Every Nevada law firm that handles client funds must take trust accounting seriously. Mishandling client money isn’t just a minor bookkeeping issue – it can trigger ethics violations, lost client trust, and even disbarment. In fact, one of the most common reasons for disciplinary action against lawyers is the failure to properly safeguard client trust funds. Nevada’s State Bar and Supreme Court have strict rules and oversight for Interest on Lawyers’ Trust Accounts (IOLTA) and client trust accounts. This guide breaks down the current Nevada guidelines on trust account management – including IOLTA setup, recordkeeping, and prohibited actions – and offers practical tips so small and mid-sized firms can stay compliant and avoid costly mistakes.
Understanding Nevada’s IOLTA Requirement
What is IOLTA? IOLTA stands for “Interest on Lawyers’ Trust Accounts.” In Nevada, as in most states, attorneys must use an IOLTA account to hold client funds that are nominal in amount or held for a short period. All interest earned on IOLTA accounts is pooled and forwarded to the Nevada Bar Foundation, which funds legal aid programs statewide. By Supreme Court rule, you cannot leave qualifying client funds in a non-interest account – if the money is too small or brief to earn net interest for the client, it must go into an IOLTA account. The lawyer does not need client consent for this, and it’s not considered a “taking” because the interest (otherwise negligible) is used for public benefit.
When to use IOLTA vs. separate trust accounts: Nevada Supreme Court Rule 217 defines IOLTA accounts as those for funds that are nominal or short-term. If you receive a significant amount of money or will hold funds long-term for a client, you should generally open a separate interest-bearing trust account for that client’s benefit (or a pooled non-IOLTA trust account) instead of putting it in IOLTA. In other words, IOLTA is for small or temporary client funds, whereas larger, long-term client funds can be kept in a separate trust account where any interest earned is paid to that client. This determination – whether funds are “nominal” or not – is left to the attorney’s sound judgment. As long as you make a reasonable decision up front, you won’t be disciplined if it later turns out you could have used the other type of account (see Supreme Court Rule 221).
Setting Up a Compliant Trust Account in Nevada
Setting up your Nevada client trust account correctly from the start is critical. Here are the key steps and requirements:
- Use an Approved Financial Institution: Nevada attorneys must hold client trust funds (IOLTA or otherwise) only at eligible banks approved by the State Bar. The bank must file an agreement to report any overdrafts to the Bar (more on that later). The State Bar maintains a list of IOLTA-participating banks and approved institutions on its website. Tip: If possible, choose a Bar Foundation “Leadership Institution” – these banks pay premium interest rates on IOLTA accounts to support legal aid.
- IOLTA Account Setup: When opening the account, name it clearly as a trust account (e.g. “Law Office of Smith Client Trust Account (IOLTA)”). Ensure the tax identification number on the account is that of the Nevada Bar Foundation, not your firm’s EIN. This way, the bank knows to remit any interest to the Bar Foundation. Nevada Supreme Court Rule 216 and 217 require that IOLTA interest be sent to the designated charitable foundation.
- Enrollment Form: Each time you open a new trust account, file the Attorney Trust Account Enrollment Form with the State Bar. Provide a copy to your bank and email a copy to the Bar’s Access to Justice Commission (atj@nvbar.org). This notifies the Bar of your account and ensures it’s properly coded as IOLTA. (On the flip side, if you close a trust account, inform the Bar then as well.)
- Annual Certification: Nevada lawyers must report their trust accounts every year when renewing their license. On the annual dues disclosure, you’ll verify the name of your trust bank and affirm it’s a participating institution. Failing to disclose a trust account is not an option – the Bar requires you to list where you hold client funds, or declare if you don’t hold any. In fact, Supreme Court rules (SCR 78.5(5) and SCR 217(4)(b)) make it mandatory to update this information annually. (There is a narrow waiver if no approved bank exists within 20 miles in rural areas, in which case you must note the “rural” exemption on your disclosure.)
- No Commingling of Funds: Nevada Rule of Professional Conduct (RPC) 1.15 and Supreme Court Rule 78 strictly prohibit commingling – your clients’ money must be kept separate from your firm’s funds at all times. All funds held for clients must go into a trust account, not your operating account. The only exception is that you are allowed to keep a small amount of your own money in the trust account solely to cover bank service charges. (For example, depositing $100 of your own funds to cover check printing fees or monthly maintenance fees is permissible under RPC 1.15(b), but no more than necessary.)
- Proper Trust Account Naming & Checks: When setting up the account, ensure the account title explicitly says “Trust Account” or “Client Trust/IOLTA Account.” This protects you in case of creditor actions. For instance, if someone sued your firm and got a judgment, a properly designated trust account cannot be treated as your firm’s asset for garnishment. Also, decline any ATM/debit card on the trust account and never write trust checks payable to “Cash.” All disbursements should be traceable to a specific payee for a specific client matter.
Recordkeeping and Reconciliation Requirements
Once your trust account is open, meticulous recordkeeping is a must. Nevada’s rules require lawyers to maintain complete records of all client account funds for seven years after a matter ends. Here’s how to stay on top of it:
- Individual Client Ledgers: Track each client’s funds in a separate ledger showing every deposit, withdrawal, and balance for that client. At any given time, you must know exactly how much money you hold for each client.
- Account Journal: Maintain a master cash journal for the trust account as a whole, logging every transaction (with client identifiers) in chronological order. This, along with bank statements, helps cross-check that the total funds on deposit equal the sum of all client ledger balances.
- Monthly Three-Way Reconciliation: Nevada explicitly mandates monthly reconciliation of trust accounts. Each month, you should reconcile 1) the bank statement balance with 2) your own accounting journal balance and 3) the total of all client ledger balances. This “three-way reconciliation” ensures no money is unaccounted for. Compare the bank’s closing balance to your internal records and resolve any discrepancies immediately. SCR 217(4)(a) requires these monthly reconciliations and is a key compliance item.
- Maintain All Supporting Records: Keep copies of deposit slips, canceled checks, wire transfer confirmations, retainer agreements, and invoices related to trust funds. These documents, together with ledgers and journals, form the audit trail you’re required to preserve for seven years. Don’t rely on the bank to have old records – maintain your own files (digital or paper) in an organized manner.
- Best Practice – Software or Templates: Consider using legal-specific accounting software or the State Bar’s trust accounting templates to make reconciliation easier. The Nevada Bar provides a Trust Account Reconciliation Worksheet and other resources to assist attorneys (available through its Practice Management resources). Modern practice management software (like LeanLaw or others) can also automate parts of this process and help avoid errors, but remember that ultimate responsibility lies with the attorney – you must review and understand the records even if a bookkeeper or software prepares them.
Key Rules and Prohibited Actions in Nevada
Nevada’s Rules of Professional Conduct and Supreme Court rules lay out clear do’s and don’ts for trust accounts:
- All Client Funds Go in Trust: As noted, any money received on a client’s behalf must go into the trust account – whether it’s settlement proceeds, advance fee retainers, filing fees, or escrow funds. RPC 1.15(a) and SCR 78(1)(a) both say that “all funds received or held for the benefit of clients by a lawyer…shall be deposited in a trust account.”
- Advanced Fees Are Not Yours Until Earned: Nevada treats unearned fees the same as any other client property – they belong in trust until you actually earn them. Even flat fees or fixed fees paid in advance are not earned upon receipt in Nevada. You may only withdraw those funds from the trust account as you earn the fee by completing work or as expenses are incurred. In other words, you can’t avoid the trust account by labeling a payment a “nonrefundable flat fee” unless it truly complies with Nevada’s rules. (The Nevada Supreme Court in 2024 reaffirmed that a lawyer violated RPC 1.15 by treating a $15,000 flat fee as immediate income instead of depositing it in trust.) Bottom line: deposit advance fees in trust and bill against them; once you do the work, then transfer the earned amount to your operating account.
- No Commingling or Personal Use: Never use client trust funds for your own purposes. Commingling – mixing client money with your firm’s money – is strictly prohibited except for the minimal bank-fee funds noted above. You cannot pay business or personal expenses directly from a trust account, even if you think you’ve “earned” that money – first move it to your operating account after documenting it as earned, then pay yourself or the expense. Likewise, you cannot borrow from one client’s funds to benefit another client (sometimes phrased as “don’t use Peter’s money to pay Paul”). Each client’s money is sacrosanct for that client’s matters only.
- Prompt Disbursement to Clients and Third Parties: RPC 1.15(d) requires that you promptly notify clients or third persons of received funds and promptly deliver funds they are entitled to. This means once a settlement check clears, for example, you should not delay in paying the client their share and paying any lienholders or third-party vendors. If a client or a third party (like a medical provider with a lien) requests an accounting or their portion of funds, you must comply quickly. Do not hold onto client money longer than necessary – the Bar has pursued discipline even where lawyers technically safeguarded the money but unreasonably delayed disbursing it to the client or third party. If there is a dispute over funds (for example, a client and a lienholder disagree who gets how much), do not disburse the contested portion. Instead, keep the disputed amount in trust and seek to resolve the dispute – potentially by arbitration or an interpleader action – per RPC 1.15(e).
- Overdrafts and Insufficient Funds: It should go without saying, but you must never bounce a trust account check. Nevada rules require your bank to alert the State Bar anytime a trust account is overdrawn or if a check is presented against insufficient funds. That means even if the bank honors the check (covering the overdraft temporarily), the Bar will still get an overdraft notice. Any shortage – even $1 – in the trust account is a serious red flag. If an overdraft happens, the Bar will ask you for an explanation, and repeated issues or inadequate explanations can trigger a formal audit or investigation. Tip: To avoid accidents, consider revoking any overdraft protection on the trust account that would draw from a credit line or another account – those features can inadvertently create impermissible commingling if they ever kick in.
- No Cash Withdrawals or Third-Party Signatories: Good practice (and common sense) dictates that you should be the only person authorized to sign trust account checks or initiate transfers. Do not give employees general withdrawal access without rigorous oversight. Never use ATM cards on trust accounts; all transactions should be through check or electronic transfer with proper documentation. And avoid making any withdrawal payable to “Cash” – this obscures who received the funds and is viewed with suspicion by regulators.
- Accounting to Clients: You must be able to render a full accounting to any client of all funds you’ve handled for them, at any time. If a client asks for a reconciliation of their money, you should swiftly provide a detailed ledger. Failing to account can violate both trust accounting rules and the duty to communicate. In Nevada, lawyers have been disciplined for not providing accountings or not refunding unearned fees promptly upon the end of representation (see RPC 1.16(d) regarding refunding unearned fees). Always return any remaining client funds promptly when a matter concludes.
Strict Enforcement and Recent Developments in Nevada
Nevada’s regulators treat trust account mismanagement as a serious offense. The State Bar of Nevada considers trust violations essentially a strict liability issue – if client funds are mishandled, discipline is almost assured, and the only question is how severe. Even a minor mistake (like a brief overdraft that you quickly cover) can result in a reprimand on your record. Leniency is in short supply when it comes to mishandling client money, because protecting the public’s funds is one of the Bar’s top priorities.
Disciplinary trends: A review of Nevada discipline cases shows a pattern: attorneys who misuse client trust funds often face suspension or disbarment, even if no client ultimately loses money. Common violations leading to discipline include: using trust funds to pay personal or firm expenses, “borrowing” from one client’s money to pay another, failure to refund unused retainers, and sloppy recordkeeping that conceals shortages. For example, in a 2023 bar counsel report, a Nevada lawyer was disciplined after an audit found unexplained withdrawals and large checks written to himself from the trust account. In another recent case, the Nevada Supreme Court had to clarify that a flat fee paid in advance must go in trust until earned – the lawyer’s failure to do so was deemed a violation of RPC 1.15. These cases illustrate that even longstanding practitioners can run afoul of the rules if they treat the trust account casually or misunderstand the requirements.
Rule updates: Nevada’s trust accounting rules have seen some updates in recent years aimed at tightening compliance. In 2019, the Nevada Supreme Court amended SCR 217 (the IOLTA rule) and related rules to strengthen the IOLTA program. The rule changes (effective September 5, 2019) require, among other things, that IOLTA accounts be held at banks offering comparably favorable interest rates (so that IOLTA yields are maximized for legal aid). They also explicitly wrote in the monthly reconciliation duty and the requirement that lawyers annually certify their trust account compliance on the license renewal. Nevada now mandates that every active attorney acknowledge SCR 78 and SCR 217 compliance each year as part of their annual disclosures, which underscores the emphasis on this issue. The State Bar’s Board of Governors and Bar Counsel have also increased educational outreach – for instance, offering CLEs like “Trust Accounts 101” and publishing articles in Nevada Lawyer magazine – to remind lawyers that violating trust account rules can easily end a career. The clear message: Nevada is watching, and prevention is far better than a cure when it comes to trust accounting problems.
Best Practices for Nevada Law Firms
For small and mid-sized law firms, the following best practices will help you stay compliant and worry-free with your trust accounting obligations:
- Know the Rules and Train Your Team: Ensure that you (and any staff handling client funds) are familiar with Nevada RPC 1.15 and Supreme Court Rules 78 and 217. Emphasize the “no commingling” rule and that even innocent mistakes have consequences. If you have bookkeepers or paralegals assisting, supervise them closely – under RPC 5.3, a lawyer is responsible for staff compliance. Consider a brief training or written procedure so everyone knows the dos and don’ts.
- Use Dedicated Trust Accounts (IOLTA and Non-IOLTA): Maintain at least one IOLTA account for routine client funds, and open separate client-specific trust accounts for large or long-term matters as appropriate. Never deposit client money in your business account. Conversely, don’t leave earned fees in the trust account longer than necessary – once you’ve earned it (and invoiced or notified the client per your agreement), promptly transfer it to your operating account so you’re not commingling.
- Pick the Right Bank: Choose a State Bar of Nevada approved financial institution for all trust accounts. Verify that the bank understands it’s a client trust/IOLTA account. Provide any needed forms (like the Bar’s overdraft agreement or your IOLTA enrollment form) to the bank. Also, opt out of features like overdraft transfers or credit lines on the account, and do not get a debit card linked to the trust account.
- Implement Strong Recordkeeping: Use a reliable system – whether specialized software or well-organized spreadsheets – to track every penny in and out of the trust account. Create a ledger for each client and a central journal for the account, and update them immediately when transactions occur. Keep a detailed trail with memos on checks and deposits (e.g., “Settlement for [Client Name]” or “Filing fee for [Client Name]”) so you can quickly identify transactions.
- Reconcile Monthly, Without Fail: Schedule a non-negotiable monthly reconciliation for your trust account. When the bank statement arrives, compare it against your client ledgers and account journal. If the numbers don’t match exactly, investigate and resolve it before the next client matter causes more transactions. Document each reconciliation (date and sign it, or save reports) – this can be a lifesaver if you ever face an audit.
- Mind the Details – No Shortcuts: Avoid writing checks to cash or making cash withdrawals. Every disbursement should go to a named payee (client, court, vendor, etc.) and tie back to a client matter. Similarly, do not deposit checks made out to you personally if they belong in trust – have clients write checks to your firm with a clear indication for trust, or to your trust account directly. Little procedural missteps can snowball into big problems, so maintain strict habits.
- Handle Fee Withdrawals Properly: When you earn fees from a trust deposit (e.g. after completing a milestone in a case), document the fee calculation on an invoice or billing statement to the client, then transfer that amount to your operating account. Never pay personal or firm bills directly from the trust account. Also, don’t delay too long in moving earned fees out – leaving earned money in trust can be deemed commingling and also exposes those funds to client claims if a dispute arises.
- Be Prompt and Communicative: If you receive client funds, let the client know and deliver any funds due to them promptly. If a third-party (like a medical provider or subrogation claimant) is entitled to payment, handle it quickly or explain any reasonable delay. Communicate clearly with clients about how their funds are being held and used – this transparency not only is ethical, but it also heads off complaints. When a matter ends, reconcile and refund any leftover balance to the client quickly (and get written confirmation of the client’s receipt).
- Prepare for Audits or Inquiries: Because banks must report overdrafts and the Bar can request trust records at any time, keep your records in order. If the Bar ever contacts you about a trust issue, cooperate and respond truthfully. You’ll be expected to produce records showing whose money was in the account, when it came in, and where it went. Having organized ledgers and files means you can quickly demonstrate compliance. Fighting a lawful request for trust records is futile – by Supreme Court decision, the Bar can subpoena trust account documents even without a client complaint.
- Utilize Bar Resources and Stay Updated: The State Bar of Nevada offers helpful resources – take advantage of them. The Bar’s Ethics Hotline is available for questions about trust account dilemmas. The Bar also provides a free “Trust Accounting in Nevada” handbook, compliance checklists, sample forms, and CLE seminars. Periodically check the Nevada Bar’s publications or website for any rule changes or guidance. Staying current on any new Supreme Court rule amendments (ADKTs) affecting trust accounts will ensure you’re never caught off guard.
By following these best practices and abiding by Nevada’s IOLTA and trust accounting rules, your law firm can confidently manage client funds with integrity. Trust accounting may seem tedious, but it is absolutely essential for ethical law practice. With careful systems in place, you can protect your clients’ money (and your license) while focusing on providing excellent legal service. In short: be diligent, be transparent, and never treat the client trust account casually – the stakes in Nevada could not be higher for getting it right.
Sources: Nevada Rules of Professional Conduct 1.15; Nevada Supreme Court Rules 78 and 217; State Bar of Nevada – Practice Management Resources on Trust Accounting; Nevada Bar Foundation IOLTA guidelines; Nevada Lawyer Bar Counsel Reports; Bailey Kennedy law firm article on Nevada trust accounts; State Bar of Nevada discipline summaries and educational materials.
