Law Firm Trust Accounting 101: The First Step to Staying Compliant
- TLTurner Group
- 1 day ago
- 5 min read
--- This article is part of TLTurner Group’s Law Firm Trust Accounting Series, a four-part guide to simplifying compliance, protecting client funds, and building confidence in your firm’s financial systems.
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Let’s be honest, trust accounting isn’t the most exciting part of running a law firm.
But skipping it? That’s the fastest way to invite chaos.
The biggest mistake most firms make is also the simplest: not keeping client trust funds separate from the firm’s operating account.
It might seem easier to manage everything in one place… until reconciliation day hits or the state bar comes knocking. Suddenly, that “convenient” setup turns into hours of stress, missing transactions, and unclear records.
Let’s make sure that never happens to you.
Why You Need a Separate Trust Account
Here’s the truth: every dollar that comes into your firm either belongs to you or your client, but never both at the same time.
When client money (like retainers or settlements) sits in the same account as your operating funds, things get messy fast. You can’t easily prove what’s yours versus what’s held in trust, and that’s exactly why the state bar requires a separate account.
It’s not just best practice. It’s non-negotiable.
What Can Go Wrong When You Skip It
Commingling funds: Even unintentional mistakes count. Using client money for firm expenses — even once — can violate ethics rules.
Audit chaos: When the bar asks for documentation, you’ll spend days proving ownership of every transaction.
Reconciliation headaches: Without clear tracking, you’ll never feel confident your books match the bank.
The good news? A separate trust account eliminates all three problems, and gives you back your peace of mind.
How to Set It Up Correctly
If you’re still using one bank account for everything, don’t panic. This is easy to fix once you know what to look for. Think of it as drawing a bright line between your firm’s money and your clients’ money so nothing ever gets blurred.
1. Open a Dedicated Trust Bank Account
Choose a bank that understands IOLTA or client trust requirements. If your banker looks confused when you mention it, that’s your cue to switch.
This account should only hold client funds; no firm expenses, no revenue deposits, nothing else.
2. Build a Repeatable Workflow
Every dollar in or out of that account should be tied to a client and case.
Example: You receive a $5,000 retainer for the Smith case. Log it immediately with that reference so you can always see whose funds you’re holding and why.
3. Track Everything in Your Accounting System (Not Your Head)
We’ve all promised to “update the spreadsheet later.” That’s where mistakes start.
If your firm already uses Clio or MyCase, enable their trust ledger feature. If not, QuickBooks with a legal-specific add-on works well too.
Your goal: be able to answer “How much do we hold in trust for each client?” in three clicks or less.
4. Reconcile Monthly — Always
Even if everything looks fine, reconciliation is your safety net.
Match the trust account balance against your client ledgers every month.
Think of it as a three-way conversation between your bank balance, client ledger, and trust ledger, they should all be saying the same thing.
When they do, you can relax knowing your records will stand up to any audit.
Quick Recap
Separate your trust account.
Tag every transaction by client and case.
Track activity in your accounting system.
Reconcile monthly without fail.
Want to make sure you’re on track?
[Download our Trust Accounting Resources], it’s free and takes 5 minutes to review.
Common Mistakes to Avoid
Even with the best intentions, things can slip through the cracks. Here are a few traps to watch out for:
Mixing accounts: Even a short-term “I’ll fix it later” transfer violates compliance rules.
Skipping documentation: Always keep written client authorizations for disbursements, even small ones.
Delaying reconciliations: Waiting until quarter-end turns tiny errors into major cleanups.
If your bookkeeper isn’t confident handling trust accounting, it may be time to review your workflow or bring in outside support. You need someone who understands three-way reconciliations, the kind that catches problems before they ever reach your desk.
Quick self-check:
Can you pull these three reports right now?
Bank balance
Client ledger
Trust ledger
If not, that’s your first priority this week.
The Bottom Line
A separate trust account isn’t just a regulatory box to tick, it’s the foundation of your firm’s financial integrity.
It protects your clients. It simplifies your books. And it keeps you out of compliance trouble before it ever starts.
If you’re still running everything from one account, that’s okay, now you know where to start.
Let’s get it right before the next audit letter shows up.
Protect Your Clients. Protect Your Firm. Protect Your Sanity.
[Download our Trust Accounting Resources], your step-by-step guide to keeping your system compliant, organized, and stress-free.
Because peace of mind starts with knowing every client dollar is exactly where it should be.
If you’re ready to take your next step beyond the checklist, that’s where we come in.
At TLTurner Group, we help law firms simplify trust accounting, strengthen compliance, and gain total clarity around their finances, so you can focus on practicing law, not chasing transactions.
Let’s make your trust accounting simple before the next audit letter shows up.
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Next in the Law Firm Trust Accounting Series:
When it comes to trust accounting, one simple question reveals everything about your compliance:
“Can you tell exactly which client every dollar in your trust account belongs to?”
If your answer takes more than a few seconds, the next post will show you how to fix it, with simple systems that bring instant clarity and confidence to your tracking.
Coming Soon: [Law Firm Trust Accounting 102: Every Dollar Has a Name — The Simple Rule Behind Trust Accounting Compliance]
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Law Firm Trust Accounting Series
101: The First Step to Staying Compliant
102: (Coming Soon) Every Dollar Has a Name — The Simple Rule Behind Trust Accounting Compliance
103: (Coming Soon) Three-Way Reconciliation Made Simple
104: (Coming Soon) Avoiding Common Pitfalls That Trigger Bar Audits
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About TLTurner Group
TLTurner Group is a nationally recognized accounting and CFO advisory firm serving small and mid-sized law firms. Co-Founded by Terrell A. Turner, CPA — a 3x 40 Under 40 CPA and Top 20 Global Finance Influencer — the firm combines deep financial expertise with practical, law-firm-specific strategy.
Our mission is simple: make law firm finance simple, help law firm leaders make smart financial decisions, build sustainable businesses, and create healthier careers and lives in the process.
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