The Challenges of Trust Accounting for Lawyers

Many lawyers have found that trust accounting is one of the most challenging areas of their practice. Often, trust accounting can be seen as complex for several reasons. Managing your trust accounting can be a tedious task. Whether you run a larger law firm or are in private practice, you need to know and understand the Bar Association rules to perfection. One misstep and put you out of compliance. This blog will look at the challenges of trust accounting for lawyers.

What is trust accounting?

Trust accounting allows attorneys to keep track of retainers or prepayments from clients. Attorney trust accounts are critical to making sure that money given to lawyers by clients is kept safe and isn’t commingled with other law firm funds or used improperly. But sometimes, lawyers --especially brand-new lawyers --don’t fully understand the proper tracking of attorney trust accounts. They, unfortunately, don't learn these details in law school.

The challenges of trust accounting for lawyers

The challenge of trust accounting for lawyers is that even though there are clear rules at the local bar association on what to do, when it comes to tracking, trust matters, if you don't take the time to learn them and stay on top of them, it is easy to fall out of compliance. As attorneys get busy, the job of managing the trust accounting can quickly fall into the time slot of late evening accounting when the attorney is the most tired. Being exhausted when working with numbers can quickly fall to making mistakes or accidental mismanagement of the trust accounts.

It is critical to understand trust accounting because lawyers need to be able to prove that they are not overcharging or undercharging their clients. These client funds in the trust bank account are NOT ever considered law firm revenue until the money is earned and transferred to the operating bank account.

Suggestions for overcoming trust accounting errors

One of the most common issues in trust accounting is the lack of trust accounting compliance. Trust accounting rules are not complex, but we see many different kinds of trust accounting errors as we detangle messy bookkeeping records. Some of the most common types of trust accounting errors are as follows:

1. Omission of trust accounting entries
2. Timely entries in the trust ledgers
3. Bank wire fees being deducted from IOLTA/Trust bank accounts
4. Misstatement of trust accounting entries

The first two errors are the most common and they both need to be corrected by making appropriate entries. The third error is very difficult and requires the trust accounting professional to contact the client and correct the issue. The most important thing to remember when it comes to trust accounting is that it does not have to be complicated. There are many simple steps that can be taken to avoid making trust accounting errors.

For example, hiring a trust accounting professional will make sure that trust accounting entries are made in a timely manner and the accuracy is monitored. They should also make sure that the entries are complete and that they are consistent with the trust accounting rules. These simple steps will prevent trust accounting errors from occurring.

How legal tech software can solve errors in trust accounting

We have discussed the benefits legal technology can have for attorneys, but with good legal tech software, attorneys can automate processes, avoid human error, and have an efficient and streamlined experience. So, what are some of the ways that good legal tech software can help solve the challenges of trust accounting?

• Legal tech will save you time (and money). When you implement the use of legal tech software, you set up the client/matter, and the software does this for you in the accounting platform. Additionally, in the case of LeanLaw, you can electronically submit a trust request to your law firm client. Simple, Professional, and just a few clicks.
• Trust tracking is done transparently and with ease. The extra-legal software tool will help you manage one to many clients.
• Billing is made easy with the software. Track your billable time, and manage time inside the software.
• Protection is in place for overstating a trust matter. You cannot apply more funds than what was received.

We hope you enjoyed our blog post on the challenges of trust accounting for lawyers. Managing law firm trust accounting is a daunting task. Lawyers need to know and understand the rules to perfection to stay compliant. We hope this article helps you understand and manage your trust accounting more effectively. If you have any questions or concerns, please contact us at our contact form below. Thank you for reading, we are always excited when one of our posts can provide useful information on a topic like this!