
- IOLTA in South Dakota – South Dakota requires attorneys to use IOLTA (Interest on Lawyers’ Trust Accounts) for holding client funds that are nominal or short-term, with the interest benefiting the South Dakota Bar Foundation. Strict state rules govern how these trust accounts are managed. 【34†Learn how to set up an IOLTA trust account】
- South Dakota Trust Compliance Rules – No commingling of client funds with firm money, prompt deposit of advance fees into trust, detailed recordkeeping (individual client ledgers, receipts, and monthly reconciliations), a six-year retention of records, and an annual certification to the State Bar are all required by the South Dakota Rules of Professional Conduct.
- LeanLaw for Trust Accounting – LeanLaw’s legal accounting software, integrated with QuickBooks Online, automates three-way trust reconciliations and provides real-time client ledger visibility. This helps South Dakota firms stay compliant with trust accounting rules effortlessly by reducing manual errors and ensuring every dollar is tracked and reported correctly.
Trust Accounting in South Dakota: Why It Matters
Trust accounting – managing the money you hold on behalf of clients – is one of the most critical responsibilities for any law firm. In South Dakota, IOLTA accounts are the cornerstone of this process. IOLTA stands for Interest on Lawyers’ Trust Accounts, a special type of bank account that pools small or short-term client funds and earns interest for charity, not for the lawyer or client. Instead of sitting idle, the pennies of interest generated in an IOLTA are forwarded to the South Dakota Bar Foundation to fund legal aid and justice programs in the state. This ensures that even nominal client funds serve a public good.
South Dakota’s Supreme Court rules make IOLTA participation mandatory for any attorney in private practice who handles client money. In practical terms, if you receive client funds – whether a retainer, settlement proceeds, or filing fees advanced by a client – you must deposit those funds into a trust account. Funds that are “nominal in amount or to be held for a short period” belong in a pooled IOLTA account, where the interest (net of bank charges) is automatically remitted to the Bar Foundation. On the other hand, if you’re holding a significant sum for a long period on behalf of a client, you should consider setting up a separate interest-bearing trust account for that client so the client can receive the interest directly. South Dakota’s rules allow (and in fact expect) attorneys to use their judgment in this regard – if client funds could earn meaningful interest for the client, those funds should be kept in a separate account for the client’s benefit. The rules do not set a fixed dollar threshold; it’s left to the lawyer’s sound judgment to determine whether funds are “nominal or short-term”. For example, a $50,000 settlement being held for six months would likely warrant its own interest-bearing account for the client, whereas a $500 retainer for a quick matter would go into IOLTA. In every case, no interest from client money may be kept by the lawyer – it’s either earned for the client or directed to the Bar’s program for the public good.
Why such strict rules around IOLTA and trust accounts? Because mismanaging client funds is one of the gravest ethical breaches a lawyer can commit. Even an inadvertent mistake – a bounced trust check or a math error – can put your license at risk. The South Dakota Bar and Supreme Court have a zero-tolerance stance on improper handling of trust money. Before IOLTA programs existed, lawyers often kept client funds in non-interest accounts, and there was temptation (or confusion) to treat these monies casually. Now, with clearly defined rules, attorneys are expected to safeguard client funds with the highest degree of care. Understanding how IOLTA works and why it exists will not only keep you compliant with South Dakota’s requirements, but also underscores your role as a fiduciary for your clients. When you properly manage an IOLTA account, you protect your clients’ interests and contribute to funding legal services for those in need – a win-win for ethics and community impact.
South Dakota’s Trust Accounting Rules and Obligations
South Dakota imposes specific trust accounting obligations through its Rules of Professional Conduct (particularly Rule 1.15 on Safekeeping Property) and related state rules. These rules lay out in plain terms what you must do – and must not do – when handling client and third-party funds. Below is an outline of the key compliance requirements unique to South Dakota:
1. Separate Client Funds from Firm Funds. All client money in your possession must be kept in a separate trust account, never co-mingled with your firm’s operating funds. The trust account should be clearly labeled (e.g., “Attorney Trust Account” or “Client Trust Account (IOLTA)”) so that it’s unmistakable to you, the bank, and auditors that this is a fiduciary account. South Dakota requires that the account be maintained at a bank located in South Dakota, unless the client gives written consent to use a bank elsewhere. This means your trust account is generally held in-state for accountability under local jurisdiction. The only money of yours that can go into that account is a small amount of your own funds necessary to cover bank service charges, if needed. No other personal or firm funds should ever be in a client trust account. Similarly, client funds should not be deposited into your general business account.
2. Prompt Deposit of Unearned Fees and Funds. When you receive money from or on behalf of a client that is not yet earned – for example, an advance fee retainer or money to pay a filing fee – you must deposit it into the trust account right away. Under Rule 1.15, advance legal fees and expenses belong in the trust account and may only be withdrawn by the lawyer as fees are earned or expenses incurred. In other words, you cannot take possession of those funds for yourself until you’ve done the work. Failing to promptly place client money in trust (or withdrawing it too early) is considered misappropriation. South Dakota also has a “collected funds” rule implied by common sense and ethics: you shouldn’t disburse funds from trust on behalf of a client (for example, cutting a settlement check to a client or paying a client’s bills from trust) until the funds you’re relying on have actually cleared the banking system. Bouncing a trust check because a deposit hadn’t cleared is a serious infraction. Always wait for the check or deposit to clear before disbursing those funds to the client or others.
3. No Commingling of Funds. “Commingling” is the cardinal sin of trust accounting. This means mixing client money with your own. South Dakota explicitly forbids commingling – client funds must remain segregated in trust. You cannot borrow from the trust account for any reason, even temporarily, and you can’t pay personal or firm expenses directly from a trust account. Every trust transaction should be for the benefit of a client (or third party on a client’s behalf). The only wiggle room, as noted, is depositing a token amount of your own money to cover bank fees or keeping in trust the portion of funds that is earned by the firm along with client funds until it’s appropriate to transfer out (for example, if a single check from a client includes both a fee for you and a filing fee for the court, you might deposit the whole check in trust, then soon transfer your earned portion to the operating account). Even in that situation, your firm’s portion should be moved out to the operating account promptly once earned to avoid commingling earned fees with still-unearned client money.
4. Detailed Recordkeeping. South Dakota’s rules require meticulous recordkeeping for all trust accounts. In fact, state law spells out seven minimum types of records you must maintain for your trust account. These include:
- a trust account bank register (checkbook register or journal) tracking all deposits and disbursements and running balance;
- individual client ledgers for each client matter showing every transaction and current balance for that client;
- records of all deposits (with details of whose money it is and why it was received);
- records of all disbursements (cancelled checks or electronic transfer records, with details of who it went to and for what purpose);
- other documentation like settlement statements or wiring instructions to support each transfer;
- and of course the monthly bank statements for the trust account.
Each client’s funds in trust should be traceable from start to finish through your records. South Dakota also requires that you retain all these records for at least six years after the termination of a representation. (This six-year retention is a bit longer than the five-year minimum under the ABA Model Rules, reflecting South Dakota’s emphasis on accountability.) In practical terms, even after a case is over, you need to archive the trust account records because the State Bar could inquire or audit within that window. Many attorneys keep such records even longer, but six years is the rule.
5. Monthly Reconciliation. A critical (and often overlooked) compliance step is performing a monthly reconciliation of your trust accounts. South Dakota’s rules mandate that every month you reconcile the bank statement balance with your own internal trust records. This means comparing three figures: the balance per the bank statement, the total of all client ledger balances, and the balance per your checkbook or journal – all of these should match once you factor in any outstanding checks or deposits in transit. If there are any differences, you must identify and correct them. Additionally, at least annually you must prepare a detailed listing of the balance held for each client (in practice, doing this each month as part of a three-way reconciliation is best). These reconciliation reports and client balance listings must be kept for six years as part of your records. Failing to reconcile is one of the most common ways that small firms get into trouble – if you’re not routinely comparing your books to the bank, you might not notice a mistake or shortage until it’s too late. South Dakota discipline cases have shown that attorneys who neglected reconciliations often discovered trust shortages only after clients complained or the Bar initiated an audit. Bottom line: reconcile your trust account every month without fail, and have a system to prove it.
6. Annual Certification to the Bar. One unique compliance step in South Dakota is the requirement to certify your trust account compliance to the State Bar each year. Attorneys must file a trust accounting certificate with the State Bar of South Dakota annually, between December 1 and January 31, affirming that they have complied with the trust accounting rules. The certificate is submitted on a form approved by the Disciplinary Board. This is essentially an annual check-in where you, as a lawyer, pledge that you are keeping proper trust records and following all the rules. Failing to file this certificate is itself a violation and can trigger an audit or disciplinary inquiry. In other words, you can be disciplined not only for breaking the trust accounting rules, but even for failing to formally report that you are following them. The annual certification puts an extra onus on South Dakota lawyers to be vigilant – you have to actively confirm your compliance each year. It’s wise to mark your calendar for this filing. By the time December rolls around, you should be confident that your trust account is in order (via those monthly reconciliations and proper records) so that signing the certificate is a straightforward matter. Submitting a false certificate is a very serious offense – as one South Dakota disciplinary case demonstrated, an attorney who filed compliance certificates but in reality had not been maintaining the required records faced severe sanctions. The Bar takes that attestation seriously.
In summary, South Dakota’s trust accounting rules demand segregation, documentation, and verification. You must segregate client funds in a trust account, document every transaction with detailed records, and verify the accuracy through monthly reconciliations and annual reports. By adhering to these obligations, you protect your clients and stay on the right side of the ethics rules. Next, we’ll discuss some nuances and challenges that South Dakota firms, in particular, should keep in mind, and then cover best practices to make compliance easier.

South Dakota-Specific Nuances and Challenges
While the core principles of trust accounting are universal, South Dakota’s regulations have a few nuances that local attorneys should be especially mindful of. Recognizing these will help your small or mid-sized firm avoid pitfalls that others in different states might not encounter:
- Annual Trust Account Certificate: As mentioned, South Dakota is one of the few states that requires an annual trust compliance certification filed with the Bar. For busy small firm lawyers, this is an extra administrative task on the calendar each year. The challenge isn’t just remembering to file the form – it’s making sure you can truthfully sign it. This means your recordkeeping and reconciliations need to be up to date all year long. A last-minute scramble in December to fix your books is not a position you want to be in. Treat the certificate as a yearly report card on your trust accounting habits. The nuance here is that South Dakota will hold you accountable annually, even if no one has complained about your trust handling. In effect, every lawyer is self-reporting, which raises the stakes to maintain good practices continuously.
- No Pre-Set Threshold for “Nominal” Funds: Unlike some jurisdictions that provide a specific dollar amount or time period to define when client funds are considered “nominal” or “short-term” (and thus must go into IOLTA), South Dakota leaves it to the attorney’s judgement. This flexibility is nice, but it can also be a double-edged sword. It puts the onus on you to make a reasonable decision. If you err on the side of convenience (keeping everything in IOLTA) when a client’s funds could have earned significant interest, you risk a client complaint later (“Why didn’t I get interest on my money?”). Conversely, setting up separate accounts for very small amounts is impractical. The rule of thumb is to consider the cost of setting up and administering a separate account versus the likely interest for the client. South Dakota explicitly says this judgment “rests in the sound judgment of each attorney or law firm” and is not subject to review. That means the Bar isn’t going to second-guess you after the fact on whether $5,000 for three months was “nominal” or not – but you still need to be thoughtful. A practical approach is to have an internal policy: for instance, if a client deposit is above a certain dollar amount and will be held for more than X months, consider a separate interest-bearing account. The lack of a fixed threshold is a nuance that requires South Dakota lawyers to exercise good faith judgment on a case-by-case basis.
- Approved Financial Institutions: The South Dakota Bar Foundation (which administers IOLTA funds) and the State Bar maintain guidelines on eligible banks for IOLTA accounts. While many banks are willing to offer IOLTA accounts, they must meet certain requirements – for example, the bank must be FDIC-insured and must agree to remit the interest to the Bar Foundation (often, the Bar provides the bank with instructions on where to send interest payments). In practice, most major banks in South Dakota participate in IOLTA. However, if you practice in a smaller community or use a local bank, ensure that your bank has the proper arrangements with the Bar Foundation. Typically, the bank will use the Bar Foundation’s tax ID number for the IOLTA account interest reporting (so that interest income is reported to the Foundation, not to your firm or client). If you’re opening a new trust account, check the State Bar of South Dakota’s list of approved depositories or ask the bank if they handle IOLTA accounts. Using an approved institution is important – it guarantees the interest rate and remittance procedures meet the Bar’s standards. Choosing an appropriate bank is usually a one-time task, but it’s a detail that can’t be overlooked.
- Geographic Considerations: South Dakota is a rural state in many areas, and some small firm attorneys might operate near the border or even primarily from another state while licensed in South Dakota. Remember that, absent client consent, your trust account should be held in South Dakota. This might be a nuance if you live in a border city (for example, Sioux City, Iowa or Fargo/Moorhead) and have banking relationships out of state – you’ll need to use a South Dakota-based account or get each client’s written permission to hold funds elsewhere. Additionally, rural attorneys should be mindful of access to banking services: if your local bank doesn’t offer all the modern bells and whistles (like online statements or check imaging), you’ll need to be diligent in obtaining your monthly statements and copies of canceled checks for your records. The Supreme Court rule even allows electronic equivalents of checks (imaging) to satisfy record requirements – make sure your bank can provide those, or be prepared to scan and file paper documents yourself.
- Active Oversight and Audits: South Dakota’s disciplinary board can initiate an audit of your trust account if there’s a red flag. Triggers for an audit can include failing to file that annual trust compliance certificate, a client grievance, or even a report from a bank of an overdraft on your trust account (many states, including South Dakota, require banks to notify the bar if a trust account check bounces). The possibility of an audit means you should always operate as if someone might review your books. This is a challenge for solo and small firm lawyers who don’t have internal auditors – you effectively must audit yourself. One nuance here is the culture: South Dakota’s legal community is tight-knit, and the Bar expects professionalism. If you make a mistake, self-reporting and prompt correction might save your skin, whereas trying to cover up a trust shortfall or delay reporting will only make consequences worse. Always err on the side of transparency with the Bar when it comes to trust account issues. That annual certification is one form of transparency; likewise, if you discover a significant error (say you accidentally used client A’s funds for client B’s payment), it’s wise to consult ethics counsel and potentially inform the Disciplinary Board proactively while correcting the error. It’s never comfortable, but it’s far better than hoping nobody notices.
In short, South Dakota lawyers face the challenge of strict scrutiny and personal accountability in trust accounting. The rules might feel burdensome, but they are in place to prevent the nightmare scenario of lost or misused client money. By understanding these nuances – annual certification, judgment on interest, in-state banking – you can adjust your firm’s practices accordingly and steer clear of trouble. Next, we’ll outline some best practices that can help you stay compliant and manage your trust account smoothly, even with these extra requirements.
Best Practices for Maintaining Trust Account Compliance
Knowing the rules is one thing; implementing habits and systems to follow them consistently is another. Below are best practices that South Dakota small and mid-sized law firms should adopt to ensure full trust account compliance and to protect client funds. Think of these as everyday guidelines to make trust accounting nearly foolproof:
1. Treat the Trust Account with Sacred Care. A mindset shift is key: view your client trust account as sacred funds that belong to someone else – because they do. Develop an office culture (even if you’re a solo practitioner) that the trust account is untouchable for anything other than proper client purposes. This means, for example, you never “borrow” from it to cover a shortfall, not even for a day. Even if you believe you’ll replace the money quickly, doing so is ethically equivalent to misappropriation. Many trust fund missteps begin with rationalizations like “It was just to pay this bill, I planned to put it back.” Don’t fall into that trap. If you maintain the perspective that those funds are off-limits except for the client’s directive, you’ll avoid a host of problems.
2. Implement Strong Internal Controls. In a small firm, it’s common for one person (perhaps a bookkeeper or the managing attorney) to handle most bookkeeping tasks. However, segregation of duties and oversight are still important. Whenever possible, have a second person review the trust accounting records periodically. For example, one lawyer can prepare the monthly reconciliation, and another lawyer (or a trusted staff member, if no second lawyer is available) can double-check it and sign off. If you’re a solo, you might enlist an outside accountant to review your trust records quarterly. The idea is to introduce a layer of oversight that can catch mistakes or irregularities. Additionally, limit access to the trust account – only those who truly need to be handling client funds (like an office manager or attorney) should be signatories or have online access. Too many hands in the pot can increase the risk of error or worse, embezzlement. By keeping the circle small and monitored, you reduce risk. South Dakota disciplinary cases have seen issues when lawyers completely delegated trust matters to staff and then never looked at the books; don’t let that happen to you. No matter who does the day-to-day bookkeeping, the responsible attorney should review the trust bank statements and reconciliation reports every month.
3. Use Three-Way Reconciliation Every Month. We mentioned reconciliation in the rules section; as a best practice, perform a three-way reconciliation monthly. This means you verify that (a) the bank statement balance, (b) the total of all client ledger balances, and (c) your checkbook or journal balance all match up. Modern accounting software can generate a three-way reconciliation report, but if you’re doing it manually, it’s worth setting up a spreadsheet to help. By reconciling every single month, you create a safety net: any error (bank error, bookkeeping error, missed transaction) will be caught within a month, so it can’t snowball. Also, in South Dakota, monthly reconciliations are not just best practice – they’re required. Make it a ritual: as soon as the bank statement is available, reconcile it with your records. Keep a printed or saved copy of each month’s reconciliation report with your trust records (and remember, keep them 6 years). If there’s a discrepancy you can’t immediately resolve, do not rest until you find it. It could be as simple as a $5 bank fee you forgot to record (prompting you to deposit $5 of your own funds to cover it), or something more significant like a check recorded twice. Identifying and correcting these ensures that your trust account is accurate to the penny.
4. Maintain Individual Client Ledgers and a Master Ledger. Every deposit or withdrawal of client funds should be recorded in two places: the master trust journal (which shows the overall activity of the account) and the individual client’s ledger. For example, if you receive a $2,000 retainer from Client A and a $3,000 settlement for Client B in the same month, the master ledger (or check register) will show two deposits totaling $5,000. But you also need a Client A ledger showing $2,000 balance, and a Client B ledger showing $3,000 balance. The same goes for disbursements: if you pay an expert $500 from Client B’s funds, that withdrawal should reflect in both the master ledger and Client B’s ledger (reducing Client B to $2,500, and showing a $500 withdrawal in the account overall). This double-entry system is vital for clarity. It allows you at any time to answer the question, “How much money am I holding for Client X?” and also, “Whose money adds up to the total in the bank right now?” If you keep these ledgers updated with every transaction, your monthly reconciliations become much easier – it will be obvious if something is off. Many lawyers use accounting software or practice management software to maintain these ledgers, which minimizes arithmetic errors. Even if you use QuickBooks or another tool, periodically spot-check a few entries by hand to ensure everything is posting correctly. And always back up your data; losing your trust accounting records in a computer crash with no backup would be a nightmare (and not an excuse the Bar will accept).
5. Document Everything and Keep Receipts. Good recordkeeping isn’t just about ledgers – it’s also about the backup documents. Make it a habit to save supporting documents for every trust transaction. This includes copies of checks you write from the trust (your bank can return digital check copies or you can image them), deposit slips or screenshots of electronic deposits (with a note of which client and what purpose), wire transfer confirmations, signed settlement statements, written client authorizations for any disbursement that isn’t obvious, etc. South Dakota requires that you keep “other documentary support” for all disbursements and transfers. In practice, if you ever had to justify a trust payment to the Bar, you should be able to pull a file and produce, for example, “Check #1025 for $1,000 was to ACME Medical Group for Client J’s medical lien – here’s the letter from the lienholder and the client’s written consent to pay it.” That level of detail is what protects you if questions arise. It sounds like a lot of paperwork, but if you integrate it into your workflow it becomes second nature. For instance, when you cut a trust check, immediately scan the invoice or document that triggered it and save it to a “Trust Account supporting docs” folder (organized by client or date). This way, your digital (or physical) filing cabinet mirrors your accounting records.
6. Be Timely and Patient with Funds. Two seemingly opposite virtues – timeliness and patience – both play a role in trust accounting. Timeliness: deposit checks immediately. Don’t leave client checks lying around on your desk or in a drawer. Not only is that insecure, but delays can cause accounting confusion and client frustration (imagine a client’s settlement check sits for two weeks un-deposited; the client might be expecting their payout and wondering why it’s not processed). South Dakota expects prompt action – for instance, Rule 1.15 requires prompt notice and delivery of funds to clients or third parties who are entitled to them. On the flip side, patience: never disburse funds from the trust until it’s proper to do so. If you receive a settlement, ensure the check has cleared before writing out any distributions. If a client pays by credit card or electronic transfer into trust, wait for confirmation that the funds have fully settled. And of course, don’t withdraw your fees from trust until you’ve earned them and sent the client an invoice. South Dakota allows withdrawing fees as they are earned – typically, you’d invoice the client, apply the trust funds to the invoice, and transfer that amount to your operating account. Do that promptly once you bill the client, but not before. If a client disputes a fee, you should leave the disputed amount in trust until the dispute is resolved. Being patient and strictly following the “rules of timing” will keep you in compliance.
7. Regularly Review the Rules and Get Training. It’s good practice to periodically reread the South Dakota trust accounting rules (Rule 1.15 and associated rules) to ensure you haven’t grown lax on any point. The State Bar of South Dakota may also issue ethics opinions or guidance – for example, how to handle unclaimed trust funds or credit card processing fees – so stay up to date with Bar communications. Consider attending a CLE on trust accounting every few years, even if you think you know it cold; there might be updates or tips that can help. If you have staff handling portions of the trust accounting, invest in their training as well. Every person touching the trust account must understand the dos and don’ts.
8. Prepare for the Annual Audit (Even If It Never Comes). A useful mentality is to keep your trust account in such good order that you’d have no fear if the Bar showed up tomorrow for a random audit. This means your records should be up to date to the last transaction, your files of supporting documents should be organized, and you should be able to quickly show the auditor: “Here is the list of all clients with money in my trust account, and here is the exact amount for each, and those total to the penny what’s in the bank.” If you can do that, an audit (or even just the act of filling out the annual compliance certificate) becomes a non-event. One practical tip: do a mock self-audit annually, perhaps at year-end. Go through the checklist that an auditor would – are all monthly reconciliations done and saved? Do client ledgers all balance out? Is there any money sitting in trust that should have been refunded to a client or paid out long ago (old residual balances)? If so, clear those up (following proper procedure, of course, like attempting to contact clients or sending unclaimed funds to the state’s unclaimed property if applicable). By conducting a self-audit, you will catch issues before an official audit or inquiry does.
By following these best practices, South Dakota law firms can create a strong safety net against ethics violations. Yes, it requires discipline and a bit of extra work, but the payoff is huge: you safeguard your clients’ money, you protect your reputation and license, and you gain peace of mind. Many of these practices can be streamlined with good software and firm policies – which brings us to our next point: using technology to help with trust accounting.
Leveraging Technology to Simplify Trust Compliance
Modern law firms don’t have to manage trust accounts with paper ledgers and hand calculators. Legal-specific accounting software like LeanLaw (in conjunction with QuickBooks Online) can dramatically simplify the mechanics of trust accounting and reduce the human error factor. For small and mid-sized firms in South Dakota, who may not have a large back-office staff, leveraging technology is often a game-changer for compliance.
LeanLaw’s Trust Accounting Features: LeanLaw is designed to handle the intricacies of IOLTA and trust funds so that lawyers can focus on practicing law rather than number-crunching. For example, LeanLaw’s software automatically tracks client trust balances and segregates those funds in the accounting system, ensuring that client money is never mistaken as operating income. When you receive a client payment that needs to go into trust, you can record it in LeanLaw, and it will reflect in that client’s ledger and your overall trust account balance instantly. When you earn fees and need to transfer money from trust to operating, LeanLaw can help generate the proper entry and even the invoice to back it up, making sure there’s a clear paper trail.
Automated Three-Way Reconciliation: One of the hardest tasks – the monthly three-way reconciliation – can be made much easier with software. LeanLaw, integrated with QuickBooks Online, can help generate reconciliation reports that compare your bank data with your internal records. QuickBooks can import bank transactions, and LeanLaw overlays the legal-specific tracking. Together, they ensure that your trust ledger, client ledgers, and bank balance are in sync. Instead of manually juggling spreadsheets, you can use these tools to pinpoint any discrepancy. This reduces the risk that you overlook a small error. It’s like having a built-in auditor that constantly checks your work.
Real-Time Client Ledger Visibility: Using software, you can at any moment pull up a report of all client trust balances. This is incredibly useful for avoiding mistakes. For instance, if a client calls and wants a refund of remaining funds, you can immediately verify how much is in their ledger and confirm it’s available. If you were doing this manually and hadn’t updated records, you might not have confidence in the number. LeanLaw provides real-time data – every trust receipt and disbursement entered updates the balance. This visibility also helps when it’s time to file the annual trust account certificate. With a few clicks, you can get a summary of your compliance metrics (like whether every month was reconciled, etc.) to give you peace of mind before you certify.
Compliance Safeguards: Good legal accounting software will also include safeguards and alerts. For example, LeanLaw can warn you if a transaction you attempt would overdraw a client’s trust balance (preventing the common error of accidentally using one client’s funds for another). It can also produce the reports the South Dakota Bar might request in an audit – like a report of all balances held, or a trace of a particular client’s funds from deposit to disbursement. Having these reports ready-made saves you time and ensures nothing falls through the cracks. Additionally, because LeanLaw is built for law firms, it adheres to state bar compliance standards out of the box. This means you don’t have to jury-rig a standard accounting system to fit legal needs; the software has trust-specific workflows (like distinguishing between operating and trust accounts, and only allowing certain transfers).
Efficiency and Time Savings: For a small firm, the administrative burden of trust accounting can eat into time that could be spent serving clients or building the practice. By automating repetitive tasks – logging transactions, reconciling accounts, generating invoices for earned fees, etc. – LeanLaw helps you reclaim that time. This efficiency not only makes compliance easier, it also contributes to your firm’s profitability (you might reduce bookkeeping costs or simply free up hours for billable work).
In summary, while nothing replaces your personal responsibility to follow the rules, software like LeanLaw acts as a powerful assistant. It’s constantly applying the rules in the background – segregating funds, keeping ledgers, balancing accounts – and prompting you if something needs attention. Many South Dakota firms have found that using LeanLaw’s trust accounting features in tandem with QuickBooks Online takes much of the stress out of compliance. When it’s time to reconcile or report, the data is at your fingertips and accurate. Think of it as having a built-in compliance officer who never takes a day off.
By combining the best practices we discussed with the right technological tools, you can create a robust trust accounting system in your firm. This system will ensure that every client dollar is handled correctly and that your firm stays in good standing with the State Bar. Next, we’ll address some frequently asked questions that South Dakota attorneys often have about IOLTA and trust accounting.

Frequently Asked Questions about IOLTA and Trust Accounting in South Dakota
Is an IOLTA account mandatory for lawyers in South Dakota?
Yes. South Dakota requires all attorneys who handle client funds to participate in the IOLTA program. There is no opt-out – if you hold any client money that is nominal in amount or to be held short-term, you must use an IOLTA trust account for those funds. (The only exception would be if you successfully petition the Supreme Court for a rare one-year exemption in hardship cases, but that is uncommon.) This means practically every private practice lawyer should have an IOLTA. The IOLTA account needs to be set up at an approved bank, and the interest earned on the account is automatically remitted to the South Dakota Bar Foundation to fund legal aid programs – neither you nor the client keep the interest. Failing to use an IOLTA when required is a violation of the Rules of Professional Conduct and could lead to discipline.
How do I decide between using my IOLTA vs. opening a separate trust account for a client’s funds?
It depends on the amount of money and how long you expect to hold it. South Dakota’s rule is that funds which are nominal in amount or to be held for a short period go into the pooled IOLTA account. Funds that are substantial in amount or will be held for a longer term should be kept in a separate interest-bearing trust account for that individual client (so that the client, not the Bar Foundation, can receive the interest). The rules do not specify a dollar threshold or time frame – it’s left to your professional judgment. In making the judgment, consider whether the interest that could be earned for the client is significant after accounting for the effort and bank fees of setting up a separate account. For example, a $500 deposit for a few weeks is clearly “nominal” – that belongs in IOLTA. A $50,000 estate fund you’ll hold for a year is clearly not nominal – that should likely go in a separate account for that client. If in doubt, err on the side of benefiting the client (you can always ask the client if they prefer you open a separate account for their funds). Remember, any separate client trust account must also follow all the trust accounting rules, just like an IOLTA. The key difference is who gets the interest.
What are the main trust accounting rules I need to follow in South Dakota?
In a nutshell: keep client funds separate, record everything, and don’t touch the money until you’re supposed to. Concretely, this means you must have a dedicated trust account (usually an IOLTA) for client funds, and no commingling of those funds with your own. Deposit client money promptly and only withdraw it for proper purposes (e.g. to pay a client’s bill, to refund the client, or to transfer earned fees to your operating account, and even then, only when earned). You need to keep detailed records: a ledger for each client, a trust journal for the account, and supporting documents for every transaction. You also have to reconcile the trust account monthly to ensure your records match the bank statement. South Dakota specifically requires retaining your trust records for at least six years. And as a unique state requirement, you must file an annual trust account compliance certificate with the State Bar, affirming that you are following all these rules. In short, follow Rule 1.15 of the Rules of Professional Conduct and the detailed provisions of SDCL 16-18-20.2 to the letter. If you do that – separate account, no commingling, timely accounting, monthly reconciliation, and yearly certification – you’ll be in good shape.
How often do I need to reconcile my trust account and do I have to report anything to the Bar?
You are required to reconcile your trust account every month (monthly) under South Dakota rules. This means each month you should compare your trust ledger and client balances against the bank’s records and make sure everything matches. Additionally, once a year (between December 1 and January 31), you must report to the Bar by filing the trust accounting certificate. This annual report is basically you certifying that for the prior year you have kept the required records, performed the reconciliations, and are in compliance. There is no requirement to send the Bar your actual trust bank statements or ledgers on a routine basis (those would only be requested if you were audited or investigated). But the annual certification is mandatory – it’s essentially an honor-system report. Failing to submit the certificate can result in penalties and could prompt the Disciplinary Board to take a closer look. Also, be aware that many banks will notify the Bar if a trust account is overdrawn or a check bounces, which can also lead to an inquiry. So, monthly self-reconciliation and annual Bar reporting are the two key cycles to remember: monthly check-ups and yearly check-in with the Bar.
How can I make sure my firm stays compliant with trust accounting requirements?
Consistency and the right tools are your allies. First, establish firm policies that outline the proper handling of trust funds – for example, always using specific deposit slips for trust funds, immediately updating ledgers when money moves, and having a second person (or yourself, if you’re solo) review the trust records regularly. Training is important: ensure anyone in your firm who deals with client funds understands the rules and your internal procedures. Second, take advantage of legal accounting software like LeanLaw (with QuickBooks Online) which is designed to enforce trust accounting best practices. Software can automate a lot of the compliance tasks – it will keep separate accounting for the trust account, prevent common errors (like over-drafting a client’s balance), and generate the reports you need for reconciliation and audits. LeanLaw, for instance, can automatically handle three-way reconciliations and provide real-time reports of client trust balances, which makes it much easier to spot and fix discrepancies. In short, use technology to reduce human error. Third, never get behind on reconciliations or recordkeeping. Treat your trust account like you would a trust tax filing or a court deadline – something you never put off. If you reconcile monthly and fix issues as they arise, compliance becomes manageable. Lastly, when in doubt, consult resources: the State Bar’s ethics hotline or published opinions can guide you if you encounter a tricky trust accounting scenario (like a client who disappears leaving funds in trust, or a dispute over fees). Staying compliant is not a one-time effort but an ongoing process of diligence. By fostering good habits and leveraging tools like LeanLaw’s trust accounting features, you’ll greatly reduce the risk of a misstep. Remember, the goal is not just to avoid discipline, but to honor the trust your clients place in you by safeguarding their funds. With the right approach, you can confidently meet that obligation every time.