, oh, I'll just get to that later. You don't want to do that. You want to make sure that the entries are put in timely. Most of the times bank wire fees are an issue. We see it over and over and over again with attorneys. The bank will take it out of the wrong account. They'll take it out of the trust account, which is why you want to have a Gravity Legal in place to kind of protect from that. It's set up and designed not to take it out of the trust. The fees come out of operating, whether you're recouping the fees or not. You never want that coming out of trust because that's not your money. It's the money of all your clients, and you really can't have anything come out. You want to check that IOLTA interest as well. Sometimes the bank makes a mistake and it'll pull it out, or it will forget to pull it out. You get the interest put in and they don't take it out. I hate to have to tell a client that they have to go to the bank to get 32 cents fixed in their bank account because Because the bank never took that out. But IOLTA interest has rules around that, and you have to make sure that that's done properly. Lastly, before I complete this video, legal tech software solves a lot of the errors. It really does. I can't say that enough. Having the legal tech software in place is so critical for you to have a proper accounting, and it will save you time. You'll have beautiful records. And the best part is you're going to have beautiful metrics to look at. There's tons of reports that come out of the legal tech. Whether it's LeanLaw or Clio, those are the only 2 we use at our firm. You want to make sure that you're able to get that data in, get it perfect so that your records are in the right order for if you ever have a bar audit. Because sometimes bar audits happen because you— it did just happen randomly and you want to be prepared for that. You want the auditor to come in, look at the records, everything's right to the penny, and then they leave. And that's the best scenario. So compliance, compliance, compliance when it comes to trust accounting and trust matters. And really hiring the right bookkeeper. If you are hiring a bookkeeper, make sure you get a bookkeeper or an accountant that's familiar with the industry. It's easier just to have them hop in. They know what they're doing, makes your life easier. Something we provide at The Proper Trust. So please reach out. We'd love to help you. If you have a mess, we help detangle it. If you need accounting help, we'd love to help you. On that note, I hope you'll have a wonderful, wonderful day. And until the next video, bye now.
