Trust Accounting Compliance: What Lawyers Need to Know

Trust accounting is one of the most critical and misunderstood responsibilities in legal practice. Every dollar placed in a client trust account must be handled with precision, transparency, and full compliance with state bar regulations. Unfortunately, many solo and small firm attorneys either underestimate the complexity or don’t have the right systems in place, putting their practice at risk.

In this post, we’ll break down what Trust Accounting is, Why Compliance Matters, and How to Avoid the Most Common Pitfalls. 

What Is Trust Accounting? 

• A client trust account is a separate bank account used to hold client funds securely, while an IOLTA (Interest on Lawyers Trust Account) is a type of trust account where the interest earned is remitted to a state bar foundation to fund public legal services. 

  
  

• An operating account is used for a law firm's general business expenses, while a trust account holds client funds that must be kept separate and used only for the client’s specific legal matters. 

• Funds that must be placed in trust include client retainers, settlement proceeds, and generally any advance payments for legal services or costs not yet earned or incurred. 

  
  

Core Trust Accounting Compliance Principles 

• Segregation of Funds: Never mix client funds with firm operating funds. 

• No Commingling: Each client’s funds must be accounted for separately. 

• Timely Disbursement: Funds should only be disbursed once they are earned or authorized. 

• Detailed Record-Keeping: Maintain ledgers, receipts, and a complete paper trail of all activity and transactions. 

  
  

What Can Go Wrong and Why It Matters 

• Bar Disciplinary Action: Check out Kansas’ Published Attorney Discipline Cases. where attorneys face censure, suspension or disbarment—often due to trust account mismanagement. 

• Client Litigation & Loss of Trust: Breach of fiduciary duty claims, client backlash and damaged reputation.

• Audit Failures: If surprise bar audits reveal noncompliance; even if unintentional, the cost to a firm can be overwhelming.

Common Mistakes in Solo and Small Law Firms 

• Using one trust ledger for all clients. 

• Failing to reconcile trust accounts monthly. 

• Recording trust activity only in QuickBooks without proper sub-accounting. 

• Assuming Clio alone handles trust accounting automatically without disciplined oversight. 

  
  

How UCentric Solutions Help Keep Kansas Law Firms Compliant 

UCentric Solutions helps solo and small law firms stay fully compliant with all trust accounting rules from day one. Here’s how: 

• Set-Up: We ensure your trust accounting structure is correctly configured in both Clio, QuickBooks Online and with your banking institutions. 

• Ongoing Maintenance: We manage three-way reconciliations weekly and monthly and alert you to potential issues before they become problems. 

• Audit Readiness: We maintain the documentation you need for smooth audits and spot checks. 

  
  

Trust accounting isn't just about good bookkeeping - it's about protecting your license, your clients, and your reputation. Don’t leave it to chance. Whether you're just starting out or need a second opinion on your current setup, UCentric Solutions is here to help. 

When you are ready to get your Trust Accounting in order - Contact Us to schedule a consultation!