Legal Trust Accounting Compliance Checklist

Compliance with legal trust accounting and retainer rules requires that you track certain information when you record deposits and withdrawals, regularly perform a three-way reconciliation of your bank statements, client trust ledger and trust ledger, and retain certain documents. Following is a checklist to help you keep track of the most important information. These are the critical requirements both for IOLTA accounts as well as other trust accounts.

This document is intended for your billing clerk, bookkeeper or for a solo lawyer.

1. Recordkeeping requirements for trust fund deposits

   • a. Date
   • b. Source
   • c. Description
   • d. Amount
   • e. Statement sent to client

2. Recordkeeping requirements for trust fund disbursements

   • a. Date
   • b. Payee
   • c. Purpose
   • d. Description
   • e. Statement sent to client

3. Recordkeeping requirements for all trust fund transactions

   • a. Record on trust ledger
   • b. Record on client trust ledger

4. Trust fund reconciliation requirements

   • a. Documents needed

     1. I Bank statements
     2. II Check register
     3. III Client trust balances
     4. IV Trust ledger balance

   • b. Three-way reconciliation (monthly or quarterly). A three-way reconciliation requires than you calculate (1) a bank balance adjusted for deposits and payments for interest and fees as well as outstanding checks and deposits, (2) a client trust ledger balance adding together all the individual client trust ledgers, and (3) an overall trust ledger balance adding together all trust transactions. The total should be same same for all three.

1. Adjusted Bank Balance = 2. Client Trust Ledger Balance = 3. Trust Ledger Balance

Step 1: Calculate Adjusted Bank Balance

Bank Statement Balance -

Deposits & payments for interest & fees +

Outstanding checks & deposits =

_________________________________

Adjusted Bank Balance

Step 2: Calculate Client Trust Ledger Balance

Client A Trust Account Balance +

Client B Trust Account Balance +

…

Client X.Y,Z Trust Account Balance =

_________________________________

Client Trust Ledger Balance

Step 3: Calculate Trust Ledger Balance

Trust transaction 1 +

Trust transaction 2 +

…

Trust transaction 8,9,10 =

_________________________________

Trust Ledger Balance

5. Maintain associated documents
   • a. Client retainer and compensation agreements
   • b. Copies of bills for legal fees and expenses
   • c. Electronic copies of checks
   • d. Monthly trial balances and reconciliations

* Based on the ABA Model Rules, which meet or exceed the requirements of most states. These are the core requirements and may not reflect unusual cases or every detail of your state’s rules. Here is a document linking to most states’ rules:  State-by-State Trust Account Recordkeeping Requirements

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