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Quick answer: Lawyer trust (IOLTA) accounting means client funds must be held in a separate trust account, never commingled with operating funds, and tracked to the penny per client with regular three-way reconciliation. The simplest way to stay compliant is software with built-in trust accounting — Clio, MyCase, and PracticePanther all include IOLTA-compliant tools.
Trust accounting must-dos
- Keep client funds in a separate IOLTA trust account.
- Never commingle trust and operating money.
- Track each client’s balance individually; never let it go negative.
- Run regular three-way reconciliations (bank, book, client ledgers).
Tools with built-in IOLTA trust accounting: See Clio See MyCase
Verified against 2026 sources incl. Purple Law and Practiq. Confirm current prices on each vendor’s site.
This guide is informational, not legal advice. How we review software: cost, features, ease of use, and real feedback — see our methodology. Last updated July 2026.
Trust accounting is where good lawyers get into ethics trouble — not through fraud, but through sloppy bookkeeping. Client money (retainers, settlements, advance costs) is not yours until it is earned, and mishandling it can mean fines, suspension, or disbarment. The rules are strict but simple, and the right software makes compliance close to automatic. Here are the basics every lawyer needs.
What a trust (IOLTA) account is
A trust account holds money that belongs to your clients, kept entirely separate from your firm’s operating account. Unearned retainers, settlement proceeds waiting to be distributed, and advance cost deposits all live here until they are earned or disbursed. Most jurisdictions use IOLTA (Interest on Lawyers’ Trust Accounts), where interest on pooled client funds is remitted to a bar foundation. The core idea never changes: this is the client’s money, and you are only its custodian.
The rules that keep you compliant
Segregate client funds. Client money goes in the trust account; firm money does not. Never commingle. Mixing trust and operating funds — even briefly, even by accident — is the classic violation. Do not pay firm expenses from trust, and do not park your own money there. Keep per-client ledgers. Track every client’s balance individually, and never let any client’s balance go negative (spending one client’s funds on another’s matter is a serious breach). Document everything — every deposit, disbursement, and transfer, with the client and purpose noted.
Three-way reconciliation
This is the practice that catches problems before a bar auditor does. Regularly (monthly is standard), reconcile three numbers so they match to the penny: your bank statement balance, your trust ledger (book) balance, and the sum of all individual client ledgers. If the three do not agree, something is wrong — find it immediately. Software with built-in trust accounting performs this reconciliation for you and flags discrepancies, which is exactly why using it is safer than a spreadsheet.
Common mistakes to avoid
Watch the recurring traps: leaving earned fees sitting in trust (move them to operating once earned, promptly), mishandling interest (it usually belongs to the client or the IOLTA program, not you), failing to return client overpayments quickly, and paying any firm or personal expense from trust. Each is avoidable with clear procedures and regular reconciliation.
Software that handles it for you
The safest route for a solo or small firm is practice-management software with IOLTA trust accounting built in. Clio, MyCase, and PracticePanther all separate trust from operating funds, keep per-client ledgers automatically, and run three-way reconciliation — turning the riskiest part of running a practice into a routine task. For a full comparison, see our best legal practice management software for solo attorneys guide.
Frequently asked questions
What is trust accounting for lawyers?
It is the practice of holding and tracking client funds separately from your firm’s money. Lawyers keep client retainers, settlements, and cost deposits in a dedicated IOLTA trust account, record every transaction per client, and reconcile regularly to stay compliant and ethical.
What is commingling and why is it prohibited?
Commingling is mixing client trust funds with your firm or personal money — for example paying an office bill from the trust account or leaving your own cash in it. It is prohibited because it puts client funds at risk and blurs whose money is whose; it is one of the most common causes of bar discipline.
What is three-way reconciliation?
It is matching three balances — your bank statement, your trust ledger, and the total of all individual client ledgers — so they agree to the penny, typically monthly. If they do not match, there is an error to resolve immediately. Trust-accounting software automates this check.
Do I need special software for trust accounting?
Not strictly, but it is strongly recommended. Practice-management tools like Clio, MyCase, and PracticePanther include IOLTA-compliant trust accounting that separates funds, keeps per-client ledgers, and reconciles automatically — dramatically reducing the risk of the manual errors that trigger ethics complaints.
The bottom line
Trust accounting comes down to four habits: keep client funds separate, never commingle, track every client’s balance individually, and reconcile three ways on a schedule. Do those consistently — ideally with IOLTA-compliant software like Clio or MyCase handling the mechanics — and you protect both your clients’ money and your license.