Trust Accounting

Hi there, Linda Artesani, Artesani Bookkeeping. So this week's post is all about trust accounting. And as you know, my firm handles law firm accounts. We work with attorneys, we work with law firms and a variety of law firms. And some attorneys have trust accounts or IOLTA accounts that need to be tracked in a specific way. When you get working with attorneys and law-specific clients, you need to start to learn the rules around the law clients because trust accounting Is— has to be handled in just the right way because a large percentage of disbarments and, and disciplinary actions can come from mishandled trust funds. So it's really important that you take these tips with you and know that this is something that needs to be put into practice, that everything has to be kept in meticulous order. In order to make sure that you stay compliant. And compliance— being compliant in your firm is key. So let's just talk a little bit about what kind of funds go into a trust account. So real estate transaction funds, if you're working with a real estate attorney, those are the funds you'll see a lot of times they'll get put into escrow or in a trust account. And also personal injury settlements will get put into a trust account and then get disbursed to the to the, to the attorney for whatever they've earned and also to the person that's their client. Other settlements or judgments tend to be also listed for in trust account matters. Collections sometimes go into trust accounts. Retainers or advances. Retainers are big. We work with a lot of retainers with a lot of clients, which is why we love LeanLaw. It actually handles all this. LeanLaw, the app, Handles all the trust accounting beautifully. So that's why we use it at our firm. It's easy for the attorneys to track. It's easy for us to track, easy to stay on top of the matters, keep them reconciled, keep them, keep them clean to keep our records perfect. Any earned fees don't belong in the trust account. So as the attorney earns the fees, they do the invoicing, they build the trust, the trust pays out of that to pay for the revenue for the attorney. And then that gets moved out properly. You have to make sure the proper workflow, which is really key. And personal funds never belong inside a trust account. Also, any operating or business funds, anything that has to do with running the law firm doesn't belong in the trust account. The trust accounts are like little separate ledgers, right? So if you think of them as little separate checking accounts, that the money doesn't belong to the attorney, they belong— belongs to the matter or the client, right? So you keep that separate, you keep it, keep track of it, just think of separate ledgers in the process, which is exactly how LeanLaw sets it up. They can become separate liability accounts. And then you reconcile them. And I reconcile them every month. And after the attorneys do the billing out, we reconcile it, make sure everything ties back. So the total of all the trust accounts equals the total of all the bank accounts. Really, really important to track this because this is where a lot of times when attorneys come to me, they've not tracked it properly and it gets A little bit messy, a little bit mixed up. Really important to make sure that these finer points are followed to the letter of the law, really. You know, it's really important that one client matter doesn't get mixed in with another client matter. And I've seen this as well. And you really want to make sure that that never happens, that there's no commingling of funds between several client matters. Everything has to be kept separate. Like I said, separate ledgers. A matter or trust account should never have a negative balance. So the attorney should never owe the trust back. It should either be zero or there's funds that have to be released. So it's important to track these so that you can get the monies out. We see this a lot of times when we do rebuilds, that the trust matters really weren't paid attention to. And then maybe like $5 or $50 left in the trust accounts, and it's just have to send the letter out, send the money out. close them, properly close the trust accounts. It's just a great way to keep your records just tied nice. We try to stay on top of it monthly. At our firm, we keep track of it, we close them out, we make them inactive. It's just, it's just, there's just a lot of steps, but it's important to follow these steps. Make sure that you verify any funds before you make a disbursement, right? You don't want to pay out more than you actually should. So you really want to make sure that that's, that's kept really, really neat order, right? That's again, why, why I love my app, because because it takes care of those, those things. Sometimes you have to keep paper records. So you really need to check with your local bar association to see exactly the rules that are applicable to handling client trust funds. Every state can have different laws. So there's a general guideline, the American Bar Association, but there's also different, different jurisdictions. So you really need to check with your local or whatever your— wherever your client's located to find out exactly what the rules are for that. So in my state of Florida, you have to keep copies of both sides of the check. And we use Hubdoc and we carry that down and we bring it right out. Works really nicely. It brings the copies of checks and we attach it. So we use a nice beautiful workflow and I'll tie back in the article to the workflow that we use as well. And just, just know your state's trust account rules. That's really, really important. And, and, you know, it's, it's a lot of reconciliation, but it's important not to lose sleep over this. It's not, it's not that it's that difficult, but it's just going to be kept You have to stay on top of it, which is why it's great to hire an accounting professional to do that work so that you as the attorney can do the work that you're really good at, and I can handle that piece of it for you, or my team can handle that piece of it for you. So I hope this is a helpful video. I hope this is enlightening to understanding how to track this. As far as it goes with working with attorneys and doing this kind of client work, it's very fulfilling. Working with attorneys is great. There's so much there. They're It's nice to work with them on a professional level. They're very good about getting my records back to me. And it's, it's been a real joy to work with them. So I hope you enjoyed this video. If you have any questions or comments, of course, feel free to reach out. Again, Linda Artesani, Artesani Bookkeeping. Bye now.