How Does An Attorney Trust Account Work?


State bar guidelines mandate that, when clients or third parties present your office with checks for pre-paid funds, you deposit it in an interest-bearing attorney trust account; smaller sums can be held in pooled accounts.

As it is against the rules to commingle client and firm assets, Smokeball legal billing software requires each client to open a separate trust account.


The legal profession adheres to a number of stringent guidelines regarding how attorneys handle and record client funds in their trust accounts. One important rule states that an attorney cannot spend client funds until they have earned that fee or retainer payment.

Example: When clients pay retainers of $10,000 to an attorney, that money goes directly into their trust account. After spending one hour working on that matter, however, they are entitled to transfer $150 of these retained funds out of trust and into operating or business accounts as earned compensation.

Law firms need to maintain accurate and consistent accounting records in order to stay profitable and remain compliant. Mistakes like misclassifying deposits into trust accounts as income can have severe repercussions – and could even endanger an attorney’s license! Luckily, there are ways you can avoid these costly errors; read on!


Lawyers frequently trip up on the rules surrounding fee collection. This is often because they fail to recognize that client funds should never be mixed with attorney business accounts. Each year, hundreds of otherwise honest and careful lawyers lose their license due to violations in respect of attorney trust accounts responsibilities.

When receiving an advance payment for legal fees from either your clients or third parties, deposit it immediately into an attorney trust account and only draw on those earned fees once billed and dispersed to them.

These rules are essential for maintaining transparency, adhering to state bar regulations and protecting attorneys from malpractice lawsuits. Smokeball legal case management software makes tracking time and expenses accurate while remaining compliant with these rules easier, leading to less confusion over your firm’s fee structures resulting in less malpractice complaints being lodged against it.


Lawyers are legally obliged to abide by stringent rules regarding their handling of client funds, which specify how they can and cannot be spent. Anyone found breaking these regulations faces serious disciplinary measures and risks losing their license to practice law.

One of the most frequent missteps attorneys make is mixing their business account with that of their clients’ trust accounts. It is imperative to maintain clear distinctions between client funds and operating accounts used by law firms for expenses.

Firms typically create one central escrow management account with subaccounts for each matter or client. This enables tracking each matter’s balance while earning interest that is reported monthly to the bank and then donated back into state bar programs such as IOLTA/IOLA (Interest on Lawyer Trust Accounts/IOLA), funding civil legal services for indigent clients in most US states that participate.


When clients provide funds for costs and expenses, attorneys must report these deposits into an individual ledger for each trust account they represent. Ideally, double-entry accounting should be followed; otherwise the attorney could misuse these funds by misappropriating them or mixing them in with general operating funds of law firm accounts. It is vitally important that lawyers recognize the significance of keeping accurate attorney trust account records.

Accurate recordkeeping is one of the primary ways that attorneys violate IOLTA rules, costing their clients financially. Legal billing software solutions like Smokeball can help lawyers stay compliant while building transparency with clients. If you would like more information on IOLTA and how legal technology can assist your practice, reach out today and schedule a demonstration – we look forward to speaking with you! This article has been adapted from a blog post on Smokeball’s website.