Accounting

IOLTA & Trust Accounting Compliance for Washington Law Firms

Client trust accounting is a critical responsibility for every law firm. In Washington State, small and mid-sized firms must pay special attention to IOLTA (Interest on Lawyers’ Trust Accounts) and trust account compliance. Mismanaging client funds isn’t just an administrative hiccup – it’s an ethical obligation with serious consequences. In fact, trust accounting issues are among the leading causes of disciplinary action against attorneys (in Florida, they were a top three source of complaints in 2024). 

Washington law firms need to understand the rules, follow best practices, and avoid common pitfalls to protect their clients’ money (and their own licenses). This guide will explain Washington’s regulatory requirements, share best practices for trust account management, and highlight common mistakes to avoid. By mastering IOLTA and trust accounting compliance, your firm can safeguard client funds, stay on the right side of regulators, and build client trust through sound financial stewardship.

For a primer on the basics of IOLTA accounts and how to set them up, see our guide on What Is an IOLTA Account and How Do I Open One?.

Understanding IOLTA and Trust Accounts in Washington

What is IOLTA? IOLTA stands for Interest on Lawyers’ Trust Accounts. It’s a program that allows lawyers to pool small or short-term client funds in a trust bank account that earns interest, with that interest being used for charitable legal aid purposes. In Washington State, like all other states, attorneys are ethically required to keep client funds separate from their own. Historically, lawyers had to hold client funds in non-interest-bearing accounts (so neither lawyer nor client gained interest). 

The advent of IOLTA in the 1980s changed that: now, lawyers can hold client funds in interest-bearing trust accounts, and any interest earned on nominal or short-term funds is automatically paid to the Legal Foundation of Washington (LFW), which funds civil legal aid programs. This way, the public benefits from interest that would otherwise be lost, and attorneys still cannot profit from holding client money (maintaining their fiduciary duty).

When do you use an IOLTA account? According to Washington rules, any client funds that are small in amount or expected to be held only briefly should go into your pooled IOLTA account, with interest remitted to LFW. Examples include advance fee deposits for routine matters, retainers for future fees, or settlement proceeds awaiting distribution. 

If a client’s funds are substantial and will be held long enough to earn net interest for the client after bank charges, then those funds may be placed in a separate interest-bearing trust account for that client’s benefit (with the interest going to the client). All other client money belongs in an IOLTA. Washington’s Rules of Professional Conduct (RPC) provide a clear standard for this decision, so when in doubt, treat funds as IOLTA-eligible to stay safe.

Why is trust accounting so important? Holding money in trust carries a heightened fiduciary duty. These funds are not the law firm’s money – they belong to clients or third parties – so they must be handled with utmost care, accuracy, and honesty. Lawyers must be able to account for every penny. Failure to do so puts clients at risk and exposes the firm to malpractice claims, disciplinary action, and even criminal charges in cases of misappropriation. 

Washington attorneys have been disbarred for trust account violations, and bar officials report that misunderstandings around IOLTA and trust rules are among the most common problems leading to discipline. On the positive side, strong trust accounting practices protect clients’ assets and your reputation. They also instill client confidence – when clients know your firm safeguards their money and follows the rules, they are more likely to trust you with future business. In short, trust accounting compliance isn’t just a bureaucratic requirement; it’s integral to ethical law practice and client service.

For more background on the importance of trust accounts, you can also read our post “Trust Accounting 101: Your Essential Guide” which covers fundamental concepts and benefits of proper trust accounting.

Washington State Trust Account Regulations and Requirements

Washington’s trust accounting rules are primarily found in the Rules of Professional Conduct (RPC) 1.15A and 1.15B, as well as related Washington Supreme Court rules. Here are key compliance requirements for Washington lawyers and law firms:

Maintain a Separate Trust Account

If you hold any client funds, you must have at least one trust account that is separate from your business operating account. Typically this will be an IOLTA account with a bank that is authorized to hold lawyer trust funds. The trust account must be interest-bearing (per RPC 1.15A(i)), and it must be set up under the Legal Foundation of Washington’s tax ID so that interest is automatically forwarded to LFW. (The WSBA provides a list of approved financial institutions that meet these requirements.) Y

You should never deposit client money in your personal or firm’s general account. Likewise, never deposit firm funds into the client trust account, except for a minimal amount if needed to cover bank service charges. Commingling personal funds with client funds is strictly prohibited and is a “grave error” under ethics rules. The trust account is for clients’ funds only.

Promptly Deposit Client Funds

Washington lawyers must deposit client funds into the trust account promptly. This generally means immediately upon receipt or no later than reasonably possible. For example, if a client hands you a check for an advance fee or settlement, it should be deposited into the IOLTA account by the next business day. Delaying deposits can violate the duty to safeguard client property. 

Additionally, only funds that belong in trust should be placed there. What goes into a trust account? Typical examples are advance fee deposits, retainers for unearned fees, advance cost deposits, settlement funds awaiting distribution, and funds in which a third party (like a medical lienholder) has an interest. What does not go into trust? Funds that have become the lawyer’s property (earned fees after billing and client notice), fixed fees or flat fees that are deemed earned on receipt (more on that below), and reimbursement of costs the firm already advanced (once repaid) should not remain in the trust account. 

Overpayments by clients, however, are tricky – WSBA instructs that if a client overpays an invoice, the overpaid amount (which is unearned) must be deposited in trust, and then the portion belonging to the lawyer can be withdrawn promptly. Always identify the proper destination of funds and put them in the correct account.

Follow the Rules on Advanced Fees and Flat Fees

One area that trips up many firms is handling advanced fee payments. Washington’s rules clarify that all advance fee payments are presumed to be client funds that belong in the trust account until earned, unless you have a written flat fee agreement that meets specific criteria. Under RPC 1.5(f), a flat fee (a set fee for specified services, paid upfront) can be treated as the lawyer’s property upon receipt only if you have a written fee agreement signed by the client that contains required disclosures. 

This agreement must explain the scope of services, the total fee, that the fee is a flat fee earned on receipt, that it will not be deposited in trust, and that the client has the right to terminate and possibly a refund if work is uncompleted. If you do not have such an agreement in place, then any advance payment is considered an unearned fee and must be deposited into trust until you earn it through work. 

Many discipline cases arise from attorneys treating retainers or flat fees as earned without having the proper agreements – effectively commingling or misappropriating client funds. Bottom line: unless you’ve complied with RPC 1.5(f)(2)’s flat fee requirements, put that money in trust and treat it as client property. (It’s often safer and more transparent to use the trust account for all advances even if you have a flat fee agreement, to avoid any confusion about whose money it is.)

No Withdrawals Without Permission (and Notice to Clients)

Funds should remain in the trust account until it is appropriate to disburse them. When can you disburse? Generally, only when the client or third party is entitled to the funds (e.g. paying settlement money to the client or paying a client’s litigation expense) or when you have earned fees and given the client notice. 

Washington RPC 1.15A(h)(3) requires that a lawyer may withdraw earned legal fees only after giving the client reasonable written notice of the billing. In practice, this means you should send the client an invoice or billing statement showing the fees you have earned before you transfer those fees from trust to your firm account. You must give the client a chance to review and object if there’s a dispute. 

Taking fees from trust prior to invoicing (or without client knowledge) is forbidden. Also, never “borrow” from the trust account for personal or firm expenses – even if you intend to pay it back. Every withdrawal must be properly documented and for the client’s benefit or as earned fee with notice. Unauthorized withdrawals or disbursements are a serious violation.

Proper Disbursement Methods

Washington rules mandate that trust account disbursements be made to a named payee and never to cash. You cannot withdraw cash from a trust account (for example, via ATM or writing a check to “Cash”) – this is to maintain a clear paper trail of who received the funds. Acceptable methods are checks or electronic transfers (ACH or wire) payable to the lawyer’s trust account’s intended recipient (e.g., to a client, or to your law firm for earned fees, or to a third-party vendor for a client expense). 

Using a debit card tied to the trust account for specific client costs is technically allowed under WSBA guidance, but it’s strongly discouraged because it’s easy to forget to record debit transactions and harder to control receipts. The safest practice is to stick to checks and electronic transfers that you carefully record.

Maintain Detailed Records (RPC 1.15B)

Washington’s RPC 1.15B lays out Required Trust Account Records that you must keep. At minimum, you need: a check register for each trust account (showing every deposit and check/withdrawal with running balance), individual client ledgers for each client matter (showing funds held and transactions for that client), copies of all receipts and disbursement instruments, and monthly reconciliation reports. 

You are required to reconcile the trust account records on a monthly basis – meaning compare the adjusted bank balance to the total of client ledgers and the balance in your register, making sure all three figures match (often called a “three-way reconciliation”). If there are any discrepancies, you must investigate and resolve them. Failing to maintain complete records or to reconcile is itself a rule violation. The WSBA’s Managing Client Trust Accounts handbook provides a Monthly Reconciliation Report form and strongly encourages lawyers to use it for each month’s balancing. 

All these records must be retained for at least seven years after the events they record, so even if a matter is closed or a client leaves, keep those trust ledgers and statements on file. In short, meticulous recordkeeping is not optional – it’s mandatory. (It’s worth noting that many disciplinary investigations start because an attorney cannot produce proper trust records, which is itself a red flag.)

Annual Trust Account Certification

Washington requires lawyers to certify their trust account status every year during license renewal. As part of the annual renewal (typically by February 1 each year), all active attorneys must either report their open trust account(s) or certify that they have no trust account because they don’t hold client funds. This is done through the “Trust Account Declaration.” You need to provide the bank name and account number of each IOLTA account you have open. (You do not list individual client-specific accounts, only pooled IOLTA accounts.) 

If you don’t handle any client money at all, you would state that. Failure to file the trust account declaration can lead to administrative suspension, so it’s an important part of compliance. This reporting ensures the Bar is aware of all IOLTA accounts and can verify that the bank is remitting interest to the LFW correctly.

Overdraft Alerts and Dishonored Checks

Washington has strict rules to prevent and detect trust account overdrafts. Banks holding IOLTA accounts must inform the WSBA if any trust check is presented against insufficient funds (even if the bank honors the check). This is part of a nationwide IOLTA overdraft notification system. If your trust account ever goes into the red or a check bounces, the bank will send a notice to the Bar, and you are required to promptly report back to the Office of Disciplinary Counsel explaining the situation. 

Even a technical overdraft (say, due to a timing issue or bank error) triggers scrutiny. Thus, it is vital to avoid overdrafts by ensuring sufficient balances for each client before any disbursement. Never write a trust check that would exceed the amount held for that client – you cannot use one client’s funds to cover another’s obligations. If a client’s check deposited to trust hasn’t cleared yet, wait until it clears before disbursing funds against it (otherwise you risk a bounce). The overdraft rule means even innocent mistakes will come to the Bar’s attention quickly, so aim for zero tolerance on trust account shortages.

Prompt Delivery and Accounting

RPC 1.15A(d) and (e) require that you promptly notify clients or third parties upon receiving funds on their behalf, and promptly deliver those funds to which they are entitled. “Promptly” isn’t defined in hours or days, but as a best practice do not hold on to client money longer than necessary. For example, if you receive a settlement check for a client, after it clears and you’ve prepared the disbursement sheet, promptly pay the client their share. 

If any portion is disputed or needs to be held (e.g., unresolved liens), keep that in trust but communicate clearly with the client. Also, provide a full written accounting when funds are distributed or upon the client’s request. This could be in the form of a settlement breakdown or a trust ledger report. Transparency with clients about their money is part of compliance. It also heads off complaints – clients are less likely to complain to the Bar if they are kept informed about their funds.

Additional Washington Resources

The Washington State Bar Association (WSBA) offers help to lawyers to stay compliant. The WSBA Managing Client Trust Accounts booklet (revised June 2021) is an excellent detailed guide covering all these rules and practical how-tos. WSBA’s Ethics Line is available for questions about trust account situations. 

The Bar’s Practice Management Assistance Program will even do one-on-one consultations – you can set up a free appointment with a practice management advisor for guidance on trust accounting procedures. Avail yourself of these resources if unsure. Also, keep an eye on any rule changes: trust accounting rules can evolve (for instance, the treatment of flat fees was updated in recent years). Being proactive and informed is itself a best practice.

Best Practices for Trust Accounting Compliance

Meeting the minimum requirements is necessary, but truly mastering trust accounting means going further. Here are best practices Washington law firms should implement to ensure compliance and avoid costly mistakes:

Segregate and Label Accounts Clearly 

Maintain a dedicated IOLTA trust account and a separate business operating account. Ensure the trust account is clearly labeled as “Trust Account” or “IOLTA Account” with your firm name, so it’s unmistakable. Many firms also keep a separate trust account for any significant client funds that warrant an individual account (with interest paid to that client). If you do open individual trust accounts for clients, never mix funds between them. Each account should only hold the funds of the client(s) it’s intended for. 

By rigorously segregating client funds from firm funds, you avoid any inadvertent commingling. Remember: even covering a small firm expense from the trust account or leaving earned fees in the trust account too long is considered commingling. Develop the habit of treating the trust account as almost sacrosanct – only client money goes in, and even then, only for as long as necessary.

Implement Strong Recordkeeping Systems

Good recordkeeping is the backbone of trust compliance. Use a system (whether software or manual ledgers) that tracks three key things: the overall trust account balance, each individual client’s balance, and every transaction in and out. Each time you receive client money, create or update a client ledger showing the date, amount, source, and new balance for that client. Do the same for each disbursement (date, payee, purpose, and the remaining balance). Simultaneously, log these in a master check register for the account. 

Cross-reference everything. It’s wise to keep digital scans of all checks (incoming and outgoing) and receipts for any costs paid. Reconcile these records with the bank statement every single month – this means performing the classic three-way reconciliation: the bank statement balance (adjusted for any outstanding checks or deposits) should equal the total of your client ledgers and the balance in your check register. If anything doesn’t match, track down the error immediately (common issues include a transaction recorded in one place but not another, math mistakes, or bank errors). 

Regular reconciliation is perhaps the most important habit; it will catch errors or misplacements of funds before they become huge problems. In fact, failure to reconcile is a silent threat – a lot of trouble can happen in a trust account that isn’t balanced regularly. Many experts recommend reconciling monthly at minimum (and some larger firms even reconcile weekly). In Washington, monthly is the norm and expected. Set a calendar reminder or assign a bookkeeper to do it, but make sure a lawyer (you) reviews it. Keep each month’s reconciliation report on file. By maintaining meticulous records and reconciliation, you’ll always be able to answer the vital questions: “How much do I have in trust for Client X? And does that match what the bank shows?”.

Use Technology to Your Advantage

Consider leveraging legal-specific accounting software or practice management software to automate and simplify trust accounting. Modern legal accounting software (like LeanLaw, Clio, etc.) can automatically maintain separate client ledgers, integrate with your bank or QuickBooks, and even generate three-way reconciliation reports with a click. Such tools enforce trust accounting rules in the background – for example, preventing you from overdrawing a client’s balance or commingling funds – and provide an audit trail of all transactions. 

They can also handle interest calculations, bank fee tracking, and produce client statements. Many small firms start with spreadsheets and manual ledgers, which can work but are prone to human error. If you do use spreadsheets, double-check formulas and consider having a second person review the books periodically. But as your practice grows, investing in a robust trust accounting solution will pay off in peace of mind and time saved. Internal controls are also crucial: for instance, if possible, have one person enter transactions and another person (or the firm owner) review bank statements and reconciliations. 

This dual control can catch mistakes or irregularities (and deter intentional misappropriation). Even solo practitioners can ask an external bookkeeper or CPA to review their trust records quarterly. Technology plus diligent oversight is the winning combination. (LeanLaw’s legal accounting software, for example, was designed to track trust funds in compliance with state bar rules – including Washington’s – and can automate many of these processes. While not required, such tools make it much easier to stay error-free.)

Adopt Written Policies and Procedures

Treat trust accounting as a formal business process in your firm. Write down the steps for handling client funds. For example: “Upon receipt of any client payment, Jane (paralegal) will immediately endorse and log the check, then deposit it to the trust account the same day, and record it in both the client’s ledger and the trust register. 

John (attorney) will review the trust bank statements at month-end and perform reconciliation by the 10th of the following month.” Having a checklist or workflow ensures consistency, especially as your team grows. Make sure everyone who handles trust transactions (lawyers, paralegals, bookkeepers) is trained on these procedures and the underlying rules. 

Regular training is key – you might have a yearly refresher meeting on trust accounting do’s and don’ts, especially if rules update. The WSBA offers CLEs and even a free “Trust Account School” for lawyers who need a deeper dive. Don’t wait until a problem arises; proactively educate yourself and your staff. It’s much easier to do it right from the start than to fix a deficit later.

Communicate with Clients About Their Funds

Transparency with clients can prevent many trust account issues. When you receive money that will go into trust, consider informing the client (e.g., “We received your $5,000 advance fee deposit and have placed it in our client trust account. We will bill against it as work is completed.”). Always send clients prompt confirmation of settlements or other funds received on their behalf. When you withdraw your fees from trust, send the invoice or billing statement beforehand (as required) and consider accompanying it with a trust ledger update showing the balance. 

Clients should never be in the dark about what’s happening with their money. Lack of communication is a common pitfall that can erode client trust. On the flip side, regular communication and clear written accountings build confidence. At the conclusion of a matter, provide a final trust statement: show the starting balance, all disbursements (to you, the client, any third parties), and ending balance $0 (or any refunded amount). Not only does this fulfill your accounting duty, it also preempts misunderstandings. 

If a client’s funds are being held for a long-term purpose (say, you’re holding escrow for a transaction), consider periodic updates on that status. Essentially, treat client funds with the same care you’d want if someone were holding your money – plus the recognition that the client may ask at any time for an accounting, and you must promptly comply.

Stay on Top of Unclaimed or Unidentifiable Funds

Sometimes, law firms end up with money in the trust account that can’t be given to the intended owner – perhaps a client disappears and cannot be reached to refund a balance, or a small residual amount is left for a client who refuses it. Washington has rules for this too. Comment 6 to RPC 1.15A and other guidance indicate that after making diligent efforts to find the owner of funds, if you truly cannot locate them, you must eventually remit the funds to the Washington State Unclaimed Property Fund (not keep them). 

As of now, unidentified or unclaimed client funds held for more than 3 years should be turned over as unclaimed property (with record of the owner if known). Keeping unclaimed client money indefinitely in trust is not allowed. Best practice: keep an eye on any stale client balances or checks that haven’t been cashed. Send reminders to clients, document your efforts to reach them, and after the statutory period, send the funds to the state. This protects you if the client reappears later (they can reclaim from the state) and ensures your trust account isn’t cluttered with old remnants. Never treat unclaimed client money as your own – that is misappropriation.

Plan for Audits or Reviews

While Washington (unlike some states) doesn’t routinely audit law firm trust accounts absent a cause, you should operate as if an audit could occur. This means your records and procedures at any given time should be in good order. One idea is to do an internal audit annually: use the WSBA’s checklist or an outside accountant to review a sample of transactions and confirm compliance. 

This can catch any deviations and reinforce good habits. Also, ensure you have adequate security for trust funds: protect checkbooks (since a stolen trust check could wreak havoc), use strong online banking passwords, and monitor for any unauthorized transactions. If you have multiple lawyers, restrict trust check signing authority to as few people as necessary (RPC 1.15A allows lawyer signers and certain supervised employees, but the lawyer remains responsible). Requiring two signatures on large trust checks is another safeguard some firms use. These controls help prevent internal fraud or errors.

Leverage the WSBA and LFW Resources

Don’t forget that the Legal Foundation of Washington (LFW), which administers IOLTA, has resources too – including information on approved banks, IOLTA interest rate comparisons (some banks offer higher rates to benefit legal aid more), and guidelines for managing IOLTA accounts. The WSBA website’s Trust Account FAQ addresses many practical questions that Washington lawyers encounter, from handling credit card processing fees to dealing with bank errors. When in doubt, a quick call to the WSBA Ethics Line or a look at their advisory opinions can clarify the proper course. It’s much better to ask questions and handle funds correctly than to guess and make a mistake.

By implementing these best practices, your firm will not only meet the baseline requirements but create a culture of compliance. This greatly reduces the risk of a misstep. It also makes day-to-day operations easier: when your trust accounting is organized and disciplined, you spend less time scrambling to fix issues or answer panicked questions from the bank or bar. Instead, you’ll have confidence that client funds are accurate and secure.

(For a handy reference, see LeanLaw’s Legal Trust Accounting Compliance Checklist which outlines key recordkeeping and reconciliation steps in line with ABA and state rules – a great tool for training staff or auditing your process.)

Common Pitfalls to Avoid

Even well-intentioned lawyers can run into trouble with trust accounts. Here are some of the most common pitfalls in IOLTA and trust accounting, and tips on how to avoid them:

Commingling Funds

Mixing client money with firm money. This is perhaps the cardinal sin of trust accounting. Commingling can occur either by depositing client funds into your business account (even temporarily) or by leaving your own funds in the trust account. For example, using a client’s trust funds to pay your firm’s bills, or depositing an advance fee into your operating account – both are commingling. 

Washington rules forbid this outright: the trust account must be segregated from any lawyer funds. The only exception is you may keep a small amount of your own money in trust to cover bank fees (and even then, only what’s necessary for that purpose). To avoid commingling, always double-check the payee. If the funds aren’t yours, they go in trust. If they are yours (earned fee, etc.), they belong in your business account – but only after you’ve satisfied all conditions to remove them from trust. 

Remember that even an innocent mix-up is a violation. Practical tip: Never use the trust account debit card or checks for personal or firm expenses, and vice versa. Keep separate checkbooks. If you need to move earned funds, do it by a deliberate transfer with records, not by directly spending from the trust account. By treating client money as untouchable except for client matters, you’ll steer clear of commingling.

Failure to Reconcile Regularly

Not performing regular reconciliations is a silent threat to compliance. If you don’t reconcile, you might not notice mistakes or shortages until it’s too late (like a bounced trust check or a client complaining about a balance error). Some attorneys put off reconciling because it seems tedious, but it’s absolutely critical. Reconciling means comparing the bank’s records to your internal records and client ledgers, and resolving any differences. 

Skipping this process even for a couple of months can allow small discrepancies to snowball. For instance, a $100 accounting error might go unnoticed and later cause an overdraft when you least expect it. Avoidance strategy: Schedule a dedicated time each month for trust reconciliation. Treat it like a non-negotiable meeting. Use a checklist so you don’t forget to account for outstanding checks or interest adjustments. 

If you discover you’re out of balance and can’t immediately find why, do not rest until it’s fixed – it could be as simple as a math mistake, or as dangerous as a theft. By reconciling monthly (or more frequently), you catch errors early and maintain accurate balances. This also prepares you well if the WSBA ever asks for your records. In short, reconciliation is your friend – it validates that you’re doing things right.

Inadequate Record-Keeping

Poor record-keeping is the root cause of many trust account problems. This includes failing to maintain individual client ledgers, not keeping track of running balances, or missing documentation for transactions. In Minnesota, for example, the most common reason for trust-related discipline was lawyers failing to maintain proper books and client ledgers. If you can’t quickly determine how much money each client has in trust and why, you have a record-keeping deficiency. 

Signs of trouble include: a trust checkbook that only shows deposits/withdrawals without client identifiers, difficulty matching deposits to clients, or unknown funds sitting in the account. Avoidance strategy: Implement a consistent system from day one. Use software or a dedicated ledger book, and enter every transaction with a client name or matter number and description. Keep all supporting documents (receipts, deposit slips, cancelled checks) organized (e.g., by client or by month). 

Revisit RPC 1.15B’s list of required records and ensure you have them all. Additionally, conduct a mini-audit periodically: pick a client at random and try to reconstruct their trust activity – if you can’t do it easily from your records, improve your system. If bookkeeping isn’t your strength, consider hiring a part-time bookkeeper with trust experience to maintain your ledgers (but remember, the lawyer is still responsible for compliance – review their work). Good record-keeping not only keeps you compliant, but will save you immense stress if a client asks for an accounting or if you’re audited.

Improper Withdrawals or Disbursements

Taking money out of the trust account when you shouldn’t, or in the wrong amount. This covers a range of missteps: paying yourself legal fees before they are earned or without sending a bill (violating RPC 1.15A(h)(3) as noted); withdrawing funds for a client expense that wasn’t actually incurred; or simply math errors that lead to over-drawing a client’s subaccount. One classic pitfall is disbursing funds that have not yet cleared – e.g., writing checks against a large settlement that was just deposited but not yet cleared by the bank. 

If that deposit bounces or is delayed, you’ve created a shortfall. Another is paying the wrong person – say, an associate accidentally uses Client A’s funds to pay Client B’s lien. Avoidance strategy: Institute a rule that no trust disbursement happens without double-checking the client ledger and the reason for the payment. Before any withdrawal, ask: “Do we have this client’s funds available and cleared? Is this payment authorized and documented?” For paying yourself fees, ensure you’ve sent the invoice and given the client a reasonable time (often a few days) to review – don’t just take the money immediately on the same day of billing. 

For client payouts, get written instructions or approval (for example, a signed settlement disbursement sheet). Always err on the side of caution: if a check hasn’t cleared, wait; if there’s a dispute over funds, keep them in trust until resolved. And of course, never withdraw money for personal use or firm use that isn’t earned or authorized – that is misappropriation, plain and simple. Every withdrawal should leave a paper trail that could be shown to the client or Bar without any embarrassment.

Lack of Client Communication

As mentioned, failing to keep clients informed about their money can lead to mistrust and complaints. Some lawyers mishandle trust funds but make it worse by not telling the client what’s going on – for instance, not informing a client that you’ve taken your fee out of the trust or not providing a ledger when asked. Washington RPC 1.15A requires prompt notice and delivery of funds to the client, and failing to do so not only violates the rule but also can trigger RPC 1.4 (communication) issues. A client who doesn’t understand the status of their retainer might assume the worst. 

Avoidance strategy: Be proactively transparent. Let clients know when you’ve deposited their money. Send regular billing statements showing trust activity. If there’s a delay in disbursing their funds (maybe waiting on a check to clear or a court approval), explain it to them rather than going silent. If a client asks for a report on their trust balance, provide it quickly – it’s their money, and they have a right to that information. Clear communication can actually prevent a grievance; many bar complaints start with a client feeling ignored or deceived about fees or funds. By fostering an open dialogue, you not only avoid ethical issues, you build trust. In short, treat client funds as an open book with the client – no surprises.

Insufficient Training or Delegation without Oversight

In a busy small firm, it’s common for attorneys to delegate trust accounting tasks to an assistant or bookkeeper. Delegation is fine, but the lawyer must still supervise and review. A frequent pitfall is assuming that someone else “handles it” and not personally monitoring the trust account. If that person makes a mistake or worse, diverts funds, the lawyer might not catch it for months. Additionally, some firms don’t ensure that the person managing the trust account is fully trained in the specific rules. 

They may treat it like a normal business account, not realizing the special restrictions. Avoidance strategy: Make sure anyone involved in trust accounting (including yourself!) receives training on Washington’s rules and the firm’s procedures. This could involve attending a CLE, reviewing the WSBA handbook, or one-on-one training with an accountant familiar with IOLTA. If you hire a new bookkeeper, indoctrinate them on trust requirements from day one. Moreover, set up a system of oversight: for example, the attorney/partner should review the trust bank statement and reconciliation report every month, even if a staffer prepared it. 

Many firms initial the bank statements or have a sign-off checklist to document this review. Do random spot-checks of transactions. The goal is to trust but verify. Also, ensure at least two people know how to handle the trust account, so if one person is away, things don’t grind to a halt or lead to improvised (and error-prone) methods. Ongoing education is important too – rules can change, and new scams emerge (e.g., fraudulent check schemes targeting trust accounts). Stay updated via WSBA communications or resources from the ABA. By keeping yourself and your team educated and involved, you’ll avoid the pitfall of a “black box” trust account that the lawyer hasn’t looked into for ages.

Not Adhering to Washington-Specific Rules

Every jurisdiction has nuances in its trust accounting rules. A common pitfall is assuming that what works in another state (or under ABA Model Rules) is fine in Washington without checking local variations. For instance, as discussed, Washington’s treatment of flat fees (earned on receipt only with special agreement) might differ from other states. 

Or the exact reporting requirements (annual declaration, etc.) might catch a firm off guard if they’re new to Washington. Avoidance strategy: Regularly review Washington’s RPC 1.15A and 1.15B and any Ethics Advisory Opinions related to trust accounts. The WSBA publishes guidance and FAQs that clarify grey areas – make use of them. If your firm practices in multiple states, create a comparison of trust accounting rules and always apply the rules of the jurisdiction for that client’s funds. 

Make sure you file your annual Trust Account Declaration on time each year – it’s easy to overlook in the license renewal but it’s mandatory. Also, use the resources at hand: the WSBA Ethics Hotline can answer questions about Washington’s specific requirements (for example, “Do I need to open a trust account for this scenario?”). By consciously following Washington’s rules to the letter, you avoid the pitfall of non-compliance out of ignorance. Ignorance is not a defense in disciplinary matters; the Bar expects you to know and follow the rules of your license.

Overdrawing the Trust Account 

We touched on this under improper disbursements, but it’s worth highlighting: an overdraft in your trust account is a red flag that almost always leads to Bar involvement. Even if it’s an accident (say you miscalculated and withdrew $100 too much), the fact that the account went negative or a trust check bounced means you’ve used funds that weren’t actually there for that client. Banks will report it to WSBA, and you’ll have to explain the shortfall and make it up immediately. 

Repeated overdrafts or any mishandling in the explanation can lead to discipline. Avoidance strategy: Treat the trust account with more caution than any other account. Before any check or transfer, verify the specific client’s balance is sufficient. Keep a buffer of time – for example, when disbursing settlement funds, many lawyers wait until the depositing bank confirms clearance (which could be a few business days) before disbursing, to avoid any bounce. 

If you use accounting software, enable alerts for any potential overdraft or ledger going below zero. If the bank ever notifies you of an issue, respond promptly and fully; don’t ignore it or delay, as that would compound trouble. The aim is to never have an overdraft – and with careful practices, you shouldn’t. But if one occurs, immediately rectify it by replenishing the shortage from the firm’s funds (because the firm likely has to cover any deficit to make clients whole) and figure out how it happened so you can prevent it in the future.

By being aware of these pitfalls, you can take proactive steps to prevent them. Most trust account mistakes are preventable with a combination of knowledge, systems, and vigilance. It’s often said that an ounce of prevention is worth a pound of cure in trust accounting – once a mistake is made, it can be difficult to unravel, but avoiding the mistake in the first place will save you headaches. If you do slip up, address it honestly and immediately; cover any shortfall with firm funds (it’s your duty to make clients whole), notify the Bar if required, and correct the procedures that led to the error.

LeanLaw’s blog post “Trust Accounting Pitfalls to Avoid: Common Mistakes and How to Prevent Them” also provides a concise overview of several of these pitfalls and reinforces how important it is to stay vigilant.

Keep the Trust in Trust Accounting

Trust accounting may seem daunting at first, but with the right approach it becomes a routine (if highly important) part of managing your law firm. For Washington State small and mid-sized firms, IOLTA and trust compliance should be top-of-mind – not only to avoid disciplinary trouble, but to uphold your professional integrity and client relationships. By adhering to Washington’s rules (RPC 1.15A/B and related regulations), implementing best practices like diligent recordkeeping and monthly reconciliations, and steering clear of common pitfalls, you create a safety net that protects both your clients and your firm.

Keep in mind that compliance is an ongoing effort. Make trust accounting a regular conversation in your firm, not a neglected corner. Allocate time and resources to it just as you would to billing or case work – after all, mishandling client funds can undo even years of good legal work. Whenever you’re unsure about a trust account situation, pause and get guidance (from WSBA or experienced colleagues or resources). It’s far better to take a moment to confirm the correct procedure than to guess wrong with client money.

On a positive note, a well-managed trust account can actually be a selling point to clients and a hallmark of a professionally run law office. It demonstrates that you are organized, ethical, and trustworthy with money. Clients often come to lawyers because something important is at stake – and often that includes money. Showing them through your actions that their funds are safe in your hands reinforces that trust is well-placed.

Finally, remember the bigger picture: IOLTA funds in Washington contribute to access to justice by funding legal aid for those in need. By diligently managing your IOLTA account, you’re not only complying with the law but also participating in a program that benefits the community. It’s one of the inspiring aspects of this duty – the pennies of interest from your client trust account collectively support legal services for low-income individuals across the state. Compliance, therefore, has a charitable dimension as well.

In summary, mastering IOLTA and trust accounting compliance is an achievable goal for every small or mid-sized law firm. With clear policies, the right tools, and an unwavering commitment to ethical handling of client funds, you can ensure that you never become one of those cautionary tales in the bar news. Instead, you’ll sleep well knowing every client dollar is accounted for, and your firm’s good name remains solid. Trust accounting is all about trust – follow the guidance above, and you will earn and keep the trust of both your clients and your regulators.