Understanding IOLTA and Trust Accounting—Why Expertise Is Critical
- Dany Ortega
- Aug 5
- 2 min read
The One Area You Can’t Afford to Get Wrong
When it comes to financial compliance, few areas are as sensitive—or as risky—as IOLTA and trust accounting. For law firms, a single misstep in this area can lead to disciplinary action, loss of license, or worse: damage to your reputation.
Yet many firms unknowingly put themselves at risk by trusting their books to generalists who lack the legal expertise needed to manage trust accounts properly.
What Is IOLTA?
IOLTA stands for Interest on Lawyers Trust Accounts. These are bank accounts where client funds are held in trust until they’re earned or disbursed. This might include:
Client retainers
Settlement funds
Filing fees or court costs
Escrow money
While these funds are held in your firm’s name, they do not belong to you—and must be handled with utmost care.
Common Trust Accounting Mistakes
Here are some common (but dangerous) trust accounting errors we see from firms using non-specialized bookkeepers:
Commingling funds: Mixing client trust money with the firm’s operating funds
Overdrawing trust accounts: Failing to track client-level balances, leading to unintentional misuse
Inadequate recordkeeping: Not reconciling trust accounts monthly or lacking audit trails
Withdrawing unearned fees: Taking funds before work is completed or bills are sent
Each of these can result in severe consequences, including ethics violations, malpractice lawsuits, and disbarment.
Why a Specialized Bookkeeper Makes the Difference
A legal-specialized bookkeeper is trained to:
✅ Track individual client ledgers within the trust account✅ Reconcile trust accounts monthly, line by line✅ Maintain audit-ready records for every transaction✅ Ensure compliance with state bar requirements✅ Help you monitor earned vs. unearned income to prevent premature disbursements
They don’t just manage your trust account—they protect your license.
A System You Can Trust
Managing IOLTA accounts the right way is not just a financial obligation—it's a professional responsibility. Partnering with a specialized bookkeeper ensures your law firm remains compliant, ethical, and audit-ready at all times. Book a free consultation below, and we will be that financial expert in your corner.
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