Key Takeaways:
- Mandatory IOLTA Accounts: Wisconsin attorneys must use Interest on Lawyers’ Trust Accounts (IOLTA) for holding client funds that are nominal in amount or short-term, with interest going to the Wisconsin Trust Account Foundation (WisTAF) to fund legal aid. Every practicing lawyer handling client money is required to maintain an IOLTA account (with few exceptions) and follow specific rules on how client funds are safeguarded.
- Strict Trust Accounting Rules: Wisconsin’s trust account rules (SCR 20:1.15 and related provisions) demand segregation of client funds from firm funds at approved financial institutions, detailed recordkeeping for each client, monthly three-way reconciliation, and retention of records for at least 6 years. No commingling is allowed, and even minor mistakes (like a bounced trust check) trigger oversight through an overdraft reporting system. Recent rule changes in 2023 now permit electronic transfers in and out of trust accounts under defined safeguards.
- Ethics and Best Practices: Mishandling client trust funds is one of the gravest ethics violations – Wisconsin disciplinary authorities regularly sanction attorneys for trust accounting lapses, even if unintentional. To stay compliant, law firms should institute robust internal controls, reconcile trust accounts monthly, document every transaction, and educate their team on trust obligations. Modern legal accounting software (like LeanLaw’s trust accounting solution) can automate compliance tasks, helping small and mid-sized firms meet IOLTA and trust accounting requirements with ease.
Why Trust Accounting Compliance Matters
Trust accounting is one of the most critical compliance areas for law firms, especially when operating client trust accounts under Wisconsin’s IOLTA program. Lawyers in Wisconsin are required to handle client funds according to strict rules set by the Wisconsin Supreme Court and enforced by the Office of Lawyer Regulation (OLR). Failure to comply can lead to severe consequences – including reprimands, license suspension, or even disbarment – as mismanaging client money is a serious ethics breach. In fact, safeguarding client funds is so important that Wisconsin has a dedicated OLR Trust Account Program to monitor compliance (e.g. banks must report any overdraft of a lawyer’s trust account to regulators).
For small and mid-sized firms, understanding IOLTA obligations and trust accounting rules isn’t just about avoiding discipline; it’s about protecting your clients’ property and your firm’s reputation. Recent data underscores the stakes: in a recent year, OLR received 44 overdraft reports on lawyer trust accounts, and a number of those incidents led to formal investigations. Even inadvertent mistakes can draw scrutiny. (For example, a Wisconsin attorney received a reprimand after falling victim to a wire fraud scam, having failed to adequately safeguard client funds.) The bottom line is clear – mishandling trust funds, even accidentally, puts your clients at risk and can jeopardize your law license.
This guide will explain what IOLTA is and how it works in Wisconsin, outline the key trust accounting rules you must follow, highlight common pitfalls (and how to avoid them), and share best practices for maintaining compliant trust accounts. We’ll also discuss recent changes (like new rules allowing electronic transactions) and how technology such as legal trust accounting software can simplify compliance. Our goal is to provide an accessible, practical roadmap for Wisconsin attorneys, firm administrators, and legal bookkeepers to stay on top of trust account requirements.
(Note: While this guide focuses on Wisconsin’s rules, many best practices apply generally. Always refer to the latest Wisconsin Supreme Court Rules and OLR guidelines for the most authoritative requirements.)
What Is IOLTA and How Does It Work in Wisconsin?
IOLTA stands for Interest on Lawyers’ Trust Accounts. It’s a special type of pooled, interest-bearing bank account that lawyers must use to hold client funds that are nominal in amount or expected to be held only for a short time. The concept, adopted in all U.S. jurisdictions, is that the interest earned on these pooled trust funds does not go to the lawyer or the individual clients (who likely wouldn’t earn meaningful interest on such funds after bank fees). Instead, the interest is pooled to fund charitable causes – namely, programs that provide legal services to those in need. In Wisconsin, interest from IOLTA accounts is forwarded to the Wisconsin Trust Account Foundation (WisTAF), which administers the IOLTA program and uses the money to support civil legal aid across the state.
Wisconsin established its IOLTA program in the 1980s, and it is mandatory for attorneys in private practice who handle client trust funds. In fact, “every actively practicing attorney or law firm in Wisconsin that accepts funds in trust is required to have an IOLTA account”. (Exceptions exist for certain government or in-house attorneys who don’t hold client funds, and out-of-state lawyers licensed in WI who have no Wisconsin clients.) This means if you’re a Wisconsin attorney taking retainers, settlements, or other client monies, you must open an IOLTA at a participating financial institution. WisTAF maintains a list of approved “IOLTA participating institutions,” since banks must agree to comply with IOLTA rules (like paying comparably high interest rates on IOLTA accounts and reporting overdrafts).
How IOLTA works: IOLTA accounts are generally checking accounts that hold pooled client funds. You might deposit many clients’ funds into one IOLTA, but you must keep careful records of exactly how much money in that account belongs to each client (more on recordkeeping later). Importantly, IOLTA is meant only for client funds that cannot practically earn net interest for the individual client. Wisconsin’s rules require the attorney to use good-faith judgment in determining whether a particular client’s funds should go into the IOLTA (pooled account) or a separate interest-bearing account for that client.
The general guideline is to ask: Will the funds be large enough, and held long enough, to earn interest for the client’s benefit (after accounting for bank fees and administrative costs)? If yes, then the lawyer should consider placing them in a separate trust account where that interest will accrue to the client. If not – i.e. the interest would be negligible – then the funds go into the IOLTA, and any interest generated will go to WisTAF’s program.
For example, say a client gives you a $1,000 retainer that you expect to draw down over a couple months – that is ideal for IOLTA, because any interest on $1,000 over a short period is minimal and would likely be eaten up by account costs. On the other hand, a $200,000 settlement being held for a year pending litigation appeal might earn significant interest – in that case, Wisconsin ethics rules would expect you to set up a separate interest-bearing trust account for that client (with the client’s consent) so the client can benefit from the interest.
The key is you cannot keep the interest yourself, ever, and you should make an informed decision on the appropriate type of trust account for the funds. When in doubt, it’s safest to put the money in IOLTA (ensuring you meet your IOLTA requirements) and then consult the client and rules if circumstances change.
A few additional points about Wisconsin IOLTA accounts:
- Opening an IOLTA: You’ll need to fill out two forms – an Attorney IOLTA Trust Account Agreement (for WisTAF) and an Overdraft Notification Agreement (for the OLR’s overdraft program) – typically provided by the State Bar or OLR. Your bank must sign on as well, agreeing to report any bounced checks or overdrafts on your trust account. Use WisTAF’s tax ID for the account (so that interest is reported to WisTAF, not you or your clients). Also, per WI Supreme Court rules, make sure the account’s name clearly identifies it as a trust account (e.g. “Smith Law Office Client Trust Account”) – simply naming it “IOLTA” isn’t sufficient.
- IOLTA Interest Rates: Wisconsin has an interest rate comparability rule – banks must pay IOLTA accounts the same high interest rates or dividends that they would pay their best customers for similar accounts. Some banks go above and beyond (WisTAF designates them as “Prime Partner” banks for voluntarily paying higher yields to benefit legal aid). For attorneys, the main point is to use an approved bank; you don’t have to calculate interest or remit it yourself – the bank does that and sends interest to WisTAF automatically (usually monthly or quarterly). There are no tax consequences to you or the clients for interest sent to the IOLTA fund.
- Allowed Bank Fees: Lawyers cannot benefit from interest, but also shouldn’t personally bear bank fees on client funds – Wisconsin allows reasonable account fees (like maintenance or check charges) to be deducted from the IOLTA interest before it’s sent to WisTAF. However, if the bank’s fees ever exceed the interest (causing a net loss), those fees cannot be taken from client principal in IOLTA. Typically, lawyers keep a small amount of firm money (e.g. $100) in the IOLTA to cover any shortfall in fees – this nominal amount of non-client money is the one exception to the no-commingling rule, permitted explicitly to pay service charges.
Annual Certification: Wisconsin attorneys must certify their trust account (IOLTA) participation every year as part of the State Bar dues process. You’ll state whether you practice law, whether you handle client funds, and the institution(s) of any trust accounts. Failing to file this certification can lead to automatic suspension, and filing a false report is professional misconduct. So be sure to update your IOLTA info annually.
In short, IOLTA in Wisconsin is the default setup for holding client funds ethically and for the public good. It turns the idle pennies of interest into funding for legal services, while the attorney’s duty is to vigilantly safeguard the principal amounts for clients. Next, let’s look at the specific trust accounting rules Wisconsin lawyers must follow when managing these accounts.
Wisconsin’s Trust Account Rules and Requirements
Wisconsin’s rules for trust accounts are embodied in the Wisconsin Supreme Court Rules, primarily SCR 20:1.15 (Safekeeping Property). These rules are quite detailed. They cover how you must handle client and third-party funds or property, what kind of account to use, what records to keep, and even what transactions are allowed or forbidden. The overarching principles align with the ABA Model Rules: keep client money separate from yours, be able to account for every penny, and don’t use client funds for anything other than the client’s matter. But Wisconsin has some unique or especially specific requirements. Below is an overview of key points Wisconsin lawyers and firm administrators need to know:
Separate Client Trust Account at an Approved Institution
All client funds that you receive in connection with legal representation must be deposited into a trust account that is separate from the lawyer’s own funds. In practice, this means as soon as you receive a client payment – whether it’s an advance fee, a settlement amount, filing fee money, etc. – you should promptly deposit it into your client trust account (IOLTA or another authorized trust account) and not into your firm’s operating or personal account. Commingling (mixing client money with your own) is strictly prohibited. The trust account needs to be in a financial institution that’s authorized to do business in Wisconsin (e.g. a bank or credit union in the state) and that has agreed to the overdraft notification and IOLTA requirements.
When setting up the account, ensure it’s clearly labeled. Wisconsin requires the account name to include “Trust Account,” “Client Account,” or similar wording so that its purpose is evident. For example, “Johnson & Associates LLC Client Trust Account” is good; calling it “Johnson LLC IOLTA” alone isn’t sufficient identification per the rules. Also, do not link the trust account to any form of overdraft protection or credit line. If a client trust account check would overdraft, you want it to bounce – that triggers the mandated bank report to OLR. It may sound odd to prefer a bounced check, but that mechanism alerts regulators to possible mismanagement. Overdraft protection could mask a shortage by automatically transferring your personal funds or a credit line into the account, which is not allowed and defeats the safeguard.
One small caveat on commingling: Wisconsin (like most states) allows lawyers to keep a minimal amount of their own funds in the trust account solely to cover bank service charges or fees. For instance, having $50 or $100 of firm money in there for bank fees is acceptable. But beyond that, every dollar in the client trust account must be client or third-party funds. You cannot deposit firm revenues into trust, nor pay personal or firm bills directly out of a trust account. If you earn fees from a client trust balance, you must transfer those funds to your business account after they’re earned and with proper documentation (invoice, client notice, etc.).
Tip: It’s a good practice to maintain two (or more) separate bank accounts at all times – one designated Trust Account for client funds, and one Operating Account for firm money – and never mix the two. Many disciplinary cases originate from lawyers accidentally depositing a retainer into operating or paying a personal expense from the trust account. Keeping the accounts completely distinct (even at different banks if helpful) can reduce the risk of costly mix-ups. If a mix-up does occur, correct it immediately and document what happened and how it was fixed.
Use of IOLTA vs. Separate Interest-Bearing Accounts
Wisconsin’s rules require that “funds of clients or third persons that are nominal in amount or expected to be held for a short period” must be deposited into an IOLTA account. Conversely, if the funds are substantial enough or will be held long enough that the interest could benefit the client, you should deposit them in a separate interest-bearing trust account for that client (with the client’s written consent). This essentially codifies what we discussed in the IOLTA section above – it’s the lawyer’s duty to make a reasoned determination on where to put the money.
If you’re unsure, consider factors like the amount of money, how long you anticipate holding it, the interest rates available, and any administrative costs for setting up a separate account. The WisTAF guidelines say to use “good faith” judgment and that the “interest generated by the funds” (after bank fees) is the deciding factor. Document your decision in the client file. For example, you might write a short memo or note: “Client X deposited $75,000 settlement on 10/1/2025. Expected to hold 3 months for disbursement. Determined interest for 3 months at current rates ($150) would not exceed bank costs, so deposited in IOLTA.” If instead you put it in a separate account for the client, note that and ensure the client gets all interest earned. These notes can demonstrate your good-faith decision-making if it ever comes into question.
Keep in mind that Wisconsin law actually requires client consent to put their funds in a segregated interest-bearing account (because technically it’s a different setup than the default IOLTA). The statute (Wis. Stat. §757.293 and SCR 20:1.15) implies that unless the client directs otherwise in writing, funds go into IOLTA by default, but with consent you may use a separate account with interest payable to the client. As a practical matter, most clients will consent if it’s in their financial interest – just have a clause in your fee agreement or a separate form that covers this when applicable.
(One special scenario: Advanced flat fees – Wisconsin is one of the few states that gives lawyers an alternative to holding advanced fees in trust. Under SCR 20:1.5(g), an attorney can treat a flat or advance fee as the lawyer’s property upon receipt (not put it in trust) if and only if they follow a strict set of conditions: a written fee agreement with specific language, notice to the client of their right to a refund if unearned, and a requirement to submit any dispute to arbitration. This is sometimes called the “alternative protection for advanced fees.” Most lawyers still choose to put unearned fees in trust until earned, which is the safer default. But be aware that this rule exists – if you comply with SCR 20:1.5(g)’s conditions, you might not deposit a flat fee into trust. Failing to meet those conditions, however, means the money must be in trust until earned.)
Overdraft Reporting and Account Safeguards
Wisconsin has a robust system to deter and detect trust account mismanagement. Every IOLTA or trust account you maintain must be at a bank that signs an agreement to report any overdrafts or bounced checks directly to the OLR’s Trust Account Program. If a trust account check is presented that would overdraw the account, the bank will honor its agreement to bounce the check (no overdraft protection) and send a notice to regulators. Upon receiving an overdraft notice, OLR will typically contact the lawyer for an explanation and may require records to show whether client funds were at risk. Many overdrafts are benign (bank errors or timing issues), but some indicate misuse of funds, so OLR treats each notice seriously. In fiscal year 2022-23, Wisconsin’s OLR received 44 trust account overdraft reports and referred about 13% of them for formal investigation. Clearly, you want to avoid being in that situation by keeping a cushion in the account for fees and tracking balances so you never write a check that exceeds the available client money.
Beyond overdraft alerts, Wisconsin’s trust account rule historically had very tight controls on electronic transactions. Until mid-2023, it was essentially forbidden to electronically transfer funds in or out of a standard trust account (except for wired funds or remote check deposits) – the old rules even required lawyers to set up special “E-Banking Trust Accounts” if they wanted to accept credit cards or electronic payments, to prevent direct ACH access to the main trust account. However, this changed with a major rule update effective July 1, 2023. The Supreme Court amended SCR 20:1.15 to permit electronic transactions in lawyer trust accounts, bringing Wisconsin in line with most other states.
What the 2023 amendments mean: Wisconsin lawyers can now use e-banking for trust accounts – for example, you may accept client payments via electronic ACH or credit card into your trust account, and you can make disbursements via electronic transfer (ACH, online bill pay, etc.) from the trust account to clients or others. You no longer need a separate “E-Banking trust account” for these purposes. That said, all other safeguards still apply. You must maintain careful records of each electronic transfer (the bank’s automated records may not show all details, so you need to log the purpose, client, date, etc. for each e-transfer). And only properly authorized transactions are allowed – e.g., you still can’t authorize a third party to directly withdraw from your trust account without oversight. The 2023 rule change was a welcome modernization (lawyers and clients increasingly prefer electronic payments), but it doesn’t lessen your accounting duties. If anything, it means you should double-down on internal controls when using online banking for trust funds (we’ll discuss best practices for e-payments later).
Detailed Recordkeeping Requirements
One of the most important aspects of trust compliance is meticulous recordkeeping. Wisconsin requires that lawyers maintain complete records of a trust account, including all transactions, and preserve those records for at least six years after the representation ends. The records must be available for production to OLR in the event of an audit or investigation. What constitutes “complete records”? At minimum, you should have:
- A Transaction Register (General Ledger) for the trust account: This is like a checkbook register for the whole account. It should list every deposit and disbursement in chronological order, with dates, amounts, sources or payees, and a running balance after each entry. Think of it as the master record of what happened in the account.
- Client Ledgers (Individual sub-accounts): For each client or matter for whom you hold funds, you need a separate ledger tracking the money held for that client. Every time you receive money for that client or pay something out on that client’s behalf from the trust account, it should be recorded on that client’s ledger (with date, amount, and description). At any given moment, you should be able to look at Client A’s ledger and see exactly how much of the trust account belongs to Client A. The sum of all client ledger balances should equal the overall balance in the trust account (except perhaps a few dollars of your funds for bank fees).
- Supporting Documents for Deposits and Disbursements: Keep copies of deposit slips or bank receipts for each deposit, and copies of canceled checks (or at least check images) for each disbursement. If you send a wire or electronic transfer, keep the wire confirmation or a screenshot of the transaction details. Every transaction should have some documentation showing where the money came from or went. It’s also wise to keep copies of underlying documents: e.g., settlement statements, client instructions, or bills that explain why you disbursed money.
- Monthly Bank Statements: Obviously, retain the official bank statements for the trust account each month. Many banks provide these online; download and save them because you’ll need them for reconciliations.
- Reconciliation Reports: Wisconsin expects lawyers to reconcile their trust accounts regularly – by rule, at least every 30 days. A monthly reconciliation means you compare three figures: (1) the balance per the bank statement, (2) the total balance per your transaction register, and (3) the sum of all client ledger balances. These should all match (once you account for any outstanding checks or deposits in transit). You should create a short reconciliation report or worksheet each month showing that these three numbers agree. If they don’t, you must identify and resolve the discrepancy promptly. Saving each monthly reconciliation (with the date and who performed it) is crucial – in an audit, OLR will ask for proof that you did reconciliations. Many lawyers initial and date the bank statement or use a form to document this. Regular reconciliation is both a rule and your best defense against errors or theft; it’s often said that “three-way reconciliation is the backbone of trust account compliance.”
- Other Records: If you hold property other than money (like physical property in trust), there are record requirements (e.g., a property log, receipts for items). Also, Wisconsin has specific provisions if you serve as a fiduciary (like a trustee or executor) separate from your law practice – such fiduciary accounts have similar but slightly different record rules. For most law firms, the focus is on client trust funds related to legal matters.
By maintaining these records, you ensure that at any time you know exactly whose money you have and can prove it’s intact. Wisconsin’s OLR has published detailed Guidelines for Trust Account Recordkeeping which outline what a proper transaction register and client ledgers should look like. If your firm is new to trust accounting, reviewing those guidelines (available on the court’s website) is highly recommended to set up your books correctly from day one.
Pro Tip: Embrace the idea of “three-way reconciliation” as a monthly ritual. On a set date each month, make sure the bank statement balance, your own internal balance, and the total of client sub-balances all line up. If you use software like QuickBooks or LeanLaw, you can generate a trust ledger report and a reconciliation report to make this easier. The key is consistency – don’t skip months. Wisconsin expects lawyers to personally review and supervise trust account records, even if a bookkeeper does the daily work. So the responsible attorney should be reviewing the reconciliation reports and ledgers regularly.
Disbursement Rules and Client Notifications
When it comes to paying out funds from a trust account, Wisconsin’s rules have some safeguards to ensure transparency and propriety. For one, you should never withdraw more funds for a client than that client has on deposit – causing a negative balance for a client in trust is a serious violation (it means you’ve used other clients’ money to cover a payment). This is where individual ledgers and careful tracking prevent mistakes; if client Smith only has $2,000 in trust and you accidentally wrote a $3,000 check for Smith, you’ve effectively “borrowed” $1,000 from other clients. Such errors must be avoided at all costs.
Additionally, Wisconsin requires lawyers to notify clients promptly when you receive funds or property on their behalf and to deliver those funds to the client (or rightful party) promptly unless otherwise agreed. For example, if you receive a settlement check, you should inform the client, deposit it into trust, and then disburse the client’s share quickly (usually after it clears and any contingencies like fee agreements or liens are resolved). If some funds are owed to a third party (like a medical lien or another lawyer), you have a duty to promptly pay those as well, or hold them in trust if disputed. The rule (SCR 20:1.15 and SCR 20:1.15(d)) essentially mirrors Model Rule 1.15: notify, deliver, and provide a full accounting upon request.
Whenever you disburse funds to a client or for a client’s matter, it’s good practice to give the client a trust account statement or some form of receipt. Many lawyers incorporate this into their invoicing: for instance, an invoice will show that $X was paid from the client’s retainer in trust, with the new trust balance noted. If you are paying settlement proceeds, a simple letter explaining the distribution (total amount, what deductions were for fees/expenses, and the net to client) acts as both an accounting and a receipt. Wisconsin’s rules require that you provide an accounting for trust funds if the client asks, and at the conclusion of representation if any trust funds were held. It’s wise to do this proactively – it keeps clients informed and protects you by documenting where the money went.
One more specific Wisconsin point: If you disburse from trust on a client’s behalf, the payment instrument (check or electronic) should clearly indicate the source. Checks must be pre-printed with the attorney or firm name and clearly identify it as a Trust Account in the heading. You should note on the memo line the client or purpose (e.g., “Client X – settlement payment”). For electronic transfers, since there’s no check to memo, you need to keep a separate record of who authorized it and for what purpose. Essentially, every outflow of money should be traceable to a client and an authorization.
Retaining Records and Compliance Certifications
As mentioned, you must keep all trust account records for at least six years after the end of the representation. This is a long time, but it’s non-negotiable – even if you close your practice or a client file, those ledger books, bank statements, and reconciliations must be stored (in a safe, accessible manner) for the 6-year period. Many firms scan everything and keep electronic backups, which is fine as long as you could produce printed copies if required. The rule even states that electronic records should be backed up by an appropriate storage device. Failing to keep required records is itself an ethics violation.
Wisconsin also has an annual trust account certificate that all lawyers must submit with their bar dues. On this certificate, you declare whether you maintain a trust account and if so, the institution and account number, or whether you had no client funds during the year. This keeps the Bar/OLR aware of who should have trust accounts. If you don’t handle client money (e.g., you’re a judge, government lawyer, or perhaps exclusively in-house counsel), you’d note that exemption. But if you’re in private practice even part-time, you’ll need to either list your trust account or explicitly say you didn’t have one (and thus didn’t hold any client funds). As noted earlier, not filing the form or lying on it can lead to discipline.
In summary, Wisconsin’s trust accounting rules boil down to a few fundamental mandates: segregate client funds, use IOLTA for small/short-term funds, keep impeccable records, reconcile frequently, and be ready to prove every cent is where it should be. There are additional nuances (like handling credit card processing fees, unclaimed funds, etc.), but if you grasp the core obligations above, you’re well on your way to compliance. Next, let’s look at some common mistakes that trip up law firms and how to avoid them.
Common Pitfalls in Trust Accounting (and How to Avoid Them)
Even well-meaning attorneys can run into trouble with trust accounts if proper systems aren’t in place. Here are some of the most common trust accounting pitfalls observed in law firms (including small and solo practices), along with tips on steering clear of them:
Commingling Client Funds with Firm Funds
Pitfall: Mixing client money with your own is the cardinal sin of trust accounting. This can happen accidentally or intentionally – for example, a lawyer might deposit a client’s retainer check into the firm’s operating account out of haste, or conversely, pay a personal bill out of the client trust account. Either way, it’s a violation. Wisconsin prohibits commingling even temporarily. Aside from the small allowed amount to cover bank fees, no firm funds should be in trust and no client funds should be in your business account.
How to avoid it: Always double-check before depositing any check: determine if it’s client money (unearned fees, settlement, etc.) that belongs in trust or earned income that can go to operating. Train everyone in the firm that all client-related funds go straight into the trust account first, and only move to operating after billing. Likewise, never pay any office expense or draw your fees directly from the trust account without proper withdrawal and transfer. A good practice is to have at least two bank accounts (Trust and Operating) and label them clearly in your online banking system. Use reminders – for instance, when you receive a retainer, immediately notate “To Trust Account” on it. Many firms implement a two-person rule for trust deposits and withdrawals: one person prepares it and another verifies it’s going to the right place. If you’re solo, you need to be extra vigilant and maybe create a checklist for yourself. And remember, if you do accidentally deposit a client check into the wrong account, fix it ASAP: transfer the money to trust, advise any impacted client if necessary, and document the mistake and correction.
Failing to Keep Up with Recordkeeping
Pitfall: Poor recordkeeping is a common culprit in trust account violations. This might mean not keeping individual client ledgers (so you lose track of what amount belongs to whom), not recording transactions promptly (so your balances are off), or simply having disorganized records that make reconciliation impossible. Some lawyers rely solely on the checkbook and bank statements – that’s not enough. Without a proper ledger system, you might not notice if you over-disbursed or have funds lingering for too long.
How to avoid it: Set up a systematic recordkeeping process. It can be software-based (e.g., using QuickBooks with a trust accounting add-on or a practice management system that handles trust ledgers) or even a manual ledger book – but it must capture all required info. Each time money goes in or out of trust, record it in both the transaction register and the specific client’s ledger immediately. Don’t wait until the end of the week or month to catch up bookkeeping; that’s how details get missed. Many attorneys find it useful to use duplicate receipts or vouchers – for example, when you receive a check, fill out a short deposit form that notes the client and purpose, and keep a copy in a deposit file. Similarly, make it a habit at the end of each week or month to review the list of client balances. If anything looks odd (like a negative balance or a huge balance sitting idle), investigate it. The goal is to always know exactly whose money you have and to be able to produce a complete report on it at a moment’s notice. Templates from the OLR guidelines can be helpful – they specify what a compliant ledger and journal should include. If bookkeeping isn’t your strength, consider hiring a part-time bookkeeper or using software to reduce human error.
Not Reconciling the Trust Account Monthly
Pitfall: Skipping reconciliations (or doing them only sporadically) is a recipe for disaster. When the trust account isn’t reconciled, small errors can snowball unnoticed. For instance, a transcription error (like recording a $1,000 deposit as $100) could make your internal balance wrong. Without reconciliation, you might think you have more money for a client than you actually do. Some lawyers mistakenly assume if the bank statements look okay, everything’s fine. But the bank statement only shows the total – it doesn’t tell you if one client’s funds were used for another or if your records have a mistake.
How to avoid it: Reconcile every month – no exceptions. Many firms set a firm policy that by, say, the 15th of each month, the trust account for the previous month must be fully reconciled and reviewed. Treat it as sacred as paying your rent or filing a tax return. When reconciling, go through each transaction and confirm it. Use a reconciliation worksheet to list: (1) the balance per bank, (2) plus any deposits in transit, minus outstanding checks = adjusted bank balance; (3) balance per your register; (4) total of client ledgers. All three should match. If they don’t, track down why – maybe a bank fee wasn’t recorded, or a transaction is duplicated. Document the reconciliation: keep a printout or PDF, and sign/date it. This creates an audit trail proving you did your due diligence. Also, consider having a second person review the reconciliation. If you have staff, perhaps a partner or manager looks over the bookkeeper’s reconciliation report and signs off. If you’re solo, you might even ask an outside accountant to review your trust reconciliation quarterly or annually as a check. A fresh set of eyes can catch issues you might overlook. Remember, “trust but verify” applies to trust accounting too – trust your systems, but verify through reconciliation that everything aligns. It’s not just a bureaucratic exercise; it’s how you catch and fix mistakes before they harm a client.
Lack of Internal Controls or Oversight
Pitfall: In some small firms, one person (maybe a busy attorney themselves) handles all aspects of the trust account: receiving funds, making deposits, writing checks, recording in the ledger, and reconciling. While this may seem efficient, it creates risk – there’s no separation of duties, so errors or even misappropriation can go unchecked. In worst cases, an unscrupulous employee with unchecked access to trust funds can exploit the lack of oversight. Even honest mistakes are more likely to go unnoticed if the same person is always doing and reviewing the work.
How to avoid it: Implement basic internal controls. In an ideal scenario, different people would handle different aspects – e.g., one person approves disbursements, another actually executes the payment, a third logs it, and a fourth reconciles. Small firms might not have that many staff, but you can still introduce checks and balances. For example, if your bookkeeper enters trust transactions and prepares a reconciliation, have a partner or you as the managing attorney review the monthly reports and bank statement. Consider requiring dual signatures on trust checks above a certain amount (many banks offer two-signature checking for businesses). If you can’t have two signatures, at least have a policy that no check over, say, $5,000 is issued without a second person’s approval. Also, utilize software permissions if available: some legal accounting software lets you restrict who can approve a disbursement versus who can input data. The idea is to not have a single individual with unchecked authority over client funds. Regular, surprise reviews are helpful too – for instance, a partner might randomly spot-check a client ledger or ask to see the backup for a disbursement. These measures create a “culture of compliance” in the firm, signaling that trust accounting is taken seriously and that more than one set of eyes is watching over the funds.
Holding Funds Too Long or Mismanaging Unclaimed Funds
Pitfall: Sometimes lawyers leave client money in the trust account longer than necessary, either from neglect or uncertainty. Examples include: forgetting to refund a remaining balance after a case is closed, holding settlement funds for months without distributing because of procrastination, or not dealing with small trust balances left over (like $10 of interest or an inadvertent overpayment). In worst cases, lawyers have gotten in trouble for effectively using client funds as a slush account – delaying disbursement to help their own cash flow. Wisconsin’s rules require prompt distribution, and unclaimed funds have a procedure for eventual escheat (turnover to the state). Ignoring these can lead to ethics issues or even accusations of conversion.
How to avoid it: Stay on top of payouts and residual balances. When a matter concludes, check if the client has any money left in trust. If so, promptly send it to the client with a final accounting. Don’t let balances languish “just in case” unless there’s a specific reason (and client agreement) to keep holding the funds. For settlements or large transactions, set diary reminders to disburse as soon as external conditions allow (e.g., once a settlement check clears, or once you get payee information for liens). For small leftover sums, attempt to reach the client. If you truly cannot locate a client after diligent effort, Wisconsin law (like most states) has an unclaimed property process – typically, if funds remain unclaimed for a number of years, you must remit them to the state’s unclaimed property fund (or to the Wisconsin IOLTA foundation, depending on the type of funds – Wisconsin’s rule directs unclaimed client funds to the state Department of Revenue after 5 years, under SCR 20:1.15(i)(4) and applicable statutes). Keep a ledger of unclaimed funds if any, with notes on attempts to find the owner. Taking care of unclaimed or residual funds is part of good trust hygiene: it prevents the trust account from accumulating mystery money that doesn’t belong to you. Plus, clearing out unneeded funds reduces the chances of error (like accidentally using an old client’s money for someone else). Set a schedule, maybe annually, to review any balances for closed matters and take action (refund or start escheat process) as appropriate.
Relying on Memory or Informal Methods
Pitfall: Some lawyers, especially solos, might rely on memory or informal notes to track trust funds. For example, “I remember that $5,000 is for client A and $3,000 is for client B, and I’ll get around to writing it down later.” Or using sticky notes, or keeping records only in an email thread. This is dangerous – memory fades, staff changes, and such informal records don’t meet the compliance requirements. If something happens to you or you get audited, there’s no official log to show.
How to avoid it: Formalize your process. Even if you have just a couple of transactions, use a proper ledger (physical or digital). It’s worth spending the time to set it up right rather than winging it. Use receipts for any cash transactions (and avoid cash when possible in trust to maintain a paper trail). If you find yourself scribbling trust info on random papers, that’s a sign to implement a better system. Plenty of templates and software options exist precisely so you don’t have to rely on memory. Think of it this way: if tomorrow someone else had to take over your practice, would they be able to understand from your records exactly how much of the trust account belongs to each client and why? If not, your record-keeping isn’t sufficient.
By being aware of these common pitfalls and taking proactive steps, you can greatly reduce the risk of trust account problems. In many cases, it boils down to paying close attention to detail and maintaining consistency in your procedures. Next, we’ll cover some best practices that encapsulate these lessons and help ensure you not only meet the minimum requirements, but create a smooth-running system for trust accounting.
Best Practices for Trust Accounting in Wisconsin
Beyond simply avoiding mistakes, there are several best practices that Wisconsin law firms (or any firm, really) should follow to streamline trust accounting and ensure full compliance. Adopting these habits will protect your clients’ funds and make your life easier when it comes to audits or even day-to-day trust management. Here are some top recommendations:
Know and Follow the Rules
This sounds obvious, but it’s worth emphasizing: make sure you and your team are familiar with Wisconsin’s trust accounting rules (SCR 20:1.15, related statutes like §757.293, and OLR guidelines). Treat these rules as part of your firm’s standard operating procedure. For example, it should be second nature that any advance fee or cost retainer from a client goes straight into the trust account on receipt, not into your operating account. Likewise, everyone should understand that you cannot withdraw those funds to pay the firm until they are earned (or expenses incurred) and properly documented. Sometimes lawyers delegate bookkeeping entirely and assume it’s handled – but every lawyer handling client funds has a personal responsibility to ensure compliance. Consider doing a brief training or meeting with your staff about trust account duties, and update it whenever rules change (such as the 2023 electronic transaction update). The State Bar of Wisconsin’s ethics counsel and OLR’s Trust Account Program publish articles (in Wisconsin Lawyer and InsideTrack) and FAQs that can be great educational materials. Staying current on rule changes (like the new e-banking rules) is part of your duty – what was prohibited yesterday (like ACH payments) might be allowed today, and vice versa. In short, embed the trust rules into your firm culture: no one should treat trust accounting as an afterthought.
Use IOLTA for Small/Short-Term Funds, Separate Accounts for Large/Long-Term Funds
When a new client payment comes in, consciously decide which type of account it belongs in. As discussed, Wisconsin gives you discretion to determine if funds are “nominal or short-term” (IOLTA) or significant enough for a separate account. Err on the side of caution – if you’re unsure or if it’s borderline, it’s fine to put money in IOLTA. You can always transfer it to a segregated account later if it turns out to be held longer or grows (just remember to get client consent before opening a separate interest-bearing account for them). Document your thought process in the file; this shows you considered the client’s best interest. For instance, if you receive a $50,000 settlement that might be held for a year due to structured payouts, note that you put it in an interest-bearing trust account for the client’s benefit and why. Conversely, if you put a $5,000 retainer in IOLTA, you don’t need extensive documentation other than your normal ledger entry. The key is to treat each deposit deliberately: which bucket does it belong in? Following this practice not only keeps you compliant with the IOLTA rule, but also demonstrates professionalism to your clients (some savvy clients will ask, “will my money earn interest?” and you should be able to explain your decision).
Implement a Solid Recordkeeping System (Preferably with Software)
We’ve hammered on recordkeeping, so here the “best practice” is simply to use a reliable system to maintain your trust records. In 2025, the vast majority of firms use some form of accounting software or practice management software to track trust funds. If you are using QuickBooks, for example, set up a separate set of accounts in the chart of accounts specifically for trust liabilities and trust bank balance – one easy mistake is to jumble operating and trust transactions in one ledger, which you must not do. Software like LeanLaw’s trust accounting integration for QuickBooks is designed to create those separate client ledgers automatically and keep them in sync with the bank balance (we’ll discuss that more in the software section).
Even with software, someone still needs to input accurate data and attach the right client matter to each transaction. Ensure that for each client who has trust funds you have an account or ledger set up for them. Every deposit or payment should refer to that client. If you’re using manual ledgers or Excel, double-entry is a good practice: enter it in the journal and in the client ledger, and have the two totals as a cross-check. Keep your software or ledger updated in real time – the day a transaction happens, log it. Don’t let a backlog accumulate.
Another tip: use clear descriptions for every entry. Don’t just write “Check #1234” in the ledger; write “Check #1234 – Filing fee for Jones case”. This way, anyone reviewing the records (including you, months later) immediately knows what it was for. Clarity in records prevents confusion and mistakes.
Reconcile (Three Ways) Every Month and Review
We can’t emphasize enough how crucial the monthly reconciliation is. As a best practice, schedule a recurring task on your calendar for it. Many firms set a policy that by the second week of each month, the trust account from the prior month must be reconciled. This includes reconciling the bank statement to the internal records AND reviewing the client ledger balances. When you (or your bookkeeper) complete the reconciliation, have it reviewed. If you’re a solo, take a moment to review it yourself line by line, or engage an external accountant for a quick review periodically. Reconciliations are often where you’ll catch something like a bank error (yes, banks sometimes make mistakes too – like a fee charged wrongly) or an internal error (like a double entry).
Document that the reconciliation was done. For example, some firms maintain a “Reconciliation Log” – a simple form each month where the preparer signs off that the balances matched and a reviewer co-signs. This not only enforces discipline but provides evidence of compliance if you’re ever questioned. OLR’s trust account auditors almost always ask for the last several reconciliation reports during an audit, so having them handy is invaluable.
Additionally, use the reconciliation process to do a reasonableness check: Are there any client balances that seem too high or too old? Any negative balances (which should never happen)? Any funds that have been sitting untouched for a long time? Reconciliation time is review time – it’s your chance to identify issues like a case that ended but still has money in trust that should be refunded. By doing this monthly, you ensure nothing falls through the cracks. As one bar auditor famously put it, “regular reconciliation is the number one habit separating compliant trust accounts from problematic ones.” It’s your early warning system and peace-of-mind provider.
Maintain Internal Controls and Segregation of Duties
Even if you’re a small firm, try to segregate duties related to the trust account as much as practical. We mentioned this as a pitfall (when it’s lacking). As a best practice: if you have more than one person in the firm, don’t let one person do everything with no oversight. For example, you might require that two people are involved in any transfer of funds from trust to operating – one person initiates, another approves. Or, if you write checks, have one person draft them and another sign them. Use the bank’s controls too: set up notifications for any large withdrawal, or even require dual approval on the banking portal (some banks allow this for business accounts).
For solos, internal “controls” can be achieved by using technology: for instance, setting alerts on your trust account for any transaction over a certain amount, so you’re immediately aware of any activity (in case someone somehow got access). Another control is to limit who has access to trust account instruments – e.g., lock up your checkbook, and don’t give out the online banking password to staff unless necessary. If staff do have access, limit their authority (your bank can often limit who can wire funds, etc.). The idea is to create a self-auditing environment where mistakes or misdeeds would be noticed.
Additionally, management should regularly discuss the trust account status. In a small firm partners meeting, for example, a standing agenda item could be “Trust Account Review: current balance, any issues, any large client funds being held, etc.”. Keeping everyone informed creates collective responsibility. It should never be the case that one lawyer in a multi-lawyer firm says “Oh, I don’t know anything about our trust account, So-and-so handles it.” Every partner or responsible attorney should have a handle on it, because ultimately all lawyers are accountable for those client funds.
Train Your Team and Stay Educated
Best practice: Don’t assume that new attorneys, paralegals, or bookkeepers inherently know the quirks of Wisconsin’s trust accounting rules. Take time to train anyone who will handle trust funds on the dos and don’ts. This could be a formal training session or simply shadowing you on a few transactions to learn the ropes. Provide written guidelines or an SOP manual that covers common scenarios (receiving a retainer, paying client costs, moving earned fees, etc.). Emphasize why the rules exist – people tend to follow procedures better when they understand the importance (e.g., “We do it this way because the Supreme Court requires it, and to protect clients and the firm”).
Also, encourage questions: it’s much better for a junior employee to ask, “Should this go in trust or operating?” than to guess and get it wrong. Create a culture where compliance questions are welcomed, not seen as bothersome.
For yourself and key staff, consider periodic continuing education on trust accounting. The State Bar’s Practice411 and OLR often offer CLE seminars or webinars on trust accounting updates. For instance, after the 2023 rule change, there were CLE sessions explaining how to handle electronic payments under the new rule. Attending something like that ensures you’re up to date. Reading articles in publications like Wisconsin Lawyer or the Bar’s InsideTrack newsletter keeps you abreast of any new ethics opinions or rule tweaks (for example, a recent InsideTrack piece discussed the July 2023 amendments to SCR 20:1.15 allowing e-transactions). Staying educated is an ongoing effort – consider it part of your professional responsibility to know the current rules.
Communicate with Clients About Their Funds
Transparency with clients regarding their money is a good practice that builds trust and can prevent disputes. When you receive funds that will be held in trust, it’s wise to inform the client. For example, if a client pays a $5,000 advance fee, you might email or note in your engagement letter: “These funds will be deposited into our client trust account and will remain there until earned by the firm or used for expenses, at which point you’ll see the transfers on your invoices.” For settlements or judgments, definitely let the client know when you receive the money and that it’s being held for disbursement.
Many firms include trust account activity on client invoices or statements. If you bill against a trust retainer, your invoice can show: starting trust balance, amount applied to this invoice, and remaining balance in trust. This way the client is always aware of how much of their retainer is left. If you replenishment is needed, this prompts them. Even if no invoice, consider sending a simple statement for long-held funds (e.g., if you’re holding $50,000 for a year due to a delayed distribution, a quarterly statement to the client showing the money is still in trust can reassure them).
Why is this important? First, it keeps clients informed – which they appreciate. Second, it protects you: a client is far less likely to complain or suspect mishandling if they regularly see updates proving their money is intact. If a client ever does question something, you have a paper trail of having communicated about it. In the rare instance a client might allege you misused funds, those regular statements are powerful evidence on your side.
Handle Closing and Transition of Accounts Properly
When closing a trust account (for example, if you’re switching banks or retiring), follow the required steps. WisTAF should be notified if you’re closing an IOLTA and opening a new one (so they can update their records). Make sure all client funds are disbursed or transferred to the new account before closing. Also, if a lawyer leaves your firm, have a clear agreement on who retains responsibility for any client trust funds associated with that lawyer’s cases. Plan for contingencies: if you suddenly couldn’t tend to your practice (due to illness, etc.), ensure someone (like a designated successor or another lawyer) knows how to access the trust account and the records. Proper succession planning is actually an ethics requirement in many places and avoids chaos in an emergency.
By incorporating these best practices, your firm will not only meet the minimum requirements of Wisconsin’s trust accounting rules but likely exceed them, creating a reliable and efficient system. A well-run trust account gives you peace of mind – you always know where client money stands, and you can readily answer any inquiry or audit. In fact, solid trust accounting can even be a selling point to clients: it signals professionalism and financial responsibility.
However, all these processes can be time-consuming. Thankfully, technology can help lighten the load. In the next section, we’ll explore how legal accounting software can simplify trust account management and ensure compliance.
How Legal Software Can Simplify IOLTA Compliance
Managing a trust account manually – with paper ledgers, manual reconciliations, and constant oversight – can be labor-intensive. For small and mid-sized firms with limited administrative staff, leveraging technology is often the smart move. Legal practice management and trust accounting software (such as LeanLaw, which integrates with QuickBooks Online) are purpose-built to handle many of these tasks accurately and efficiently. Here are several ways the right software can assist in staying compliant with Wisconsin’s trust accounting rules:
- Built-in Separation of Funds: Good legal accounting software enforces the separation of client funds by design. For example, LeanLaw’s trust accounting engine lets you designate specific trust bank accounts in the system and tie each client deposit to a particular client matter. This means when you enter a $1,000 retainer for Client A, the software records it as a liability for Client A, separate from any operating income. It will prevent you from accidentally applying Client A’s money to Client B. Essentially, it keeps the sub-ledgers for each client automatically. You can at any time pull up a report of how much each client has in trust – without having to manually update spreadsheets. This reduces the risk of commingling or over-drafting a client’s funds because the system will show a negative balance if you try to allocate more to a client than they have.
- Automated Three-Way Reconciliation: One of the standout features of solutions like LeanLaw (when used with QuickBooks) is automated or semi-automated three-way reconciliation. The software can pull your bank balance (via bank feeds or statements), compare it to the software’s own ledger of transactions, and cross-check the sum of client balances. If there’s a discrepancy, it flags it for you. What might take hours by hand – matching each deposit and check – can be done in minutes. For instance, LeanLaw provides reconciliation reports that show all three balances side by side. Instead of manually cross-checking multiple records, you can reconcile with a few clicks each month. This not only saves time but ensures you don’t forget to do it – many programs prompt you to reconcile regularly, or even lock certain actions if you haven’t reconciled (to enforce the habit). By having reconciliation as a built-in workflow, you’re effectively reminded to stay compliant.
- Comprehensive Reporting and Audit Trail: Software can generate all those reports that OLR might want to see: a detailed transaction register, individual client ledgers, and a record of every trust transaction with its date, payee, client, and purpose. If a client asks for an accounting, you can produce a statement of their trust activity in seconds. If an auditor comes knocking, you can pull reports for any date range showing exactly what happened (and many systems allow export to PDF or Excel for sharing). Some tools also let you attach documents or memos to each transaction (for example, you could attach a scanned copy of a check or the client’s settlement statement to the entry in the software). This way, your digital ledger is accompanied by the source documents – a dream for audit preparation. Essentially, modern software creates a digital paper trail that’s often more organized and searchable than paper records.
- Alerts and Error Prevention: Legal-specific accounting software often has safeguards to prevent common mistakes. For instance, it may warn or block you if you attempt to withdraw more than what’s in a client’s balance (preventing that inadvertent overdraft of a client ledger). It might also enforce input of required info – you can’t record a trust deposit without specifying the client, for example. Some software can also integrate with payment systems so that when a client pays by credit card or eCheck, it automatically goes into the trust account and is recorded properly, with credit card fees charged to the operating account (to avoid them coming out of client funds). These small automations ensure that things like credit card processing – which used to be tricky under old rules – are handled in compliance (especially now that ePayments are allowed by the new WI rules).
- User Permissions and Oversight: The right software allows you to set permissions for different users. LeanLaw, for example, offers user roles so you can control who can do what in the system. You might allow a paralegal to enter trust transactions but not to actually approve a withdrawal without a lawyer’s sign-off. Or only the firm partner can actually execute a “write trust check” function. This ties into the internal controls best practice – the software can be configured to enforce a version of dual control. Additionally, an administrator account can see logs of all transactions entered, so if there’s any question, you can audit who did what. By leveraging these features, even a small firm can simulate having a larger accounting department with checks and balances – the software becomes the second pair of eyes in some respects.
- Integration with General Accounting: One key benefit of using software like LeanLaw with QuickBooks is that your trust accounting integrates with your general accounting. The trust account is reflected on your balance sheet as client trust liabilities, and when you invoice and apply trust funds, it’s properly recorded as income transfer from trust. This prevents the common issue of having separate systems (one for billing, one for trust) that might get out of sync. Integration ensures that when you, say, pay yourself from trust for earned fees, the software simultaneously reduces the client’s trust balance and records it as income in your books, with a proper paper trail (like an invoice payment record). This keeps your financial statements accurate and avoids the nightmare of trying to reconcile your billing records with bank records manually.
In sum, while it’s entirely possible to manage a trust account with pen, paper, and elbow grease, leveraging a modern IOLTA accounting software solution can significantly reduce the risk of human error and save considerable time. It automates many of the compliance checks that you’d otherwise do manually, and provides peace of mind that if you’re following the software’s workflows, you’re likely following the rules. Of course, software is only as good as its user – you still need to understand the basics of trust accounting to use it correctly – but it’s a powerful tool to have in your arsenal.
Many Wisconsin firms, especially smaller ones, have turned to cloud-based practice management platforms for this reason: they want to focus on practicing law, not wrangling spreadsheets late at night. By using, for example, LeanLaw’s trust accounting features in conjunction with QuickBooks Online, a firm can keep compliant with much less fuss and with built-in safeguards that manual systems lack. Adopting such technology can be viewed as part of your ethical duty of competence (under SCR 20:1.1) in the modern landscape – competence now includes knowing how to use technology to best serve your clients’ interests, which in this context means protecting their funds.
Before we conclude, let’s address a few frequently asked questions that Wisconsin attorneys often have about IOLTA and trust accounting compliance.
FAQ: Wisconsin IOLTA and Trust Account Compliance
Q1: Do I really need an IOLTA account if I’m a solo practitioner or only handle a few client matters?
A: Yes – if you ever handle client money that is not yours (even a single $500 retainer or settlement check), you are required to have a trust account. Wisconsin’s rules make no exception based on firm size or volume of funds. Every practicing attorney who holds client funds, even occasionally, must maintain an IOLTA (or trust) account. The only lawyers exempt are those who never hold client funds (e.g., certain government or corporate counsel) or those practicing but with no Wisconsin clients. Solo and small firm lawyers are actually at high risk if they try to get by without a trust account – commingling client money into your business account, even once, is a violation. Setting up an IOLTA is straightforward and there’s no significant cost to you (banks often waive fees or deduct them from interest). So if you’re practicing law and might receive client funds, play it safe and open that IOLTA.
Q2: What exactly counts as “nominal or short-term” funds that go into IOLTA versus requiring a separate account?
A: Wisconsin’s rules do not set a hard dollar threshold – it’s a matter of judgment. “Nominal” generally means an amount that on its own wouldn’t generate net interest for the client. “Short-term” means funds that will be held only briefly. For example, typical retainers for fees, small settlement advances, or payments that will be used to pay costs in a few weeks, all are good candidates for IOLTA. On the other hand, large personal injury settlements, estate funds to be held until probate closes, or other substantial sums held for months/years would likely earn enough interest to benefit the client, so those should go in a separate interest-bearing account for that client. The State Bar’s guidance suggests considering bank fees and the logistics of setting up an account: if the interest that could be earned is greater than the cost and effort of creating a separate account, then do the separate account. If not, use IOLTA. In practice, many attorneys treat amounts in the low five-figures or less as IOLTA material unless they’ll be held for a long duration. But if you had, say, $30,000 to hold for two years, that would probably warrant a separate account. Always obtain the client’s consent in writing before opening an individual interest-bearing trust account, and ensure the client’s tax ID is used for that account (so they get the interest). If you’re unsure, consult an ethics opinion or err on the side of IOLTA and document your rationale.
Q3: Can I accept credit card or electronic payments into my trust account?
A: Yes, as of 2023 Wisconsin now allows electronic payments into and out of trust accounts, but you must handle them carefully. In the past, lawyers had to use intermediate accounts to accept credit cards due to worries about chargebacks and merchant fees hitting the trust account. Under the new SCR 20:1.15 effective July 1, 2023, you can have a client pay directly by credit card or ACH into your IOLTA or trust account. However, you should ensure that any processing fees are not taken out of client funds. The common practice is to use a payment processor that splits fees so that the full client payment goes to trust and fees are charged to your operating account (many legal-specific payment services do this automatically). Also, be mindful of chargebacks (if a client disputes a charge, the card company might pull funds back) – it’s recommended to mitigate that risk by quickly moving earned funds out of trust once a credit card payment clears, and perhaps maintaining a buffer in trust (your own $100 or so) just in case. For electronic disbursements (e.g., sending a wire or ACH to a client), Wisconsin now permits it, but you need to keep a record of who authorized the transfer and the purpose. Many attorneys still use paper checks for payouts to have that physical record. If you use ePayments, print or save confirmations. In summary, yes you can use modern payment methods – just follow the same principles of no commingling and good recordkeeping. Using an IOLTA-friendly payment processor or software integration (like LeanLaw’s built-in e-payments feature) can simplify this, as those tools are designed to keep fees out of the trust account and log transactions properly.
Q4: How often do I need to reconcile my trust account, and what does a “three-way reconciliation” mean?
A: Under Wisconsin rules, you need to reconcile the trust account at least every 30 days (monthly). A “three-way reconciliation” means you are verifying three balances against each other: (1) the balance according to the bank statement, (2) the balance according to your internal trust transaction register, and (3) the total of all client ledger balances (plus any other sub-ledgers like a fees ledger if you keep a buffer for bank fees). All three should be identical once you account for things like outstanding checks. The process typically involves taking the bank statement as of a date (say, April 30) and checking that your own records show the same ending balance. If not, find the discrepancy. Then list all client balances as of that date and sum them – that too should equal the bank balance. If something is off – for example, your client ledgers add up to $100,000 but the bank only has $99,500 – you have a problem (maybe a $500 bank fee wasn’t recorded or a math error in a ledger). You then resolve it (maybe you forgot to subtract a wire fee and need to adjust a ledger for bank charges – which should be against your firm funds, not a client). Wisconsin expects you to keep a record of each reconciliation. Many lawyers use a form or just print a QuickBooks reconciliation report. The key is doing it timely and fixing any issues promptly. Notably, even if the bank offers “reconciliation services,” you as the lawyer are responsible to ensure the three-way match because only you have the client ledger info. If this isn’t in your wheelhouse, get help from a bookkeeper or use software tools – but do not skip it. Regulators have little sympathy for lawyers who say “I was too busy to reconcile.” It’s a fundamental part of trust account management and your fiduciary duty.
Q5: What are the potential consequences if I make a mistake with client trust funds?
A: Consequences can range from minor to career-ending, depending on the nature of the mistake and how you handle it. For small, isolated issues (say you bounced a trust check due to timing but quickly corrected it and no client lost money), OLR might resolve it with an advisory letter or diversion program – basically a warning to be careful. However, more serious violations can lead to public reprimands, suspension of your law license, or disbarment (revocation of your license). The Wisconsin Supreme Court has disciplined many lawyers over the years for trust account misconduct. Common scenarios for harsh discipline involve misappropriation – if a lawyer intentionally uses client money for personal purposes (even “borrowing” it short-term), that often results in suspension or disbarment. Even sloppy recordkeeping that puts client funds at risk can result in months of suspension. Wisconsin case law is replete with examples: attorneys have been suspended for commingling and failing to promptly disburse settlement funds, even without evil intent, simply because such negligence is taken seriously. If a client is harmed (money lost or delayed) or if the lawyer’s misuse appears intentional, discipline will be severe. Apart from official discipline, mishandling trust funds can lead to civil liability (clients could sue for breach of fiduciary duty) and damage to your reputation. The Office of Lawyer Regulation publishes summaries of discipline cases, and trust account issues are frequently mentioned as a top cause of sanctions. In short, the State Bar and OLR treat your fiduciary duty to clients as almost sacred – violations can end your legal career. The good news is that with diligent compliance and the best practices we discussed, these mistakes are fully preventable. And if you do slip up, self-reporting and rectifying the issue immediately can sometimes mitigate the consequences. But it’s far better to never be in that hot seat – by keeping your trust accounting above reproach.
Q6: How do I handle it if I decide to close my practice or if a partner who was in charge of trust accounting leaves?
A: If you’re closing your practice (retiring or moving to a role where you won’t have clients), you need to properly disburse or transfer all client funds first. Ideally, finish all client matters and pay out any remaining balances to clients. If some matters are ongoing and being transferred to another lawyer, you can transfer the trust funds to that successor lawyer’s trust account (with client consent and a proper accounting to the client). Once no client funds remain, you can close the trust account. Notify WisTAF that you are closing the IOLTA (they may ask for final interest remittances etc.). Keep all your trust account records for six years as required, even if you retire. If a partner who was the point person for the trust account leaves, the firm must ensure a smooth transition. Immediately update signature cards at the bank to remove them if they’re not remaining as signatory. Have an internal audit of the trust account at the time of transition – verify all funds on hand and make sure the records are in order. This protects both the departing lawyer and the firm. Inform clients if appropriate (especially if the trust funds are moving to a new firm with the lawyer). The key is to never abandon the trust account or assume the bank will handle it. Always formally close it or transfer responsibility. OLR occasionally sees issues where a lawyer was disciplined or incapacitated and their trust account was left a mess – to avoid that, every firm should have a contingency plan (often called a succession plan). Wisconsin’s State Bar has resources on succession planning to ensure clients’ funds are protected if something unexpected happens. Being proactive in these scenarios upholds your duty to safeguard property even as circumstances change.
IOLTA compliance and trust accounting can seem onerous, but it’s an integral part of practicing law in Wisconsin – and it ultimately comes down to protecting your clients. By understanding the rules, implementing sound practices, and leveraging tools (like LeanLaw’s trust accounting software or other solutions) to automate where possible, even small firms can manage trust accounts with confidence and ease. The investment in doing it right pays off by keeping you out of ethical trouble and earning your clients’ trust. Always remember that those funds in your trust account are not your money – you are a fiduciary caretaker. If you treat every client dollar with the same care you would expect of someone holding your own money, you’ll naturally act in compliance with Wisconsin’s regulations.
For more resources on trust accounting or to see how technology can help, check out LeanLaw’s guide on trust accounting best practices and consider reaching out for a demo of how LeanLaw’s IOLTA accounting features work in concert with QuickBooks to maintain perfect three-way reconciliations. With the right knowledge and tools, IOLTA compliance becomes a routine part of your practice that runs smoothly in the background – allowing you to focus on advocacy, knowing your clients’ funds are in good hands.
